7 Steps to invest in stocks: Step-by-Step Instructions for Beginners

There are thousands of companies and to invest in stocks requires practice. It is a tedious process to go through annual reports of companies, financial statements, and analyzing stocks.

You may kick-start the online stock trading journey by picking stocks regardless of your deep financial knowledge.

7 Steps to invest in stocks

Step 1. Filtering and Screening the right stocks using Financials

There are stocks in thousands listed on NSE and BSE. It is impossible to investigate them through financial information. The initial consideration is the Screening criteria. It will show the Market Cap, the growth rate of share, profit, sales growth, etc.

There are online screener tools on financial platforms providing ready information. Using the screening criteria of the screener tool for free, filter the stocks and know the parameters. Also, check other financial ratios.

Step 2. Pick the companies you know

Filtering the stocks ensures you are away from garbage. Yet learning about stocks is helpful. Visit the company website, track updates, search on Google for the company, and read fellow investors’ feedback.

As a beginner, invest in companies you know in the initial stages. Ensure your money is not lost even if you do not earn it. To do online stock trading, you need not have a background in that industry.  Ensure the company you pick is simple and it excites you.

Step 3. Look for companies with a competitive advantage

Identifying companies having easy-to-understand business models or good financial numbers is not enough. Analyzing the company is important. Understand the competitive advantage the company has within its industry. A larger competitive advantage is a sign of more sustainability.

The competitive advantage can be network effects, brand power, govt. regulations to entry, intellectual property patents and rights, and more. Having recall value is an advantage. As a beginner of online investment accounts, look for companies with a competitive advantage.

Step 4. Look for Low Debt Levels

Large debt levels indicate significant risk. Select stocks of companies reducing, it is a positive sign. Share Market Investment may be tempting, but checking the balance sheet of the company’s, going through their current liabilities is essential. Avoid companies with long-term debt as their capital is going against payments. If sustainability is a risk, it will result in bankruptcy.

Lastly, as a thumb rule of the online investment account holder, watch out for infrastructure companies, real estate companies, and banks. They are popular for having large debts.

Step 5. Use financial ratios to find the right stocks

Checking the financial ratio helps in selecting the stocks. The financial ratios are RoCE (Return of capital employed) and RoE (Return on Equity). RoCE is the measure of a company that uses the capital available to generate more profits. RoE expresses the net income of a company that is returned to shareholders. It calculates the efficiency and profitability as per shareholders’ investment.

A company showing RoE and RoCE high signals indicates great future growth. An online stockbroker recommends companies showing above 20% in these ratios command premium valuations.

Step 6. Transparent, Honest, and Competent Management

People fear Share Market Investment as they are not ready to plunge their savings into the stock market. There have been a lot of shady deals, misled shareholders, accounting frauds, causing monetary loss.

Therefore, it is vital to look for an honest, transparent, and competent management. Read annual reports, search for fraud reports, and the company’s track record.

Step 7. Buy Stock at Right Price

Find a valuable company and as a beginner, start with a minimum price investment. Buying at a steep value and if it fails to meet your expectations is a loss.

Buy at the right price to ensure investment protection. Take the assistance of an online stockbroker and ask him to recommend stocks at bargain prices to grab them. It will slowly generate returns.

Note: A Demat account is a must to invest in stocks.