Trading and Investing -Pillars of the Stock Market.

We have discussed the overview of the Stock Market in the previous blog.

In this blog, we will understand why to Invest and how different Investments differ for each person.

Topics Discussed:

1) Trading and Investing

2) Duration of Investments

3) Diversification

5) Sectors

Trading and Investing:

When the Market opens, two kinds of orders will be placed to buy the Stocks.

1) Intraday.

2) Delivery.

Intraday orders are sold at the end of the market hours, i.e. if you buy shares at any time of the day, they need to be sold within the day based on the Profit and Loss that particular Stock is making.

If a selling order is not placed then it will be automatically sold at the end of the market hours — the respective profit and loss needs to be accepted by the person.

Selling of these Intraday stocks is also called Square off.

This is called Intraday Trading, Which Stock to buy and at what time to buy is the Skill of the individual to make a profit.

For Example, The government announced that Subsidies would be given to Infrastructure companies under PLI (Production Linked Incentive) to encourage the companies to improve the Infrastructure of the country — This particular news is the bait and individual will place the Intraday order for a company (L&T Limited) assuming that Market(you and me — who participate in the market) will take this as positive news and more people will buy the Infrastructure based companies which will increase the price.

For Example, if L&T Ltd price is around Rs-2500 and this news is telecasted which attracts the market, by placing an order at the above price and as demand increases the price goes to Rs.2650 — so here for a single quantity there is a profit margin if 150 Rs. If the quantity increases the profit also increases.

Demand and Supply decide the price of the Stock by the Market

The Price is decided by the individuals — seller and buyer in the share trading platform.

The above is just an example and these profit attracts Taxes which will be discussed separately.

There are different kinds of trading like Intraday, Scalping, Swing, Position, Momentum etc — each has its timeline and strategy.

For Trading there are Technical Indicators are used like reading Candle Stick Patterns.

Investing:

Investing is all about taking a delivery trade and holding it for a very long time.

Trading and Investing have a common goal of making a profit, however, Investing goes one step ahead of taking ownership of the company.

Investing works in understanding the company's Fundamentals like reading the Balance sheet, Profit and Loss statement, and Cash Flow statement.

There are reasons one prefers to Invest rather than Trading.

Investors who Invest when the Company is in the early stage with a low stock price (x) and hold it till the company matures. that time, the share price may be 50X or 100x.

Investors who want to own the company by buying the majority of shares so they will become the promoters. i,e — Mr.Warren Buffet Strategy.

Investing is Simple but not easy

An investor must know about the business, its Management and its Economics around it to make an informed decision.

Whether Investing or Trading without Proper Knowledge — Money will disappear in thin air.

Investing is more of an Art than doing Maths.

We will discuss separately what are the perks of being an Investor.

Diversification:

Who wants to Put all their eggs in one basket?

Diversification is all about asset allocation, it depends on the Individual who makes the investment decision.

Some prefer to have a concentrated portfolio where only 3–5 stocks are on their list and they stay invested only in those companies so that they have complete knowledge of what happening in those Companies and make decisions on it.

Some Prefer the Diversified portfolio where there will be all kinds of assets like Gold, Stocks, Mutual Funds etc.

A diversified portfolio under stock radars falls under — holding more number of stocks in different sectors, so even if one sector didn’t do well then the other sector will mitigate those earnings.

During COVID-19 Majority of the stocks fell to rock bottom as analysts predicted there wouldn’t be growth for the next few years considering the economic slowdown and nationwide lockdowns.

However pharmaceutical and FMCG companies have gone south to north because these sectors are most required at that time, Consumer Goods(FMCG) companies are required for our day-to-day life, we buy our food staples, eatables like biscuits from these companies.

Pharmaceutical companies were working on developing drugs to cure coronavirus and have more focus all around the world.

Investor at that time thought investing in these companies in uncertainty was a good choice and parked their money in these sectors.

Sectors:

There are various sectors in the economy and an example company of it.

1. Agriculture and Allied sector — Rallis India, Britannia
2. Auto Components — Exide Industries
3. Automobile — Tata Motors
4. Aviation — Indigo
5. BFSI — HDFC Bank
6. Chemical — Tata Chemical
7. Construction — L&T Limited.
8. Healthcare — Appolo Hospitals
9. IT & BPM — TCS
10. Leather — Bata India
11. Oil & Gas — Reliance
12. Paper and Packing — TNPL
13. Pharmaceuticals — Dr.Reddy
14. Railways — IRCTC
15. FMCG -Hindustan Unilever.
16. Telecom — Airtel

We will continue the other different topics in separate blogs.

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This Blog is for Educational Purposes only.

For — The FET Quest — Enabling Financial Literacy| DAPS Investments.

Thanks for Spending your valuable time. Have a Great Day.