How to Invest Your First Rs. 1000

 

How to Invest Your First Rs. 1000 in Stocks – Step by Step Guide

Warren buffet once said: “If calculus and Algebra was required for investing, I would have to go back delivering papers”. One common reason why most people fear to invest in stock market is that they feel it’s too complicated or you must be highly qualified for it. But if you educate yourself with some basic Stock Market Knowledge, you’ll realize that the most important element in investing is common sense.

Its said that “The first step is always hardest”, so I’ll try to make your first step to invest in stock market simple. Investing is a must because “If you don’t find a way to make money while you sleep, you will have to work until you die”. And this makes a lot of sense if you wish to remove your money worries and achieve early financial freedom in your life. Work hard, save and invest in your 20s. Make the money work for you and relax in your 30s,40s and beyond, instead of working for money for your whole life. So its your choice whether to depend on your children after retirement, or be financially independent by yourself.

Since you’ve taken the first step to invest in stock market. Lets dive right in.

Step 1. Open your investment Account.

Once you choose to invest in stock market, the first thing you will need to do is open a Demat and trading Account. As there are various sources and platforms available, so people find it difficult to select the best one. They just waste months, to choose a brokerage account, which may not have any impact in the long-run. But on the other hand, they don’t even spend a single day to search good companies, which actually will have a huge impact in their financial lives in the long-run.

So just to make it simple, start with a discount broker, who charge lesser as compared to others. Thus, you can buy any number of stocks, hold them long and whenever the company pays dividends, it will directly get into your bank account without any brokerage charge. The only time you pay brokerage is when you sell the stock. However, I hardly sell any stocks because the big money is made not while buying or selling. The big money is made while holding the stocks. If you understand the magic of dividends then you’ll realize what I’m talking about.

Step 2. Decide : To Trade or To Invest?

Once you open your Demat account, the next important step you need to take is to decide whether you are interested in trading or investing. People get confused in these but there’s a huge difference.

Suppose, you buy a house at 9AM today, do you call and ask your broker at 10:43AM about its selling price? I bet you won’t. Because, if you are investing in real estate then you are thinking about the long term passive income, through the rent. Or sitting on it for decades to make huge profits. This is called real investing. Whereas, in trading people mostly focus on frequent buying and selling of the stock. This is because of the mindset people have created where they buy and hold real estate for long term. But in case of stock market, majority people consider trading because they want to get rich quickly (which never happens). But once you buy and hold a stock of good company, you will earn more wealth through the Compounding Effect. Very few people understand this.

Step 3. Start with One Company

Once you’ve decided that you’ll actually invest for long-term, then I have some simple advice for you that may help you to begin the journey wisely. First of all, just pick the best company and invest your first few thousand rupees. Many times people get the urge to diversify even their smaller amount into 10 different companies. That’s when they start speculating. They consider each stock as a lottery ticket with the hope that one of them might win big profit. But these are wrong practices that every beginner makes and fail in the beginning. So to avoid failure at the beginning, just avoid speculation and diversification when you start.

Another reason why people diversify their portfolio? It’s because they copy portfolio of bigger investors, who tend to diversify their huge wealth one by one through their past experiences and understanding the business. But this copy and paste won’t help us. The reason is very simple. Rakesh Jhunjhunwala invested in Titan in 2003 and that’s it.

He didn’t invest in 15 companies together in 2003. Secondly, he have already made 60,000% returns so far. His networth more than Rs. 25,000 crores. So his risk appetite (the ability to take risks) in new stocks is very different from you and me. He can invest in a poor company that has high chances of failing because he has a lot of money. But you and me cannot lose money in the beginning. If we lose our initial capital, we lose all the wealth that it was going to create for us in the future with the power of compounding.

You can surely select the companies who you think has the ability to perform best in future by understanding their business. There’s a quote of Peter lynch, “A stock is not a lottery ticket behind every stock, there is a business find out what it is doing”. But most of the people have no idea where do we analyze and buy the good companies in real.

Step 4. Understanding Business

So just to make it easy to you, I use stock screeners like screener.in or Tickertape.in. Here, you can filter the good stocks and understand their business. There are thousands of known and unknown companies. One of which is reliance industry that is diversified with different products. But, just investing because you are known to the name, won’t help you in the long run. The most important thing is to understand the business—where your money actually gets invested, how they make money and how they plan to grow in future.

Now since  have different business like Jio, Reliance trends, Reliance oil & refinery, etc. They are group of companies and that makes it difficult to analyze. It would be far better for you to invest in index funds instead of such companies, because Index have 0% chances of bankruptcy and also ensures you good consistent returns. But, still if you prefer to invest in companies like Reliance Industries, then first you need to know their business. And how do they earn profit. You can either open investors presentation or annual reports, which would help you understand this.

If you open the latest annual report of Reliance, you’ll realize that in Reliance Industries’ case, they have 6 earning segments. And they make most of their profits through oil & refinery business which is from petroleum sector. Then next, through retailer and digital marketing. But most of the people invest in reliance just for Jio. But they’re unaware of the fact that it’s just a small part of the whole group. If their refinery and petroleum perform poorly in future, the stock is going to be down. So picking a Tata Group company is far better because they’ve separated all their businesses such as TCS, Tata Motors, Titan, Tata Consumer Products, etc. So if you feel one of them is going to do good in the future, you can bet on that one particular stock.

So you can choose simple companies whose products are known and you can easily understand their business and growth. For ex. Pidilite industry which is not so popular, but their products like Fevicol, Fevikwik are widely used. They may not be as popular as tech companies but still have lot potential to grow and growth continuously. There are no competitors for Pidilite and they’ve been maintaining their market leadership since decades. This is visible in their stock price. If you check the long-term history of Pidilite Industries’ stock price, you’ll understand what I’m talking about it. Just Google Pidilite Industries share and click the max button to check its 20 year stock price history.

So invest your ₹1000 wisely by analyzing the company’s fundamental and not just by popular names. Don’t think of it as a small amount of Rs. 1000. Think of it as the beginning of your 1st crore. (Titan went up by 600 times in last 18 years. So Rs. 1000 invested grows to Rs. 6,00,000.)

Step 5. Take a Simple Idea and Take it Seriously

Hence. it’s important that you choose a company whose business could be easy to understand, as this could help you stay invested for long-term and the management can also stay focused on their core business. It might be growth oriented and long term business that tries different methods to develop their company. Warren buffet says, “I want a simple business easy to understand and then I can see in general way where they will be 10 years from now, If I can’t see where they will be 10 years from now, I don’t want to invest”.

For examples, if you see Reliance Industries, there’s renewable energy sector or other tech sectors, where we have no idea where they’ll be in 10 years. But, if you take Good day biscuits, Maggi noodles, Fevicol or any other daily products then they have high chances of predictability. And your odds of losing money is very less here. As they are growing continuously since decades. They’ll continue to get bigger with the compounding effect.

Even warren buffet had said, “Take Wrigley’s chewing gum. I don’t think the internet is going to change, how people are going to chew gum or I don’t think technology will change how people drink coke or how they shave.” That’s the reason from many years, Warren Buffett has continuously been in the list of top 10 richest investor.

Final Words

Wealth is created through concentration and retained through diversification.

There’s no point diversifying first few thousand rupees. It’s important to focus on business fundamentals than just looking at the stock price.  If you fear so much then it’s better to just go with Index funds instead of picking individual stocks. Because if you just buy random stocks by looking at their price (that most people do), then you’ll forever remain in the game of speculation. And you’ll never invest meaningful amount and will never create wealth too. “Games are won by players, who focus on the playing field, not by those people whose eyes are stuck on the scoreboard”. So, you need to focus on understanding the business and learn more about timeless investing principles than just speculating with the stock price. This will help you to earn wealth for long period and give you early financial freedom.