Everything you should know about how the stock market works class 2

  Hi Readers, Welcome to the stock market teachings, we are going to make web series of teachings in a sequential number of classes, In this class one, I am going to teach you everything that you should know about how the stock market works.

The stock exchange is a marketplace where buyers and sellers meet in exchange together their stocks and money, In very simple words the place where transactions happen, the stockbrokers used to stand on trading floors and deal face to face human trading,

Internet trading started in India in the year 2000 and the National stock exchange NSE opened up the internet-based trading system as the first stock exchange in India. You can stay connected via the internet and can participate in trading and investing from anywhere now.

One should be knowing why do we need to invest? In today's world whatever we earn and spend towards the cost of living like housing rentals, food, grocery, medical and transport, etc will keep on increasing its prices due to inflation, Inflation means a growing cost of living, so just saving will not be enough, we have to invest at the right place, whatever your long term plans or goal might be, it might be either your retirement plan or long term wealth creation. 

Yes, you can create wealth by investing and can get better returns within a defined time period. This might be anything like children's education, marriage, buying of a house, holidays retirement or a better standard of living.

The right place to invest is different for everyone and others as it's subjective based on one’s risk appetite, There are many asset classes such as fixed-income instruments, real estate, equity, and gold. In the investment world, there is one most popular principle or a thumb rule. The low-risk low returns, high-risk high returns. So one has to take some calculated risk to get good returns.  If someone doesn't want to take much risk or minimal risk, they should invest in fixed income instruments such as bank fixed deposits popularly called FDs, bonds issued by the government of India, or government-related such as national highways NAHI, HUDCO, or any other government departments, and the bonds issued by corporates as corporate bonds. 

Even buying gold is considered as low or medium risk and gives good returns as bullion investments. Here i have to tell you one thing, in fact, you would have heard this with bullet speed voice or fast forward voice in many investment based advertisements, says  “ Investments are subjected to market risk please read scheme related documents before investing “,  This is the interesting statement to discuss.  Like it stated all the investments we make have some risk in them and it's subject to stock market risk factors. For example in the current situation, the Russia Ukraine war and the world events have an impact on the stock market and this influences or impacts everything right from gold prices to crude oil prices,  

We have seen an increase in the prices of petrol, diesel, consumer goods, etc, of the world's bad events like a covid pandemic, lockdowns, wars, etc. So All our investments are subjected to market risk. 

I also wanted to give a disclaimer here, In this entire web series of stock market teachings, we are just giving training and should be taken only for educational purposes I had mentioned in the earlier introductory post we do not provide any recommendations in investments or trading tips. You should learn the core concepts of financial markets here and start practicing yourself as a part of learning and can make your own decisions by your knowledge and choice and can be better in your investment journey or trading journey.

Going back to our topic, like I said one can choose their investment based on the risk they take. The majority of the people who doesn't have much exposure in markets or in general people invest in real estate by buying open plots or lands or houses, 

In India only less than 2 % of the population invest in the stock market directly,  we have approximately an estimated 1 and a half to 2 crore Demat accounts overall. 

We see People invest in real estate at fast-growing ventures across the cities or towns everywhere.  My personal view is real estate doesn't have the right price discovery and is mostly run by middlemen and agents it's a purely speculative business, and it has liquidity issues, as we cant liquidate immediately and can walk out of money. We can only sell it as a whole unit, and it's difficult to find the right buyer immediately. Anyway, it's just my view of how I look the real estate and I wanted to keep it to myself.

Investment in precious metals is like you are buying a god's wealth, For example, if you buy and keep a gold brick or a silver brick with you, It can be preserved and can take out and sold anywhere in this world at any time. We see gold and silver coins and jewelry considered wealth from ancient historical times. This yellow metal is the only ancient currency that is still valuable as wealth and it has no borders, maybe that's why it's called as gods currency. If you can see the historical prices the bullion investment can give an average of 8% approximate returns. That's why people buy gold more on various occasions.

Gold is the only commodity majority of the population or almost everyone buys it. Every rich, middle class, or poor buys and holds at least a gram or a milligram of gold. It's a part of our tradition and can see in our rituals. We have many ways of buying gold now, as in gold bonds, I will explain soviet gold bonds as a separate class later.

Equity investments are investing or owning a part of a share or partnership in a company. Equity has high returns with high risks compared with other asset classes.

We will be discussing every asset class concept-wise in future classes. Investing is a great option. Everyone should invest, just keeping our money in a bank account lying unused is no fun, because in India if you see the interest paid by any private or public sector bank is between 3 to 5 % per year, and the inflation rate itself is more than 6% per year. So it's a bad idea to keep the money ideal in the bank accounts as long-term savings as the money melts down like ice.  

In my personal view is we should keep only emergency expenses for 6 months expenses or salary into liquid assets like bank savings for emergencies.

Equity investments are buying of shares of publicly listed companies and the shares traded on the Bombay stock exchange and the national stock exchange. Equity gives you fair returns if you can see the past 15 years' history the CAGR returns generated approx 15%, and CAGR means compounded annual growth rate. 

equity investment, one should have patience and give time to the equity market to compound growth.  It's absolutely ok even if you invest via equity mutual funds, if you invest for a long term and do systemic investment you will get the best returns, the power of compounding works like a magic for everyone. You don't need to be lucky to take advantage of the power of compounding for long-term investments. 

We need to just know how to invest and how to pick the right company to invest in which is fundamentally technically and qualitatively strong companies. We have two exchanges in India NSE and BSE,  which will be open from Monday to Friday from 9:15AM to 3:30PM Indian standard time, we can buy or sell stocks of the companies within these days. we need to have a demat account and a trading account linked with a bank account that has a netbanking facility for online banking of adding the funds to the trading account to make the transactions. In India there are two types of Demat accounts CDSL or NSDL, we will discuss the Demat or depository participants more in the future course timeline.  For now, just understand demat is the only depository that holds your purchased stocks of companies.

If you are confused on any topic, no need to worry, this is just an introduction, we will deep dive in upcoming classes, you can post your comment and suggestions or feedback, and you can also post your questions, If you are new to investing and watching this video, you are at the right place,  one should start investing journey as early as possible in life,  If you are already investing, you can just post a comment below at what age you have started investing which will leave as inspiration to others. Also, post what is your view on investing please do post a comment. Like subscribe and share with the right people. Thank you very much, happy investing, happy trading, and happy learning, be happy. :)