There are generally two main ways to earn from the stock market
- Capital Appreciation: If the market value of a share you buy increases over time, and you sell it at a higher price, the extra amount you get is your profit. This is called capital appreciation. By choosing good company shares and holding them for the long term, there is a possibility of earning well through capital appreciation.
- Dividend: Companies distribute a portion of their profits among shareholders. This can be in the form of cash (Cash Dividend) or additional shares (Stock Dividend/Bonus Share). If you own shares of a company, you will be a recipient when the company declares a dividend, which is a source of income for you.
Some important points for investing and earning in the stock market
- Gain Knowledge: It is essential to have a basic understanding of how the stock market works, what different financial ratios (like P/E, ROE, NAV) mean.
- Research and Analysis: Before buying shares of any company, research that company thoroughly. Analyze the company’s financial health, future business plans, industry sector situation, etc., to make investment decisions. This is called Fundamental Analysis. You can also learn Technical Analysis to analyze share price movements, but this is used more for trading.
- Set Investment Goals: Decide beforehand how long you want to invest (short term or long term) and how much risk you are willing to take. Long-term investment is generally less risky.
- Portfolio Diversification: Instead of investing all your money in one share or one specific sector, invest in shares of various good companies across different industry sectors. This helps reduce risk.
- Patience and Mental Stability: Do not get panicked by market fluctuations; hold onto your investments with patience, especially if you are a long-term investor. Emotional buying and selling increase the possibility of losses.
- Buying and Selling at the Right Time: Being able to buy good shares at a low price and sell them when the price increases is an important strategy. However, timing the market correctly is very difficult.
- Risk of Margin Trading: If you do not have a good understanding of the market, you should avoid margin loans (buying shares with borrowed money from a broker), as this significantly increases the risk of losses, even though it might increase the potential for profit.
- Choosing the Right Brokerage House: You can start trading in the stock market by opening a BO (Beneficiary Owner’s) account through a reliable brokerage house.
Earning from the stock market is possible, but it requires time, knowledge, research, and risk management. Focusing on long-term investment rather than trying to make daily profit is usually more fruitful for most general investors. Before starting investing, you can seek advice from a financial advisor if needed.
