IT's amazing how many people believe that the stock market is an extremely complicated, boring and difficult to understand monster.
Of course, they are the ones who have never invested in the markets.
You, however, don't need to know alien terms to understand the stock market. I believe in keeping things simple.
In fact, I often try to make sense of what some analysts are saying on business television!
Let me tell you what I often tell some of my first-timer clients. It is about my first venture, The Indian Lemonade Company. I initiated it when I was at school in the Middle East.
I was 12 years old then. My school had organised a fair, where students could take a stall on rent and sell whatever they liked.
I liked the idea -- I could make money from it. A few days later, I was sipping nimbu paani, thinking what to do. That is when I got the idea of setting up a nimbu paani stall.
To rent the stall, including purchasing ingredients, I needed around Rs 1,000 (I have converted the currency to Indian Rupees to simplify it).
With Rs 1,000, I could make 1,000 glasses of nimbu paani. Each glass would be sold for Rs 5. So if I sold all the glasses, I would easily make Rs 5,000. But I didn't have the cash to start off. I had Rs 100. So I approached my dad with my plan. He liked the idea, but suggested sharing it with my friends and getting money from them. He said if my plan was so good, anybody would give me money.
I went to my friends, excited, and showed them a roughly written plan on a piece of paper (a prospectus in the real world). I told them the Indian Lemonade Company was raising money (or making a public offer). It was issuing the stock at Rs 100. Every Rs 100 invested by them would be Rs 500 if I sold all the glasses of nimbu paani.
The plan looked something like this:
The Indian Lemonade Company - Drink Nimbu Paani to become rich.
The Indian Lemonade Company, started by Yogesh Chabria, is giving you an exciting chance to multiply your money without even working. It needs Rs 1,000 in all to start a stall for the school fair, where it will sell 1,000 glasses of lemonade. If all the glasses are sold, the Rs 1,000 will be multiplied to Rs 5,000. Each glass of lemonade costs Rs 1 but will be sold for Rs 5.
Many of my friends liked the idea and gave me money. In fact, more people wanted to invest (in the real stock markets it is called over-subscription), but I couldn't accept every investor so I let only my close friends invest.
I gave them a piece of paper with my signature along with the details of their investment (what used to be share certificates earlier are now dematerialised shares). This paper was proof that they had invested in my company. They were the shares of my company.
With the money collected from my friends, I started the Indian Lemonade Company and sold all the glasses. The Rs 1,000 did become Rs 5,000.
All my friends made profits of 500 per cent (every Rs 100 invested had become Rs 500), on their investment. They didn't have to work at all. They just had to invest in my company and I took care of the rest.
This is exactly how the stock market works. A company or entrepreneur who knows how to run the business raises money from people by issuing stock. They can put as little or as much as they want. If the entrepreneur makes money they, too, benefit in the ratio of which they have invested. It helps people without the time and skill to make money.
A stock makes you part owner of the company. Just like the people who invested in the Indian Lemonade Company, you too will benefit if you invest in a company which is growing and making profits.
Over the last 100 years, stock markets have been known to give more returns than any other investment tool. It will continue to do so, according to me.
All you need to do is drink nimbu paani, invest and watch your wealth grow!
Of course, they are the ones who have never invested in the markets.
You, however, don't need to know alien terms to understand the stock market. I believe in keeping things simple.
In fact, I often try to make sense of what some analysts are saying on business television!
Let me tell you what I often tell some of my first-timer clients. It is about my first venture, The Indian Lemonade Company. I initiated it when I was at school in the Middle East.
I was 12 years old then. My school had organised a fair, where students could take a stall on rent and sell whatever they liked.
I liked the idea -- I could make money from it. A few days later, I was sipping nimbu paani, thinking what to do. That is when I got the idea of setting up a nimbu paani stall.
To rent the stall, including purchasing ingredients, I needed around Rs 1,000 (I have converted the currency to Indian Rupees to simplify it).
With Rs 1,000, I could make 1,000 glasses of nimbu paani. Each glass would be sold for Rs 5. So if I sold all the glasses, I would easily make Rs 5,000. But I didn't have the cash to start off. I had Rs 100. So I approached my dad with my plan. He liked the idea, but suggested sharing it with my friends and getting money from them. He said if my plan was so good, anybody would give me money.
I went to my friends, excited, and showed them a roughly written plan on a piece of paper (a prospectus in the real world). I told them the Indian Lemonade Company was raising money (or making a public offer). It was issuing the stock at Rs 100. Every Rs 100 invested by them would be Rs 500 if I sold all the glasses of nimbu paani.
The plan looked something like this:
The Indian Lemonade Company - Drink Nimbu Paani to become rich.
The Indian Lemonade Company, started by Yogesh Chabria, is giving you an exciting chance to multiply your money without even working. It needs Rs 1,000 in all to start a stall for the school fair, where it will sell 1,000 glasses of lemonade. If all the glasses are sold, the Rs 1,000 will be multiplied to Rs 5,000. Each glass of lemonade costs Rs 1 but will be sold for Rs 5.
Many of my friends liked the idea and gave me money. In fact, more people wanted to invest (in the real stock markets it is called over-subscription), but I couldn't accept every investor so I let only my close friends invest.
I gave them a piece of paper with my signature along with the details of their investment (what used to be share certificates earlier are now dematerialised shares). This paper was proof that they had invested in my company. They were the shares of my company.
With the money collected from my friends, I started the Indian Lemonade Company and sold all the glasses. The Rs 1,000 did become Rs 5,000.
All my friends made profits of 500 per cent (every Rs 100 invested had become Rs 500), on their investment. They didn't have to work at all. They just had to invest in my company and I took care of the rest.
This is exactly how the stock market works. A company or entrepreneur who knows how to run the business raises money from people by issuing stock. They can put as little or as much as they want. If the entrepreneur makes money they, too, benefit in the ratio of which they have invested. It helps people without the time and skill to make money.
A stock makes you part owner of the company. Just like the people who invested in the Indian Lemonade Company, you too will benefit if you invest in a company which is growing and making profits.
Over the last 100 years, stock markets have been known to give more returns than any other investment tool. It will continue to do so, according to me.
All you need to do is drink nimbu paani, invest and watch your wealth grow!
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