Investing in stock markets could be an excellent idea if you’ve a knack for doing research and a keen understanding of the market with oodles of fortitude and discipline. However, the stock market is highly volatile and investing could be highly confusing at times, and you might be in a dilemma whether to invest, sell or hold!
There are no sure-shot formulae for investing in the stock market that would assure a high return margin. However, here we have a few golden rules that could maximize your chances of return, if followed prudently.
1. Challenge the herd mentality
Warren Buffet, the world’s greatest investor said once, “be fearful when others are greedy, and greedy when others are fearful.” Hence, do not fall under the trap of following the investment patterns of the crowd, say, your friends, relatives and acquaintances. Chances are, you may incur a huge loss if the market crash.
2. Do thorough research before making any decision
Generally, people have a common tendency to buy the stocks by looking at the name of the company. However, this is not the right way. You should do a thorough research of the market and the companies, say; you could consult and get research reports from a reputed reporter, before you decide to invest. After all, it is your hard earned money!
3. Have a fair idea about the company before you invest
The concept of ‘circle of competence’ by the famed investor Warren Buffet is a must know for every investor. The circle consists businesses an investor is completely familiar with. Any investor, who has thoroughly spent a long time period over analyzing the financial barometers, should be able to evaluate the performance of a prospective investment in a highly competitive industry segment. Staying away from the circle would lead to a high level of speculation causing lumps sum loss. Therefore, never buy a stock from a company you don’t understand. Also, never invest in a stock, always invest in a business.
4. Never try to time the market
No investor could ever do the future predictions of the stock market movements. Hence, instead of forecasting, one should invest in a diversified portfolio, held for a long period.
5. Follow a disciplined investment approach
Unless you follow a disciplined investment approach, chances would be, you might commit impulsive mistakes due to the panic of volatility in the stock market. In spite of great bull runs, you might encounter with a big moneytary turbulence!
6. Know the difference between trading and investing
Trading is short term, whereas investing is long term. Capital erosion is normal in the short term investments. Hence, do your research rigorously in order to succeed in whichever investment planning you’re deciding to apply for.
7. Do not get emotionally hijacked
Do not let your emotions cloud your judgement, particularly greed and fear. Keep your speculation based on someone else’s success story aside and make decisions based on practical biases and situational valuation of your stocks.
8. Be realistic
There’s nothing wrong with hoping for the ‘best’ from your investments, but always have realistic financial goals. Therefore, when Warren Buffett says that earning more than 12 per cent in stock is pure dumb luck and you laugh at it, you’re surely inviting trouble for yourself.
9. Invest your surplus funds only
If the market is volatile, the safest bet would be to invest your surplus funds so that you could afford the loss without disturbing your actual investment amount.
10. Have an eye on your investments
The world of the stock market is more like a global village where information is highly accessible and any financial event has a quick impact. Hence, keep a constant effort to monitor your portfolio and keep affecting the desired changes in it.