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.
Conclusion
With these rules we complete our series on
stock markets. Make sure you have a plan, have done your research and invest
responsibly.