Updated: Sep 14, 2020

Each of us wants to know about the stock market. Congratulations, you are at the right place. This post will benefit anyone from the age of 10 to 70.

Let’s start with the theoretical definition of the stock market

The stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place.”

Now an explanation that we would understand:

The Stock Market is just like any ordinary vegetable market, you go to a vegetable market and ask for potatoes the vendor gives you maybe 1 kg or 2 kg potato as per your need, this is just how the stock market works. Here just replace the potatoes with stocks or shares. And the science for the price of a share of a company is just like that in the vegetable market, if the supply of potato is more and the demand is less the cost of the potato is less and vice versa. In the stock market too if the demand increases i.e. everyone starts buying stocks the price goes up and if there are no buyers the cost goes down.

The markets where you can buy and sell stocks are The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Now I will narrate a story. A story of a boy who loved to learn, a boy who learned the stock market when an average kid is reading Harry Potter or Geronimo Silton he was studying the stock market. He invested in his first stock at the age of 7, when he saw a slight fluctuation in the market he got scared and sold the stock, he bought stock for 3.5 dollars sold it for 3.1 dollars, a loss of 0.4 dollars then that same stock’s price boomed up and it crossed 8 dollars, he could not read the stock market then, This guy turned out to be Warren Buffet the third richest person on earth today.

We also have people like him. Rakesh Jhunjhunwala, Ramdeo Agarwal, Vijay Kedia, Radhakishan Damani are just a few names.

Keeping all this aside now let’s talk numbers.

Why should a person invest in the stock market?

Here are the average returns of the popular investments

  • Low Risk Appetite

  • Less Knowledge

  • No dedicated courses

  • Scandals and Frauds

Now let’s discuss the major issue in our country,

People want a tip, they want to know where to invest, they don’t want knowledge but want a tip,

Golden Statement;

“You give a tip to a waiter not to a investor”

so from now, don’t ask for a tip or an advice study the market, it’s not tough.

Let’s study SENSEX (top 30 companies) for the past 30 years

It‘s clear for a phase of 10 years you can’t lose money. For short term investment you can feel the jerk of market. But if its a long term investment, stock market is the best option.

These are some figures of SENSEX:

So, it’s pretty clear investing money in the stock market is safe and will give the best returns in long term.

Now let’s understand how to predict the market in a very easy manner.

Whenever you want to look at the market check the Price Earning Ratio of Nifty 50 (the top 50 companies)

The graph of the P.E Ratio of Nifty 50 (top 50 companies):

By looking at the graph we can easily see that the all time highest is 29.48 (May 2019) which is about 30 and the all time lowest is 9.56 (October 2003 and September 2008) which is about 10.

So if the p.e. ratio is around 30 i.e. range of 25 to 30 don’t invest because the market is already saturated all the investors have already put in there money, the market will only go down, maybe not on the day, maybe 6 months after but it will go down and it’s not going to go up any how so wait let the p.e ratio come down.

If the P.E ratio is around 10,ie. 10-15 invest, this is the best time there’s less money in the market, the market will only go up, maybe not today but 6 months after, maybe a year after but it’s going to go up.

Let's look at some past examples:

There’s a simple formula

  • Price Earning Ratio Formula

Now you decide, earning a rupee by investing 10 Rupees is better or earning the same one rupee by investing 30 Rupees is better. It's better to invest that 30 rupees in a fixed deposit and gaining a guaranteed return of 6-7%

So, a question may arise that how to check the P.E Ratio, you can check it on the official website of NSE.

To make it simple for you I am leaving the link of the website here

Thank You guys for reading the whole post, I would request you to leave your thoughts in the comment box. We will meet again with a post just like this, Thank You

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