Part 5: 10 golden rules of investing in stock markets
The ability to make a lot of money in a very short duration has always been the lure for investors to go for the stock market. Though profitable it has its own risks. We have already covered all the basics of stock market, we know you are excited to try out your hand in the stock market. As the last part of our series here are 10 golden rules you need to remember while trading
1. Do not follow the Group
Once people know that you are investing in stocks you will get a lot of advice or rely on the advice of others. It is the tendency for investors to be influenced by the people they know when buying stocks, but this type of investing might backfire. Taking your own decisions brings about accountability.
2. Follow the Plan
One needs to create an investment plan, research and decide on stocks before investing. The important part after making the plan is to stick to it. Unless and until there is a very big influence that negates your plan, you need to stick to it.
3. Never invest in a single stock
As already mentioned the stock market does carry its own risk. One should always diversify their investments across different types of securities to help mitigate risk. You should never put all your eggs in one basket. If the stock you were betting on tanks you have the risk of losing a lot.
4. Always think long term
Investments as a heuristic, should never be thought off for short term. If you are looking to maximize your profits with a stable income, then you need to always think long term.
Additional Reading: What are the different type of stocks - Part 4
5. Do not invest in something you don’t understand
Never invest in something you do not understand. For example, if you lose money and not in a position to explain why you lost your money then you made a big mistake. Always know the risk involved and know the factors that might affect your ROI.
6. Know the right time to buy a stock
A stock might be doing well now but would have done poorly some time back or could do poorly in the future. You need to do a detailed analysis on the price movement of a stock for a period of time to determine the right price at which you need to buy the stock.
7. Invest in business and not stock
This is very important as many times investors only look at the stock growth. It does not truly showcase the growth of the company. It could be growing due to any number of extraneous reasons which might not be due to the company. If you are very knowledgeable in any particular industry or industries, then invest in them. This way you will know the discrepancies one needs to look for. Don’t go investing in a stock as it’s price is growing, and everyone is buying it from an industry you do not know and lose money later.
8. Do not let emotions get the better of you
During a bull market – when the market is doing very well, you might hear stories of great returns in a short duration. This might tempt you to invest without understanding or researching the consequences of your decisions and buy shares of unknown companies.
Similarly, during a bear market – when the market is low out of fear investors might sell their stocks for lower prices.
In both these scenarios the result could be disastrous. Therefore, one should not make any impulse decisions.
9. Always invest only excess cash
It is best to invest only surplus funds you possess. The share market being volatile, one could lose money. It is best to lose excess money you have than losing money that is vital for your daily living expenditure. Plan your budgets and investment properly.
10. Monitor trends
One needs to monitor their portfolio regularly. Living in a digital age any changes in the global market can affect your portfolio and you will need to make the necessary changes to maintain your ROI. If you cannot do it hire a professional with instructions to manage your portfolio.
With these rules we complete our series on stock markets. Make sure you have a plan, have done your research and invest responsibly.