Where should you start? A Beginner’s Guide to Investing

As a beginner, the best way to approach learning about stock markets is to first understand what sells in the market. You need to know the various types of investment instruments that are available in the market, and how they are constructed to meet specific financial goals. You should have a clear understanding of how each instrument works: how stock add up on the equity side of the balance sheet, how options are used to hedge positions in the stock market, how forwards help manufacturing companies obtain inventories effectively.

Once you know what each instrument is used for, you should head over towards the heart of investing - valuation of assets. This by far is the most rigorous and intensive topic in finance, and finds application in all the spheres. Learn the various techniques by which assets and financial instruments are priced, and then try your hand at pricing the real life instruments that are trading in the market.

It is here that you will learn the two best concepts in real life pricing situations: no-arbitrage pricing and risk free pricing.

Then move on to learn the fundamental theories of market microstructure and price movements like the efficient market hypothesis (EMH), random walk theory of stock returns, Capital Asset Pricing Model (CAPM), Fama French Model (also known as the multi-factor model) and an introduction to behavioural finance.

Once you have equipped yourself with the triumvirate of instrument purpose, instrument pricing and price movement theories, I am sure you’ll be a far capable individual to trade in the market and earn your rewards for intelligent investing. Now using all the knowledge introduce yourself to the different schools of investing ideologies- fundamental analysts, technical analysts, value investing, growth investing, smart beta investing, etc.

While most people suggest fun-to-read investment books, I’ll suggest you a proper academic book that encompasses the majority of investment management for an individual investor.

Get yourself a copy of Investment by Zvi Bodie. This book will teach you all that I have mentioned in the above paragraphs and some more as well!

Once you are ready with your knowledge about the market, try out some stock simulators, to execute trade. Once you are confident there, trying reaching out to a broker and open an account to get your feet in the real business of trading.

To be true, this was the path I had taken for my journey to become an investor.

I hope my article helps you become the investor you desire to become.

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Feel free to reach out to us at insigniainvestments@gmail.com if you have any query.

Happy investing!

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