Stock Market Basics, Risks 3ir Returns - Share Market Basics for Beginners | #1

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Stock Market Basics, Risks 3ir Returns - Share Market Basics for Beginners | #1

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Namaskar, my name is Mukul

And welcome to this brand new Master Investor Series

Since a long time, many of our subscribers were demanding

To make a series on stock investing.

So I'm presenting this series on your demand

Where we'll be covering all the concepts of stock investing

I'll try to make high quality videos and will simplify the complex subjects

I am not going to discuss any advanced concept in the first video of this series

We'll simply discuss that why people are afraid of the stock market.

What are the risks involved and what all returns do we get?

This fear may be because of different things

and generally, we're afraid of subjects where we don't have enough knowledge

Now superstition is also a fear but once we gain knowledge about that,

Superstition ends and our fear ends too.

If we believe in science and become educated,

Accordingly, our superstition ends.

A similar concept is there in the stock market.

People don't feel confident when they lack knowledge

That's why it becomes a phobia.

And with that, there are many stories around

That my XYZ relative this much money and lost 80-90%

Maybe that loss happened because of a lack of knowledge

But that person discouraged you also so that you never look at the stock market

But try to understand how important the stock market is

It is also very important for the whole nation.

Governments track them too and let me tell you that pension schemes also invest in stock markets.

So if the stock market is gambling then why governments are investing in it?

Definitely stock market is not gambling and we'll understand this in upcoming videos.

Behind every stock, there's an underlying asset and business

I'll explain all the concepts by breaking them down

So our approach should be of increasing knowledge and eradicate the phobia

And we'll talk about these phobias and risks

But before that, let me tell you a little more about Master Investing Series

So that you can make maximum out of it.

Many of you write comments and send emails

On analyzing those, I found that

Quality content on stock investing in easy language is not available on the internet.

So I already told you about its solution that

We're going to make high quality content in the Hindi language

So that everyone can understand that in India.

Along with that, we'll only analyze the Indian stock market

Because even if you get quality content, they're analyzing the USA data in that video

So we'll try to create quality content on the Indian stock market

and will try to keep it simple

If you know the mathematics of class 10th and basic English

to read the annual reports and analyze some numbers using mathematics,

So you can follow this stock market series

and you'll definitely learn stock market investing.

So this was the solution to the first problem.

2nd problem is, we already made much content

In fact, I was facing this

People used to ask where should we start watching the content.

Now since we've created more than 400 videos and some of them are stock market related

So from where to start and it was not in a systematic form.

So we'll continue this series in a systematic manner.

You can start from number 1 and I'll put all these videos in a playlist

And I'll also do the numbering of the existing videos

So that you can watch it whenever it will be discussed according to number.

And 3rd is, I would request you to prepare a notebook and write notes in it

If you'll take notes, then it will be easier for you to remember things easily for a long time.

And 4th, this is online content, you can watch videos anytime

At home, while traveling and if you want to watch any concept again,

Then you can watch it again, you can pause it, reverse it

And these are anyway the advantages of youtube videos.

So let's get back to our topic and let's discuss why people are so much afraid of the stock market

And how to reduce that phobia.

Before starting the topic, let me tell you one more thing,

Now you can also contact us on Whatsapp.

If you have any stock market-related queries or you need initial hand holding

Or you want to know that how to start in the stock market according to your situation

So you can contact on the Whatsapp number 9292924848.

Along with this, you'll get the email Id as well.

Besides this, if you don't have time to research and invest on your own,

Then also you can contact us on Whatsapp.

So let's understand why are we so much afraid of the stock market

First, let's understand its history and what actually happens with people.

When there is a bull Run and markets continue to perform good,

Many people make money during that time.

And because of its excitement, many new investors come

At that time, 'All ships rise with the rising tide' proverb becomes completely applicable.

Because everyone are making profits, new investors also make profits.

After profits, new investors tell everyone about their profits.

But the stock market is operated in a cycle and many people don't understand that.

When a market is rising sharply, it may fall

Because markets move in excesses,

We become so much excited that we're ready to pay Rs. 7 instead of Rs. 5 for anything.

We'll discuss in detail that how are this pricing and why we become so much excited

But first, let's understand this story

We started investing, made some money and told about our profits to others

After that, as that cycle went on declination, people booked loss and that was so much

Let's say new investors made a profit of 20% or may have doubled the money

But later on, they booked a loss of 80% because markets fell so badly.

So now what?

Now that new investor will say to his family and friends that

I made money and I used my brain too

But at the end of the day, you'll only make losses in the stock market.

He will say this to everyone.

Now, how did all this happen?

Investors who initially made money and later on  booked loss and left the stock market

But along with himself, he influenced 20 more people

not to invest here because you can only book loss from here.

That's why here also we see a compounding effect

And many people start saying negative about the stock market.

And similarly, this cycle repeats itself. The bull run comes again and people again get excited.

So old and experienced investors know about this cycle

But when we talk about the long term, let's say 10, 15, 20 years

Stock markets go up and up and I can show you on the graph as well.

So as you can see I made a historical chart of SENSEX from April 1979 to September 2019.

You can see that it is grown over 40 years.

And first, let's understand that what is SENSEX?

Bombay Stock Exchange, where all the stocks of these companies are traded, is the exchange.

They have an Index. Now, what is SENSEX?

It is a stock market index of the top 30 largest companies of India as per market capitalization.

Means the top 30 companies among all those whose value is on the stock market,

SENSEX is the index of those 30 companies and its base value is 100.

Let's say if the total value of these 30 companies was 100 on 1st April 1979,

Then how much has it become today?

So if I talk about September 2019, It became 36,000

So SENSEX in today's date is around 36,000.

If we consider SENSEX as a stock and if you've invested Rs. 100 in it

Today that would have become Rs. 36,000.

That means if you have invested Rs. 10,000 then that would have become Rs. 36,00,000.

This is the simple meaning and if we talk about its returns,

Then it's around 16% of annualized compounded returns.

So we saw the average returns in a time span of 40 years which is 16%.

Rs. 100 became Rs. 36,000 so annualized returns become 16%.

Now let's see how much returns it gave in different time periods

If we consider 30 years, from September 1989 to September 2019,

Then average annualized returns came 14%.

If we consider 20 years, means from September 1999 to September 2019,

Then the returns are around 11%

And if we consider the last 10 years, means from September 2009 to September 2019,

Then returns are 9%.

Now you'll say that 9% returns are less according to the stock market

So if I would have considered it March 2009 instead of September,

Then the returns would be 15%.

That's why it's very important to understand the cycle of the stock market.

From March 2009, as you can see it's here

And from here the stock market went up suddenly.

In September 2009, the stock market went from 8000 to 15500

That's why there may be much difference in the returns of the stock market

If we talk about the short period of time

And here, it depends on someone who might have invested Rs. 8000

or someone might have invested Rs. 15,500

But it becomes difficult to predict these cycles

Because it comes with experience and time.

And point to understand is

If we're talking about the long time period, then where is the loss?

If we consider SENSEX as a stock and say that we've invested in that

Then there's no loss at the end of 10, 20, 30, or 40 years.

You're not facing loss in long term but if we talk about short term

and if you think that you will earn profits within 2 year

Then it's not like that and you should wait

And yes! If you want to do trading, then it is a totally separate game

You need separate knowledge for that

and fundamentals should be clear.

So I mean to say that in long term, your money is not wasted.

Now let's understand historically in this graph that what were the times when the stock market fell

And why it fell, why it came up suddenly, what was the bullish and bearish run.

But before discussing historical events, let's understand why SENSEX moves up and down.

SENSEX is representing the top 30 companies and their stocks,

Then why do these stocks move up and down?

Because people will think that their businesses are going to face ups and downs

That's why they'll take the stock value up and down.

Stock is basically representing a business.

And the value of any business moves up and down because its profits move up and down.

Now why do profits move up and down?

Because it may depend on the government that how the sector will perform in the future.

Maybe it depends on macro and microeconomic factors.

How is the consumption? It depends on that also.

What kind of demographics are there, how is the customer,

How much is the growth of that sector, how strong are the fundamentals of the company

So these were the fundamentals of the company under which we discussed all this.

It's earning potential, future outlook, macro and microeconomic factors.

2nd is Sentiments.

That means group psychology.

If people speculate that this business will not be profitable in the future or any bad news comes,

Then in that case also stock price comes down.

So let me show you this through events that

How events manipulated SENSEX at different times

And since it is a mixture of fundamentals and sentiments,

So let's understand how SENSEX went from 100 to 36,000 in 40 years.

So as we saw that value of SENSEX was 100 in April 1979.

After that, it gradually went up and in July 1990,

It touched 4 figures for the first time and its value was 1001.

After that, it went up fast till 1992.

So if you'll see the journey between 1989 to 1992

Then it went up drastically.

In 1989, Its value was less than 1000 and then in 1992, it went up more than 4 times.

And what actually happened here is that a bubble was formed here,

You might know that Harshad Mehta did a scam in 1992.

It is called the biggest stock market scam ever.

The stock market was inflated artificially.

Now we'll discuss in the upcoming video that what actually happened in the Harshad Mehta scam.

So during that scam, a bubble suddenly got burst and panic selling came into the market

And the markets crashed suddenly.

And as you can see that markets crashed here but

But markets remained in a range for the upcoming 7 years till 1999.

It was around 4000 range which was in 1992

Gradually it increased and decreased so it was nearly flat.

And why it was flat?

Because there was an unstable government for a long time

From 1996 to 1999, 4 Prime ministers were changed between these 3 years.

And before this, during the period of 1992-1996,

Because the bubble created was so big during 1992,

However, there were some economic reforms started.

India started picking up its growth.

Before 91, we had a closed economy

That's why growth was very less before 1991 but the base was also very low

So if you see the returns then it was alright because India was a developing country with a small base.

So the percentage returns were good

But during the period 1989-1992, the market inflated very much.

As I told you that markets move in excesses.

When we get excited, we buy more and we think of making money overnight.

So we're ready to buy anything worth Rs. 5 in Rs. 10.

So that's why it took 3-4 years for the inflated markets to get a correction.

So we can say that markets were in a correction mode from 1992 to 1996.

From 96 to 99 governments were unstable and the Kargil war was also there in 1999.

But there was a caretaking government in 1999

Elections were organized when the Kargil war ended around July.

In October 1999, the Vajpayee government got elected

and people speculated that this is a stable NDA government.

So it touched 5000 in October 1999.

So after this, there was an improvement in the stock market

but it didn't sustain for a long time

In February 2000, the Ketan Parekh scam came out.

He used to work with Harshad Mehta earlier.

Here, Ketan Parekh did a scam, and markets got inflated.

So you can understand that from 1999 to 2001 markets were inflated artificially.

So it touched 6000 but didn't sustain there

And the markets crashed.

Markets got crashed in 2001 and after that, there was a terrorist attack in the USA

Markets crashed further and didn't get up for a long time.

In the upcoming 1.5 years, the USA stopped much trading, many countries faced sanctions

So there was an impact on global trade.

If we talk in today's date, all the economies are globally connected.

India is selling its software in the US, Europe.

China is selling its manufacturing items in the whole world.

So all economies are interconnected.

So if there is less trade anywhere or sentiments becomes negative,

The rest of the economies are also affected.

Let's move forward.

So SENSEX was around 3200 in September 2001 when there were 9/11 terrorist attacks.

After that markets started rising from 2003

and experienced a tremendous bull run till 2008.

This was the biggest bull run in the history of the stock market.

This means within these 5 years, SENSEX gave tremendous returns.

Many people increased their wealth and many big investors multiplied their portfolio during these 5 years.

You might have seen that prices of real estate and inflation also increased

Because people had money and it was definite that

people can spend more on goods and inflation increased.

So you can see that the market which was at 3000 in 2003,

Touched 21,000 in 2008.

Now you can understand that we get excited in the bull run.

There was an over-excitement at that time also.

The market should not have touched 21,000

And if let's say 15,000 was the level where it should have reached

but instead of 15000, it reached 21000.

And every bubble needs an excuse to burst.

So what was the excuse here?

It was not that the fundamentals of Indian companies were bad.

But as I told you before, economies are interconnected nowadays.

Here the excuse was the Subprime crisis in the USA.

Because of this, prices of property inflated very much.

Banks bought those junk securities.

And when some banks were bankrupted,

Lehman brothers started this downward spiral.

So Lehman brothers got bankrupted

and after that many banks, many huge companies got bankrupted at that time.

So its effect was not only in the US, it was there in the whole world.

The activities and works of the bankrupted companies also got ended.

Dealings from India, China also ended

So it's natural that all the economies will get affected.

And when the economies hit and bearish run starts, over-excitement comes in.

So when the markets were in a downtrend,

it went even more than what was estimated according to the fundamentals.

So if we talk about 2008-09, so 21000 level directly dropped to 8000.

So 60% correction.

This was the biggest correction I saw in my life or better call it a recession.

However, the definition of recession is different which we'll discuss someday.

And this was a global recession and every economy faced recession at this time.

The US experienced extreme recession but US banks sold out those securities to banks of Europe.

And the effect reached in Europe till 2013 about which we'll discuss.

But if we talk about the post-2009 period in India,

There was a stable government and SENSEX started coming into its natural position.

But along with that, as always we got overexcited

and after that came Eurozone Debt Crisis.

Maybe people didn't get excited and it may be the natural level

Because we were again at 20,000-21,000.

Now 21,000 level again went down at 18,000 level and again a global crisis came up.

This was Eurozone Debt Crisis.

Now the effect of the junk securities bought by the European banks was visible

Some huge banks started defaulting and even some countries also defaulted.

In fact, Greece and Italy defaulted who took huge loans from Germany

Now when they defaulted, Germany also got its impact

Because NPA's were getting created which was given as a loan to different countries.

So because of the global recession, India also faced impact but

Fundamentals were strong and not much impact was expected in India.

This was momentary but after that, our markets started rising after 2013

And we again had a bull run because a stable government was formed in 2014

BJP government came in the majority and because of 5 years of stable government,

We can see that SENSEX got up really nicely and it touched 40,000 from 20,000 level.

But we saw a momentary fall in 2016 which was the effect of Demonetisation and GST

After that, businesses picked up again and Sensex reached 40,000 again.

But if we talk about today, SENSEX is again at 36,000 and going around that in September 2019.

And the reason for fall from 40,000 to 36,000 is,

The GDP figures came down at 5 figures, the growth rate decreased

There is an effect in India as well. In fact, a global slowdown is going on

So because there's an economic slowdown, the market reacts accordingly

So I think you got an idea from these historical events

That macro and microeconomic factors are very much important

Sentiments have a huge effect on stocks and fundamentals as always has an impact.

My purpose here was to show you the facts, overall we wanted to see that if we talk about long terms,

Returns are good but with that, it's important to understand the cycle.

So as we were talking here if you've invested in 2009,

The returns would have doubled within 1-1.5 years.

But if you've invested in January 2008 and you booked loss during panic selling in 2009,

Then you would have booked a 60% loss.

So it is important that when you're entering the market

But sometimes we don't get an idea

That's why what is our best bet?

Invest and don't try to time the market if we aren't confident enough.

We entered, now we'll wait

and we chose the right stocks. Focus mostly on choosing the right stocks.

Once you selected the right stocks, wait and hold those

They will definitely give good returns after 10 years.

So in long term, the stock market is not at all risky.

Now many of you would ask how we get these returns and when we get the money.

So a simple answer to it is,

First, understand that it is not operated like FD and there are no fixed returns promised.

Here you can face loss too.

In FD, the bank has fixed the percentage of returns 7-8%

and you will get that much interest if you've done FD for 5 years

And let's say the interest is 7.5%, then you'll absolutely get that every year in the form of compounding.

But if you bought stock worth Rs. 100 and that stock was good and you also checked the fundamentals

Maybe 2 years later, its price increases to Rs. 150.

So you earned Rs. 50 profit in 2 years.

If you calculate its annual returns, which come approximately 23-24%.

And the second type of return in stocks is dividends.

Many companies declare dividends if they feel that

they should give some returns in the form of dividends.

So they declare a dividend which you get directly into your account.

And let me tell you a comparison,

If you invested in a real estate property and you bought it for Rs. 50 lakhs

and you sold it for Rs. 80 lakhs after 3 years.

You earned Rs. 30 lakhs profit within 3 years.

This becomes your capital gain.

Similarly in the stock market, if you sold an Rs. 100 share for Rs. 150,

Then that Rs. 50 per share is capital gain.

So these were the capital gain returns.

2nd type of returns which you get are from properties in the form of rent.

If you gave that house on rent for those 3 years and if you get 2-3 % returns

Then that is the rental returns.

Similarly, a company can declare dividends every year.

But it's not that it has to declare dividend.

Many companies say that they will invest this money again in business

because they think they have good avenues and they can grow on a good scale.

So for example, Google doesn't give any dividend

So there are many huge companies that do not provide dividends.

In India, there are many companies that give dividends.

So if you'll calculate the overall returns, then if you're getting 1-1.5% dividend returns

Then you can add that in your capital gain returns.

So let's say you got 20% returns because of capital gain, and 2% because of dividends,

Then your total return becomes 22%.

So we discussed 3 important things in this video

1st Risk, 2nd Returns, and 3rd is Timing

In this, returns are not in your hand

because the company will do its work and give returns according to it

Your work is to do the proper analysis so that you can choose a good company.

With this, 2 things are in your hand.

Managing risk and timing.

That means you can evaluate the risk of any stock

You've to see that when to enter in any stock?

Is the timing is correct?

And when to exit from that stock.

That's why risk management and timing become very important.

But you will say that it's easy to say but

Very much analysis is required for its implementation

Yes! You'll need to analyze.

But now you'll ask what to do?

So let me tell you about some steps.

The first is to educate yourself. We're already talking about that by watching this series

2nd is to open a D-mat and trading account.

Start small. If you feel comfortable starting with Rs. 10,000 then start with that

Maybe that amount is Rs. 1 lakh for someone or Rs. 10 lakhs for someone else.

If you feel comfortable in a small amount, start with that amount

And increase your portfolio as your confidence and knowledge increase.

After that, study the famous investors.

There are many famous investors

Study their investing philosophies.

For example Warren Buffett, Charlie Munger, Peter Lynch.

These are US investors.

In India, we have Rakesh Jhunjhunwala, Radhakishan Damani, Ramesh Damani,

Raamdeo Agrawal, Dolly Khanna, Porinju Veliyath, Vijay Kedia,

and many more investors performed very well in stock markets

And accumulated very much wealth.

So study their investing philosophies

With that, slowly make your own strategy that in which sectors you are comfortable,

Where you think you can do better analysis or you have a better future outlook.

So when you'll start making your strategies,

According to me, you'll be able to accumulate good wealth.

And we're talking about education, so what all things do we have to learn?

Firstly, Basics of the stock market that means all the concepts

Like terminologies of the stock market, some basic concepts of finance

Then how should we screen a stock, how to do the analysis?

Means fundamental analysis, analysis of financial ratios or of financial statements,

How to read an annual report and how to find its inference,

what is the correct value of a company and its stock?

Are you getting it at a discounted price, is the timing correct?

We'll understand all these things so leave it on me

We'll be definitely covering all these things in this series.

It's my duty to make quality videos and explain them to you simply.

With this, develop a reading habit.

Try to understand what's going on in the economy, what's going on in the finance industry,

What government is doing, which sectors will perform better in future,

See around yourself which are the products you, your friends, or family likes

And maybe there's a company manufacturing some of those products and it might be listed.

So why not buy its stock.

So when you will increase your observation and reading power,

Slowly and steadily, you'll start feeling confident and your phobia of the stock market will end.

So this was it in this video.

In the next video, we'll discuss that what is a share?

How a share is allotted in a company?

How it is listed and how the stock market is operated?

We'll discuss all these in our next video.

I hope you liked this video and you will enjoy this 'Master Investor Series'.

Also, take it seriously and make notes.

And if you want to refresh any concept then you can watch the video again.

If you liked this video, then press the like button and

share it with your friends and family members.

Tell them about this Master Investor Series

Maybe they're also interested in the stock market

and they also want to earn good returns

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So we'll meet in another informative video

Till then keep learning, keep earning, and as always stay happy.