Share market basics
Truth to be said at the beginning itself that people who don’t understand how markets move and companies work, will eventually hit losses. But the stories you heard that investors earned crores of money through markets is also true. The investors who achieved huge success in markets are not different from the failures they understand the markets by following principles of markets as well as their own.
One who doesn’t have financial literacy cannot survive in the stock market and you have that literacy as you visit this website. Yes, the risk factor is always there in stock market but by learning certain skills and principles of markets we can attain significant profits with the savings you have.
If you just keep your savings in bank account or at your home the value of that money will eventually decreases due to inflation. The money you are left with after spending should be invested in like real estate or stock market. The real estate demands huge sum of money whereas the shares can be bought with little money also. And that money will be compounded along with the time.
The power of compounding
The compounding effect deals with the percentages and your money invested will also increases by that percentage only.
In simple the capital(the money you invested at the beginning) will increase by certain percentage called CAGR(compound annual growth rate),every year the profit you got from a share will eventually added to your capital and the process will repeat once again.
A organisation has a CAGR of 20%
You invested 10,000(capital 1) in that company on 1-1-2020
Your profit on 1-1-2021 will be 2000. And this 2000 will be added to your capital 1 and your capital becomes 12,000.(capital 2)
Your profit on 1-1-2022 based on capital 2 will be 2400. And this again will be adds to your capital 2 so, total capital will becomes 14400.
This repeats as long as you don’t take your capital of 10,000 from that company.
On 1-1-2030 Just Your total profit without your capital of 10,000 is 51,917
On 1-1-2040 Just Your total profit without your capital of 10,000 is 3,73,375
Profit earned from compounding vs Normal interst
And we can make huge profits from the markets because your money will be increased by compounding effect.
Basic terms to know in the market
Annual reports and quarterly reports
Every company will release their report quarterly(every three months) which contains their profits and revenue their targets in the upcoming years and months, in a long term the stock price will be decided based on this reports.
Portion of the company’s earning which is paid to the shareholders. The dividend is issued in equal amount for every shares. The more shares you hold in a company the more you get as a dividend. The issue of dividend doesn’t effect the share price.
An index represent the performance of set of companies, in India there are mainly two indexes nifty50 and Sensex. Nifty contains top 50 stocks in NSC(national stock exchange) and Sensex contains top 30 stocks in BSC(Bombay Stock Exchange). They are considered to represent the overall market performance