SIX FIGURE INCOME — EQUITY INVESTMENT TIPS

The Technique Of Investing In Equity Stocks For Multiplying Your Income

A step by step guide for a layman to invest in equity stock

Background What should I do to invest in equity stocks? Many people ask me. I tell them there are very simple steps to multiply your income by investing in stocks. Follow them carefully and you will be rich and top of the world.

Warren Buffet became a billionaire by being a long term investor and choosing his stocks wisely.

The most important step is the first step. First, tell me whether you are an ‘investor’ or a ‘trader?’. This is important because the steps will change.

An investor will invest his money over a long term period of time and expect gains to come slowly and patiently. He is usually risk-averse and looks for a good stable return.

A trader is a speculator. He looks at short term gains and wants to buy a stock only to sell them to make profits. He believes in risk and his main purpose is to turn his money to keep on making money.

The objective whether you want to invest or speculate should be very clear. The purpose of my article on Equity investing is to see successful investors multiplying their money manifold so that they have a comfortable retired life. I would like to suggest the steps towards making money through their long term equity investments.

Equity investments give you a double profit. It gives you a yearly dividend if your company makes a profit. It also has capital appreciation when the rate increases in the market.

The difference between the market rate and the rate of purchase is called capital appreciation.

Thus Equity Stock Earnings = Annual Dividends + Capital Appreciation

Often people do not know the process of investment. I am going to give some steps to get started.

Steps for successful investment in equity stocks The steps for investment in equity stocks should be closely followed to get started in the world of successful investment in equity stocks.

Step 1 Preparation of an investment plan An investment plan should be feasible and be followed to get good results. The first thing to do is to make a budget for all your monthly needs, emergencies, and extras for fun. Whatever you can easily save.

Now make a plan for an amount that you will have when you will first begin to buy equity stocks. For example, make a plan for starting your journey. Decide, whether your journey is for ten years, 20, years or 30 years.

You must also think of an end figure that you wish to achieve. To achieve that figure at a particular age you should decide on the amount that you will begin with. For example, if you wish to retire at 60 and would like a good investment at retirement, then you should begin to accumulate from the beginning of your working life.

Step2 Analysis of the equity stocks Equity stocks must be analyzed. For a new investor, stocks must be selected according to the safety of the company. Invest in large stable companies that have a long-term standing.

Brokers will tell you that they will be able to book profits for you through purchases of small companies. Do not take their heed. Just take a look at the balance sheet of the company. It is freely available on the internet.

If a company has been giving a stable dividend for the last 5 years, select that company. In the beginning, you need not go into too much detail because you will slowly learn it.

Another, thumb rule is to buy when the stock prices are going down and sell when the prices are high.

This is substantiated by the quotation of Warren Buffet

“I will tell you how to become rich. Close the doors, be fearful when others are greedy. Be greedy when others are fearful.”

Step 3 Diversify your stocks The third important step is to diversify and buy stocks of companies from different industries. For example, select three sectors health, information technology, and travel, and buy your stocks in them.

The rule is to never buy stocks of one company alone. All the eggs should never be in one basket for if one company fails you will lose all your money.

Warren Buffet however warns against over diversifying also. He says only invest in those stocks that speak to you and you feel that you would like to own them. When the feeling comes buy.

Step 4 Never forget to take a feedback The fourth step is most essential because if you do not take the feedback you will never know if you are making money or losing it. Sit down and spend some time and do feedback. If some stocks are consistently doing poorly then you must change them. You should not carry dead weight with you.

Feedback should be done after every six months. Look at the market trend. Do not sell if there is a slight drop. Only sell when you see a continuous drop and the trend continues.

The takeaways are:

#1 You must be a smart operator but not necessarily someone with experience when you begin investing. You will learn while you invest.

#2. Always remember that you are loaded with returns but there are risks associated with it too, so do not keep on buying and selling. Be a long term investor if you wish to accumulate for retirement.

#3. Prepare an investment plan as to how much you require at the end period. Accordingly, begin to accumulate.

#4. Analyze your stocks and buy consistently performing stocks that give stable dividends.

#5. Choose stocks by selecting three or four sectors and stick to them.

#6. Diversify your stocks. Never buy equity stock of only one company. If there is a loss you will lose everything. Warren Buffet the investment guru always advised that stocks should be diversified but not over diversified.

#7. Finally, take feedback and eliminate nonperforming stocks.

Conclusion

Always be smart and keep on learning. You will not know much at the entry stage but will slowly understand the practices of investment. Be patient as you cannot multiply your income in a short term. Give it time and the returns will definitely come to you

Take the advice of the well-known investor Phil Town

“When it comes to investing, we want our money to grow with the highest rates of return, and the lowest risk possible. While there are no shortcuts to getting rich, there are smart ways to go about it.”