You should invest in stocks!"

My father-in-law-to-be said that to me last year after I told him I was diligently saving for my wedding (which was then more than a year away).

I figured he must have faith in my stock picking ability (or intelligence) to have come up with such a suggestion.

Not wanting to disappoint him (yes, I was eager to create a good impression and make some money in the bargain), I decided to venture into rather unfamiliar territory.

• Buying shares for the first time?

Getting started

I learnt my first lesson way at the start.

The easiest part to investing in stocks is actually making the decision to invest and completing the formalities.

This includes opening an online trading account and a demat account. I already had a PAN -- the Permanent Account Number that the tax department insists on.

Then comes the difficult part.

• My experience as a day trader

My debut

The Sensex began the New Year with good tidings.

The price of shares kept rising taking the Sensex along with it. On January 4, it touched 6696.

• Here's why the Sensex rises

That is when I decided to take the plunge. And did so with most of my savings.

Based on tips from friends, I bought shares of Ranbaxy Laboratories [Get Quote], MTNL [Get Quote] and Infosys [Get Quote]. And spent the rest of the day patting myself on the back, telling myself how smart I was. I had 'diversified' (spread) my investments in a pharmaceutical company, in communications and in an infotech company.

That night, I slept well.

The next day, the Sensex decided to teach me a lesson.

• How to sell shares at the right time

Let me recap the Sensex's erratic behaviour.

On January 5, it dropped slightly to 6629 and kept sliding till it touched 6440 on January 7.

It climbed slightly the next trading day, before it began dropping again.

On January 12, Y V Reddy, governor, Reserve Bank of India [Get Quote], suggested a tax on foreign institutional investment to check the volatility in the stock market. Like a jilted lover, the Sensex pouted for a while. And how!

It touched a low of 6070 (high and low refers to the highest and lowest point it touches in one trading day).

The Sensex grudgingly inched to a high of 6242 on January 13, but kept a low of 6138. It increased slightly the next day, but on January 17, touched a low of 6087 and a high of 6232.

The fact that Union Finance Minister P Chidambaram clarified there was no proposal to put a cap on (limit) the inflows or tax the foreign institution investment did not seem to matter to the capricious Sensex.

What's going to happen? I asked a colleague.

On, it's just a correction, came the calm answer.

I had no idea what that meant.

Condescendingly, the colleague explained a correction is a relatively short-term drop in stock market prices.

This tends to happen when prices have been consistently rising for a period of time. It helps the market cool down when things get too heated.

Why anyone would want 'things' to cool down was beyond my understanding; particularly since I had just invested in the stock market.

• Got a hot tip at the market? Run!

My saga

Ranbaxy*

By then, the Ranbaxy stock which I had picked at around Rs 1,250 began its slide downward.

Soon, it cost Rs 1,100, then Rs 1,000 and on January 25, 25 and 27, it actually touched Rs 900.

After that, it kept fluctuating but never made it above Rs 1,100.

In July, the stock price actually dropped to Rs 400 levels;since then, has hovered at around Rs 500.

As on September 1, 2005, the price was around Rs 549 per share.

MTNL

I picked up MTNL shares at around Rs 170 per share.

It wasted no time in slipping to lower levels -- Rs 140, Rs 130; then it hovered in the vicinity for a while before continuing its downward journey to Rs 120 and Rs 110. 

As on September 1, it was selling at around Rs 128 per share.

As you can see, I am having sleepless nights knowing that my precious hard-earned savings have dipped in value substantially.

Infosys

I picked up Infosys' shares at around Rs 2,000 per share.

It touched Rs 2,284 around March and I was thrilled. I began to believe that this company would not let me down.

By mid-April, the price began to fluctuate between Rs 1,900 to Rs 2,000.

From May to July it moved between Rs 2,100 to Rs 2,300.

If you think this was good news, it wasn't. After all, in a bull run you expect better results. And hey, this was Infosys we were talking about! The stock that everyone swears by!

As on September 1, 2005, it touched a high of Rs 2,453.

Ah! There is hope after all...

• I violated every investment mantra and made money

Lessons learnt

A wise old man once told me there is no such thing as a tragedy without the gift of learning, so I tried to figure out what venturing into the stock market had taught me.

Believe me, there were quite a few lessons; here are some of them:

1. Just because the Sensex is rising does not mean that the price of all stocks listed in the stock market will rise. In fact, some stocks are determined to move in the opposite direction.

2. However much your friends love you, they are not stock market pundits or savvy analysts. What they suggest are just tips -- which are no guarantee to riches at all.

3. Never dabble in the stock market to make a fast buck. The stock market is way too defiant and unpredictable; you could lose all your 'bucks'.

4. Stocks are a long-term investment. In the short-term, the market could fluctuate widely. If you have a deadline round the corner, it is foolish to invest in stocks. Only over the long-term does the market even out.

• Read Where must I invest my money to look at short-term investments.

5. From the point of view of the tax angle, it is better to go long-term. If you sell shares within a year of buying, you will have to pay what is called short-term capital gains tax. This is a tax on the profit you make. If you sell after one year, no tax is applicable.

6. Never put all your earnings in the stock market. Keep the rest in safer fixed-return investments like fixed deposits, post office schemes or bonds.  

7. Stocks are not all about winning. You must be prepared to lose too.

• How I made and lost a crore

And, yes, my parents have agreed to foot the bill for my wedding.

Unless of course, the bull run keeps galloping and drags my share prices along with it (upward, that is).

Illustration: Uttam Ghosh

* Though the drop in Ranbaxy's stock price is attributed to the stock split, I still stand to make a loss if I sell at these rates.