Everyone wants to buy low and sell high in Stock Market but, why do most of the people fail? There are many influential factors. I have considered all the factors and compiled them in this article. It is advised not to just see the side-headings and move on but read the entire article.
Stock Market has lost its sheen as 85 % stocks on BSE eroded up to 99 % of investor’s wealth in last 18 months. The situation of the investors got just worsened after the unveiling of the Union Budget on July 5, 2019.
The ups and downs of the stock market offer both challenges and opportunities. Investors who learn lessons from their previous mistakes shall make more money.
The following are the 10 points that I have found through my personal experience in market. Consider spending your time reading the full article to get an insight of Stock Markets.
There are 10 Investing Lessons in the route that hit 85 per cent of stocks:
- Don’t Invest in Penny Stocks – Don’t invest in penny stocks, falling knifes and feel that you have got Multi-bagger Stocks at such a cheap price. Most of us think that we can buy more units of penny stocks for a less price and the prices will shoot up in future. And, specifically as a novice investor one must be away from illiquid stocks or else your funds will be blocked in the stock that you can neither sell nor hold.
- Never Invest in something you do not Understand – If you lose money on something and cannot explain why, there is nothing worse than that. Always do your own research (preferably Annual Report – Available on respective companies website) and stick to what you know. So, invest in a business you understand. Never invest in a stock. Invest in a Business instead.
But studying annual report is easier said than done. So we are here to identify stocks and analyze its fundamentals and post our analysis here.
Disclaimer – We will not provide stock recommendations. We will just share our opinion as we are not SEBI registered Stock Analysts.
- Do not invest in high debt companies – Stay Away! They pose high risk especially when the market is in a correction mode. Shares of highly leveraged companies like Reliance Communications, Jet Airways, Dewan Housing Finance Limited (DHFL), IL&FS Engineering and Reliance Naval tanked 92% since December 2017. High Debt is a negative sign for Investment.
- Diversify your investments – Diversification is the name of the game. Do not put all your funds in equities or in a single stock. Go for diversification. Along with equities there are several other opportunities like gold, bonds, R.D, F.D, P.P.F etc which offer minimum risk with decent return. Diversification minimizes the risk of Volatility in markets. In the last 18 months, gold and bonds have given good returns compared to equities. One can also hedge his position in order to reduce risk.
- Staggered buying in fundamentally strong companies i.e., buying stocks in an unsteady manner, so that one can benefit from the volatile market conditions. Moreover, long-term investment is preferable. But a question arises that how can we identify Fundamentally strong companies? For that one has to analyse the Company Specific and other Macro Economic Factors. You can also refer CRISIL reports of the company.
- Understand the concept of “Mean Reversion” – This means that as the market always fluctuates around the fair value, no stock can go in upward direction beyond its fair value for a long time and it will come down once the rally is over. So, investors should act according to the reversion i.e., sell the stocks when they are at their peak.
- Learn from past mistakes and improve investing skills – Several new investors who entered the bull market earned quick monies despite of their lack of investing skills. But most of them lose their investment in the correction. So, one can know when to enter and when to exit. Like life, stock market also teaches lessons by conducting tests first. One of the important lesson is “Don’t buy junk in a bull market and don’t sell gems in a bear market”. Another important thing is to avoid entering F&O with leveraged money in present volatile market conditions.
- Do Not Let Emotions Cloud Your Judgement – In the stock market due to fear, greed, and investors inability to control emotions many investors have lost money. When investors hear stories of fabulous returns made in the stock market in a short period of time, they take the risk without really understanding the Company. As per My Survey 90 percent of the People once in their investing journey invested in the Company without even knowing the Name of the company (Full Name).
Don’t buy/sell some random stocks. Remember that you are paying brokerage on each transaction and we are not into markets to feed the Brokerage Firm. When investing in stock market, fear and greed are the worst emotions to feel.
- Follow a disciplined investment approach – The investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach. And Invest Only Your Surplus Funds, Don’t Borrow And Invest.
- Have realistic expectations– There’s nothing wrong with hoping for the ‘best’ from your investments, but you could be heading for trouble if your financial goals are based on unrealistic assumptions. Diversify your investment with Large Caps, Mid Caps, Small Caps, Debt Instruments etc. We will discuss Strategy for diversification on the basis of Risk Appetite in our upcoming posts.
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