Basics Of Stock Market
In this blog, you will learn about the Basics Of The Stock Market. This information is taken from the book “Beating The Street” “Learn To Earn” “One Up On Wall Street” by Peter Lynch.
Can you imagine that a normal man who has no special education can do a bypass surgery of a patient or can a normal man make technical designs of the building? I don’t think it is possible because in this field we need technical knowledge. But there is one industry in the world where an average person without any technical knowledge can beat a top-class expert and this field is stock market investing.
In the stock market, you don’t need much technical knowledge, all you need is to control your behaviour. There are many examples of people who earned a lot from the stock market without any technical knowledge. Example - Radhakishan Damani whose qualification is 12th pass but he made a huge wealth by investing in the stock market.
On the other hand, there are many examples of people who had a good education but did not perform well in the stock market. Example - Richard Fusone, who was born in a rich family, studied at Harvard, did MBA in Harvard Business School, became president of the world's best-investing firm Meryll Lynch, retired at the age of 40, but Richard was declared bankrupt in 2008 financial crash.
Therefore today we will learn some basic lessons of the stock market which you can use in your practical life. You can easily understand these lessons irrespective of your education. You can use your existing knowledge and make a good amount in the stock market.
Lesson 1: 7th Std Students Vs Mutual Fund Experts
When the children of 7th standard were given the task to make a portfolio of the stock market then their portfolio performed better than mutual funds' professional portfolios.
When the results came and peter lynch studied children's portfolios then he noticed that children had selected the companies whose products they used in their daily life like Nike, Coca-Cola, Disney, Pepsi etc.
Student's portfolios earned 70% return in 2 years whereas mutual funds professionals earned a return of 26% In the same time period.
Instructions that were given to students before selecting stocks.
- Whatever company's stocks they select, they will have to tell in front of the whole class what that company does.
- They will have to read the news of the selected companies and tell the whole class what is happening in that company.
- They have to write a reason on a paper why they have selected a company.
People invest in companies which are new in the market and earn very less return and sometimes losses, but they don't invest in the companies whose products they use daily and this is a big mistake.
This was rule no 1 of peter lynch “Never invest in something which you cannot explain with a crayon.”
Warren Buffet Says “Investing Is Simple But Not Easy”
Lesson 2: Investing Is Art As Well As Science
Therefore after looking at the company's financial performance in investing, you must see the actual performance of the company, Understand its business strategy and use your gut feeling.
Charlie Munger Says “In Wallstreet People Calculate Too Much And Think Too Little”
Lesson 3: Key To Success: Don’t Fear Stocks
The previous year when the market crashed due to covid 19 and Sensex dropped from 40 thousand to 27 thousand, then most news reporters and experts were saying that this is just the beginning and India will suffer a lot due to covid 19 in the coming 5-10 years. But gradually the Sensex recovered and crossed 50 thousand.
Therefore, market crashes and fluctuations are normal things in the stock market, and we as individuals should not get scared of them.
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