6-Point Framework for Stock Market beginners
What should I keep in mind when investing in stock markets? The ease of trades in Stock markets can be addictive, you rarely are able to assess your performance. We build a 6 point principle that will help you measure your journey at all points.
Having spent close to two decades in the Industry as a technologist in a number of startups and multinational setups, like many others I have had a curiosity on stepping into the world of Stocks and conscious investment. It would be inaccurate to say this curiosity was very new, however this definitely was the point where interest was conscious.
And hence I took a decision to enter the stock market more systematically. I sat down to define what this would mean. And while I did that, I decided it best to keep penning down thoughts to be conscious and build a repository of knowledge that could be of help to whoever would choose to initiate on a similar journey.
In November 2023, the total SIP (Systematic Investment Plans) amount flowing into Indian capital markets crossed INR 17,000 Crores (2 billion USD). As of February 2024, there are estimated 14 crores (140 million) Demat accounts in India. Annual SIP contributions have been growing 25% annually.
All of these strongly indicate an interest and confidence in the capital market, which is encouraging. At the same time, it seems worthwhile to share our learnings and insights into the world of stock markets.
About 2 months back, we formed a small group of five like-minded professionals who shared an amateur interest and wanted to make the most out of their investments. Multiple weeks of brainstorming ensued and we finally arrived at the following few guiding principles for what we would undertake:
- Not to rely on Social Media tips without building an adequate foundation of how to validate those tips.
For even if those tips were good and they worked, end of day we would still be gambling even after years. If such money is made, such money is also lost when the tips do not work out.
- Have an Experiment and Data Driven Approach.
We made a conscious call from day 0 that it is okay if we incur a loss but, it is critical we are acutely aware of what losses are acceptable. In fact some of what we thought may work in the world of stock markets will invariably need refinement of our approach. So would be very important to know which approach / hypothesis yielded what results.
For example: If we did a trade based on a certain technical indicator and it has yielded 2% profits in 60% trades and another that has yielded 8% in 20% trades, each such set of trades should be attributable to the approach.
- It is very important to segregate Trade and Investment results
Prepare some template of monthy PnL statements for yourself and religiously maintain them. Keep checking if you are doing well or are loosing money. If you are loosing money then which are the buckets that are costing you the most.
- Optimise percentages keeping Principal small
While we are still in the learning phase, it is better to optimize the returns in percentage terms. Once we have cracked a decent return, we can always scale up our capital.
- Be conscious of the outcome
The biggest challenge with the stock market is it is addictive. Why? Because if you have capital, the market is always prepared to do business with you. It is very hard to wait - and often it takes the shape of addiction unconsciously. And it is so silent, that you do not realise it.
In fact, in Chess there are a type of moves called ‘Waiting Moves’. These are moves that you play when the situation is such that you just need to wait and allow the opponent to give a you a position that you can play in. Very similarly, a key skill in the stock market is to be able to play these waiting moves. You must preserve capital for when the market can yield the best returns.
- Lastly, do not ignore professionals
Often times, it may be better to offload some capital to professional fund managers (MFs). I think it is a good way of diversifying and keeping yourself safe if you discover you are not particularly great at this art!
Personally for me, MFs have give good returns. Sadly, I do understand today I have hardly been able to make good returns from them because of very miniscule investments.
We would certainly actively put a part of our corpus in MFs and hope for the professionals to do a great job!
Needless to say, the one overarching principle that topples all the above is your awareness of the risks stock markets involve and what your risk appetite is. Be very conscious of this for the financial risks are real. Talk to professional advisors if you need help - but irrespective, remember it is your money. So take super-care in how you approach your jouney!
In subsequent posts, we will look at the various activities we have undertaken, what we learnt to avoid, and to adopt. We will look into Intra day CM trading, FnO trading, long term investments, MFs. IPOs with equal interest and a learning spirit.
We hope that you will join us and share your questions, learnings, comments as we undertake this journey together!
Pls note that none of what we post here is investment advice. Far from that it is a repository of knowledge, practices, experiments that we have done and adopted. You may benefit from some of them. But, you must certainly use them with caution and your own research and judgement.
Happy Investing!
