Beginners’ Guide to Share Trading
Most of us save money to spend on parties, dine-outs, and other kinds of enjoyment. And when any big expenditure for our dreams or any medical condition, we get tensed while thinking about sources for such huge amounts. That is where the people with good financial knowledge and planning, stand out. They plan and invest their savings for a greater return in the time of need.
To establish yourself as such a financially well-organized person, share trading is a great option to invest less and income great. So, instead of keeping to dream expensive, start trading with shares and make those expenses a matter of a flick to you.
But before entering any new domain anyone should have some detailed knowledge about it. So, let’s put a quick view on some points which a beginner should care about before starting share trading.
Deciding your main goal
Before starting the share trading journey, you, as a beginner should set your objective properly that if you want to build your retirement fund or some wealth for your next generation or you just want to make some good money for your greater dreams. This will help you to choose your path wisely.
By following the path of Warren Buffett, one of the greatest tycoons in the field of share trading, you will know about the concept of “wide moat” or a sustainable competitive advantage to prevent competitors from invading/stealing a company’s market share. Now, let’s see some sustainable competitive advantages.
- When people start to use the product or service of any company, that company, as well as its network, becomes valuable.
- A company with an efficient distribution network or a well-known brand name can get the company great cost advantages to charging more than its competitors.
- Patents are a good intangible asset to protect a company against its rivals.
- Most of the best shares are often leaders in their fields.
Some good points that beginners should know –
- P/E ratio: It is calculated by dividing any company’s current share price by its last 12 months’ net worth of earnings. It will help you to calculate the projected earnings of its share for the next 12 months.
- PEG ratio: The ratio of any company’s P/E ratio by its projected earnings growth rate, is called the company’s price-to-earnings-growth ratio which brings the playing field for P/E shortfalls into a level.
- Payout ratio: The annual dividend rate, expressed as a percentage of its earnings, is measured by the payout ratio. It greatly helps one to decide a share to invest in.
There are also some shares which any beginner should avoid. They are –
- Any beginner should not consider the rapidly growing companies first and should understand shares and stocks better before investing big.
- You should not consider penny stocks as a good share/stock trading option as they do not trade on major exchanges.
- The new IPOs or Initial Public Offerings can be highly volatile and any beginner, as well as any share trader, should avoid them.
- The first thing to keep in mind to try any new thing is to understand that thing. Similarly, any beginner share trader should always go for those businesses which they clearly understand. Be you a beginner or an expert share trader; never invest in those businesses which you cannot understand.
Keeping all these points in mind, you can start your share trading with ease.