How to get started with the stock market? [duplicate]

Question

Possible Duplicate:
Best way to start investing, for a young person just starting their career?

Hello,

With 1500+ questions on this forum, I'm sure the question I'm about to ask has been asked multiple times. I tried to search the archives but couldn't exactly locate the questions because of lack of very fundamental knowledge on the subject.

I'm from India. I'm a fresh graduate recently got a job. My friends have started buying and selling stocks. They neither read anything nor have any prior experience. They got some concepts from their friends. They are happy because as of now they aren't in losses.

I'm also interested in that buying & selling shares/stocks/inversting. I don't even know what is the term to use to describe the stuff they are doing. So, I don't want to directly jump into it. Instead I want to learn about this stuff as much as I can then do Paper trading as suggested here

Some one suggested reading http://articles.moneycentral.msn.com/learn-how-to-invest/10-investing-basics-from-Buffett.aspx but I'm unable to understand it.

Some other person suggested this book: The Intelligent Investor: A Book of Practical Counsel ~ Benjamin Graham but I doubt if that is suitable for me.

Please understand that I have absolutely zero knowledge about it. Kindly guide me how to get started. What books to read? What articles etc.

Answer 1

There's several approaches to the stock market. The first thing you need to do is decide which you're going to take.

The first is the case of the standard investor saving money for retirement (or some other long-term goal). He already has a job. He's not really interested in another job. He doesn't want to spend thousands of hours doing research. He should buy mutual funds or similar instruments to build diversified holdings all over the world. He's going to have is money invested for years at a time. He won't earn spectacular amazing awesome returns, but he'll earn solid returns. There will be a few years when he loses money, but he'll recover it just by waiting.

The second is the case of the day trader. He attempts to understand ultra-short-term movements in stock prices due to news, rumors, and other things which stem from quirks of the market and the people who trade in it. He buys a stock, and when it's up a fraction of a percent half an hour later, sells it. This is very risky, requires a lot of attention and a good amount of money to work with, and you can lose a lot of money too. The modern day-trader also needs to compete with the "high-frequency trading" desks of Wall Street firms, with super-optimized computer networks located a block away from the exchange so that they can make orders faster than the guy two blocks away. I don't recommend this approach at all.

The third case is the guy who wants to beat the market. He's got long-term aspirations and vision, but he does a lot more research into individual companies, figures out which are worth buying and which are not, and invests accordingly. (This is how Warren Buffett made it big.) You can make it work, but it's like starting a business: it's a ton of work, requires a good amount of money to get going, and you still risk losing lots of it.

The fourth case is the guy who mostly invests in broad market indexes like #1, but has a little money set aside for the stocks he's researched and likes enough to invest in like #3. He's not going to make money like Warren Buffett, but he may get a little bit of an edge on the rest of the market. If he doesn't, and ends up losing money there instead, the rest of his stocks are still chugging along.

The last and stupidest way is to treat it all like magic, buying things without understanding them or a clear plan of what you're going to do with them. You risk losing all your money. (You also risk having it stagnate.) Good to see you want to avoid it. :)

Answer 2

You can try paper trading to sharpen your investing skills(identifying stocks to invest, how much money to allocate and stuff) but nothing compares to getting beaten black and blue in the real world. When virtual money is involved you mayn't care, because you don't loose anything, but when your hard earned money disappears or grows, no paper trading can incite those feelings in you. So there is no guarantee that doing paper trading will make you a better investor, but can help you a lot in terms of learning.

Secondly educate yourself on the ways of investing. It is hard work and realize that there is no substitute for hard work. India is a growing economy and your friends maybe safe in the short term but take it from any INVESTOR, not in the long run. And moreover as all economies are recovering from the recession there are ample opportunities to invest money in India both good and bad. Calculate your returns and compare it with your friends maybe a year or two down the lane to compare the returns generated from both sides. Maybe they would come trumps but remember selecting a good investment from a bad investment will surely pay out in the long run.

Not sure what you do not understand what Buffet says. It cannot get more simpler than that. If you can drill those rules into your blood, you mayn't become a billionaire but surely you will make a killing, but in the long run. Read and read as much as you can. Buy books, browse the net. This might help. One more guy like you.