Follow these Basic Rules while Investing

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Most of us are confused where to put in our money and where not to invest our hard earned money. I fount the rules mentioned below quite helpful. My suggestion is just follow the directions given below and I am sure, some of you may save lot of money going down the drain. Here it is:

Rule 1:  Don’t buy unlisted shares
There are over 20,000 public limited companies in India, of which only around 7,000 are listed on the country’s various stock exchanges. The first rule of profitable share investment is to confine your buying to these 7,000 listed companies only.

Stock exchanges do not permit trading in unlisted shares, nor do they permit their registered members, i.e. brokers to deal in unlisted shares. Therefore, if you want to buy unlisted shares you won’t get the protection of the stock exchange authorities; nor will you be able to use the services of your stockbroker in handling such transactions. Moreover, in the absence of stock exchange quotations you won’t be able to assess what the market price of an unlisted share should be. All these factors create complications and risks, which you are not likely to be in a position to handle. As a basic rule, therefore, you should avoid investing in shares of unlisted companies.

How does one know whether a share is listed or not? It’s simple; all shares whose prices are quoted in daily newspapers or websites are listed shares. Unlisted shares are quoted. Therefore, the fact that a share is quoted means that it must be listed. This is the easiest and surest way of fining out whether a particular share is listed or not.

Rule 2: Don’t buy inactive shares
Active shares are those in which transactions take place every day, or almost every day, on the stock exchange. At the other extreme are shares in which transactions take place rarely, if ever. The latter are called inactive shares. In this book, an inactive share has been defined as one, which is transacted less than two times a month, or not at all.

The main reason why shares are inactive is because there are no buyers for them. They are mostly shares of companies which are not doing well and whose future prospects appear to be dim. Naturally, nobody wants to buy their shares. As a result, existing shareholders of these companies find it difficult to get rid of their shares, even at very low prices. And, if nobody wants to buy these shares, why should you? Why should you allow yourself to get stuck with an investment, which you can’t offload at will, whenever you want to? We would strongly advise you to avoid investing in inactive shares.

How does one find out whether a particular share is inactive or not? The simplest way is to regularly scrutinise the stock market quotations, which appear in the daily newspapers. If you find that a particular share has not been quoted for a long time, you can presume it is inactive. Some newspapers, like The Financial Express not only indicated the last quoted price of each of share, but also the date when it was last transacted. This information can help you to confirm whether a particular share is inactive. Check out BSE or NSE Websites

Inactive shares can generally be bought at very low prices. This is obvious since such shares generally find no buyers. Inexperienced investors looking for bargains are often attracted to such shares by virtue of their low prices. This is how beginners are normally trapped in to making disastrous investments, Beware of such bargains! If you come across a bargain, remember there has to be catch in it somewhere. It is better to hunt for value, and pay a fair for it than to look for such apparent bargains.

Every time you buy a share, you must remember that one day you will want to sell it. If you are likely to face difficulty in selling it – don’t buy it! This is a sound investment principle, which you should never lose sight of, no, matter how cheap or attractive a particular investment may appear to be. Never allow yourself to get caught with illiquid share. They are only pieces of paper without any value. Shares have value only when they are readily encashable.

Of course, it is possible that a share, which is inactive today, could become active tomorrow; just as a share, which is active today, could become active tomorrow. It all depends upon the degree of buying interest in a particular share. If buying interest builds up in a share, it can easily move from the inactive to the active category.

Rule: 3 Don’t buy shares in closely held companies:
Whether a company is widely held or closely held depends upon the number of shareholders it has. In this book, we will draw the line at 5,000 shareholders. Companies with less than 5,000 shareholders will be considered as closely held.

Shares of closely held companies tend to be less active than those of widely held ones since they have a fewer number of shareholders and, thus, a smaller floating stock of shares. Shares of such companies tend to be ignored by the general public. Large institutional investors also tend to avoid closely held companies. As a result their shares do not get sufficient price support, which they would otherwise have got if they had been widely held. Moreover, it is always much easier to manipulate the share prices of a closely held company than those of a widely held one.

Share prices of closely held companies also tend to be more volatile than others. When they rise they rise very fast, and to a very high level. Conversely, when they fall they do so very fast and to a very low level. As a result, it is generally very difficult to buy shares in a closely held company when prices are rising, and very difficult to sell them when prices are falling. Investing in such shares requires a high degree of expertise, knowledge, alertness and quick thinking, which take years of active investing to acquire. We would, therefore, strongly urge you to keep away from such shares.

Source : Various Websites and Books on Share market Basics

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99 Responses to “Follow these Basic Rules while Investing”

  1. nitin gupta says:

    you provide us very useful information…thanks a lot
    nitin

  2. Pushkar says:

    simplicity in complexity is best illustrated by ur suggestion style….. i loved and enjoyed reading it……..

  3. Sudesh says:

    Extremly well explained & guided

    Thanks …..a lot

  4. marshad says:

    these are very usefull informations in a easily understable format.. I like it..

  5. vaishali says:

    thanks for this useful information

  6. Gurpreet says:

    Awesome observations and very good writing skills…
    your tips are very impressive, as of now i have not even opened a Demat account.. but i am feeling very confident and one of my doubt is absolutely clear that profitability in share market is not something that fate can give you.. there is a lot of study and analysis required and it requires equal effort as any other work requires.
    I would love to talk to stay in touch with you through emails.

  7. Gurpreet says:

    I have a question, How it is difficult to sell any share.
    I have an assumption that i can sell the share at the market price anytime i Want..
    mail me reply at gurpreetintown at gmail dot com

  8. hardeep says:

    tell me more abt investing in market

  9. mjp says:

    good advises for beginners . thanks

  10. manoj puniyani says:

    it will help allot the investor before the investing earned money and get a good return.

  11. saifee says:

    loved reading hope it helps me in trading soon thanks.

  12. ashraf says:

    thanks,its very useful infmtion for beginers.

  13. Chaitanya says:

    your site is one of the best site i have ever gone through regarding the basics……extremely easy to understand…….i give a 10\10 rating………

  14. rajan singh says:

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  15. Binu T R says:

    Very useful information for the beginners especially the one related to closely held shares

  16. venkATESH says:

    nice information…very much helpful for freshers,…

  17. Manikandan says:

    nice gift for my invesment

  18. R,SATHYANARAYANAN says:

    FOUND TO BE VERY USEFUL

  19. Yash says:

    Thanks for the information! I am from New Zealand and was looking for some information on shares for beginners. You explain the content really well! Thanks a lot and keep up the good work! I am pretty sure it is appreciated by a lot of folks.

  20. anil says:

    Beginners must follows the instructions when they invest their money in stock exchange.
    anil (junnar )

  21. veeraa says:

    Very useful information for the beginners especially the one related to closely held shares

  22. atinandan says:

    this is a helpful web site specially for the new comers in share market.

  23. Md. Zakir Hossain Bhuiyan says:

    Really nice, all the rules is helpful, plz add some more.
    Thank you

  24. Dinesh Rana says:

    It is a very useful website for new entrants in share market like me. thanks for such a useful site.and all the best.

  25. soundar says:

    oh above info s very useful for beginers … thanks

  26. Sabapathi says:

    Expertise Tips to Beginners……

  27. kumar chavan says:

    i am interested in shares trading but i am totally new in this field. is there any institution where i can get full knowledge about shares business. how much fees and duration of the courses

  28. JEEVAN says:

    Thanks lot for the information given.
    It is very easy to understand and helps about investment in share market.
    Good luck to sharemarketbasics.com team

  29. vicky says:

    this is very very use full contents……………….
    thank u a lot. u gave me a lot of key ideas to start with …

  30. Arshan says:

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    I hope it was worthy for some who wish to invest in stocks though with little aid from me. call at 011-46272484 for trading in shares, or subscribing for tips(free).

  31. P.SURYA says:

    the information u provided is awesome and it is very helpful.but we like beginners are getting problems with margins levels at the settlements and max margins and all those are very confused.please give us a brief details about margins and all thank you
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  32. Mnohar Gebad says:

    Very Good Information in short.And Easy to take.

  33. deepu says:

    thnkz….. its very helpful for me…. hope that one i’ll be able to join in this compititive market……

  34. ckd says:

    Very nicely written, expalined and helpful .It will be more valuable If expalinations should be provided with examples

  35. soumya ranjan says:

    very useful things to know at beginnng……….

  36. shibily says:

    very very useful for all…..thank you very much……..

  37. Jayan says:

    Very much useful for the bigginers-Thanks a lot

  38. atharva says:

    thank u very much . its good lession for new investor, trader in stock maret, definately if this tips shud follow, to become successful trading.
    thanks again.

  39. Ravi says:

    really very good information for bigginers

  40. Rajkumar Verlekar says:

    my mind has been set free from something always difficult to understand after gone trough this usefull knowledge of stock trading and waiting for more of the same for guidance in investments

  41. sabir says:

    TIPS ARE REALLY HELPFUL FOR BEGINERS

  42. vs ganesh sarma. says:

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  43. NANDA NAIDU says:

    Thanks a lot helping us to know a lot about sharemarket……….
    We njoy share market knowledge

  44. N.Vijayagopalan says:

    Your website is a treasure house of stock market related information. Kudos to your wonderful team!

  45. Uvais says:

    very useful for beginners like me Thanks

  46. ravikant says:

    good information

  47. Manas Ranjan Sahu says:

    it very good information for beginers.

  48. Jackie says:

    Thank you…… Hope these tips or say instructions will b helpful for beginner like me.

  49. ASOO says:

    quite helpful

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