Let’s call this a Beginner’s Guide to Investing in Individual stocks (aka shares). In India we call it shares, in the US they call it ‘stocks’. So we will use these words interchangeably.

Once in a while you get an urge to buy direct Equity. Or maybe you are already a direct equity investor. Lets look at the advantages or otherwise of holding shares or investing in mutual funds. Clearly investing in direct equities is a far more difficult task than investing in mutual funds. There are no classes or guides available for direct equity investing. The really talented guy is investing – sadly he is not teaching. Those who are teaching may not have enough hold on the subject – and most of them lack empirical proof that they know investing!

For 99% of the readers of this blog opting for Mutual funds is the sensible options – regulated field run by professionals. What are the things to consider?

Costs: The costs of buying a maybe a little higher than buying a share. You will pay brokerage – maybe a small brokerage with an online broker, but there will be some cost. However, the bigger cost is the time spent in doing research. Of course there are people who think that they do not incur any cost – and not enough serious investors pay for research reports.

In case of mutual funds there may not be much of an acquiring cost, but there could be a management fee for the rest of your holding period. This cost is dropping, but may never hit NIL. Fairly obvious, no?

There is no cost of holding for equity shares – except of course the cost of holding a demat account. Of course if he were to sell, the bank would charge you for doing the transaction.

The challenge in research is that you need to know which is the best share to buy at that point in time which will give you a Real return. So you could go completely wrong from a timing point of view even if the share is good. For example Tata Motors has been performing poorly over very long periods of time. True not only in India but even in countries like Germany and USA.

You have to get the price, management, the proportion (what percentage to allot to each sector), etc. right.

Check whether you have the time, willingness, and ABILITY to research which share to buy and how to create a portfolio. Be truthful. If you think you can attend a couple of lectures and read a book and can build a portfolio check whether it is a correct feeling or just plain stupid over-confidence.

It takes some qualifications and some training to be a research analyst..and a RA after putting in a few years effort becomes a fund manager.