Investing in stock market is the process of keeping your money aside in the present with the expectation of earning capital appreciation (increase in share price of your stock) and dividend return in the future. Investing your money in stock market can fetch you a return of as high as 18 percent. Investing at the right time in the Right shares can fetch you overwhelming return with a little bit of research and patience to avoid market noise.
Knowing what news to avoid or what advice to not to react to, is as crucial as knowing what place to gather stock market knowledge from. Beginner investors tend to get overwhelmed by stock market noises which can befoul them into making huge losses due to inadequate research and make them believe that stock market is a gamble and not a place from where they can compound their money from.
One thing that every investor needs to understand is that stock market is not a short cut to riches. All those who make money in it are people who are well averse about the market situations and play along after thorough fundamental or/and technical analysis.
Let us now dig deep into what are the various points we need to focus on and what mistakes to avoid before investing:
Don't look for tips and tricks, look for learning
Stock market is a very wide market of investors that meet at a common place to buy or sell their securities. Each share represents ownership in the company they have bought the shares of. Participants in stock market can range from Retail investors (like us) to Large investors which may include banks, pension funds, mutual funds or hedge fund houses.
Beginner investors who enter the market in hopes of making quick profits in short periods often fell in traps of market players ready to befoul them to get their own interests. Instead of falling prey to these predators, we should do our own market research before entering the market.
There can be various sources we can gather stock market knowledge from. The very first step is to know the relation between stock return, inflation and taxation.
The reason why people invest in share markets over other investing mediums such as government bonds and bank deposits is the excess return that we get over inflation. Depositing money in bank account instead fetches a return which is even less than the inflation rate which is at 4.91%-5% currently. Another important aspect to be covered is the amount of taxation in security. Income from share market trading is subject to income tax. Investors should do thorough research on all the different types of taxes and its implications on return to save themselves from loss in return value.
The best source to gather knowledge in share market from is by the way of books written by some of the successful Investors of all time. Some of the books to learn stock market basics are:
- The Intelligent Investor by Benjamin Graham
- Rich Dad Poor Dad by Robert Kiyosaki
- Think and Grow Rich by Napoleon Hill
Keep your sentiments out of the market
One of the most common reasons for losing big in the market is Investors investing with their sentiments. Markets are mostly volatile in nature because it is driven as per sentiment which makes it subject to fluctuations every second. Another way to put it, market sentiment involves two basic human emotions: Greed and Fear.
A famous quote by warren buffet puts it right,
"Be greedy when others are fearful and be fearful when others are greedy".
Investors that win over these two emotions are able to make informed decisions while controlling their emotions whether they be greedy or fear-based.
Beware of Bull Market
This point is in continuation to the previous point on greed and fear. Once you overcome these emotions you are able see clearly on when to invest and when not to invest. A bull market can be a cause of highly overvalued market. If the market is overoptimistic, investors must be cautious of sudden overturn.
Another point to be kept n mind at the time of up rally is never to invest when the market is already up. Investor must invest when the market corrects that is when it goes down. Every major correction in stock market throws up opportunities for investor.
Don't put all your eggs in one basket
In context of share market, eggs implies your shares and what it means to not to put all your eggs in one basket is to invest in different securities rather than investing all your money in just one asset class or security.
Since share markets are known to be risky, investor should invest in share market according to their risk appetite and diversify their investment within different asset class such as bonds and shares. The percentage to be invested in each asset class depends upon each investor's risk appetite, thus can vary. You should calculate your own risk appetite and invest accordingly.
Invest in Quality stocks
This one point is very crucial as avoiding this can put the investor in huge losses. In order to make easy profits and quick returns in the share market, fraudulent predators can throw new investors into traps of penny stocks. Penny stocks attract investors due to their low price but can be quite risky since they are very less liquid and can fall or rise by large margins which makes them extremely risky. Investors should look for quality stocks that have value. Investors that make big in share market does by the way of investing after thorough knowledge of the share they are purchasing.
Stock market noises to avoid
It's often difficult to ignore all the short-term market fluctuations. It's tempting to trade on them but it's generally more of a noise than news. Nonstop television coverage on stock market movements, stock recommendations and flash news on various events, unlike its importance to short term traders who trade at such times, long term investors must try to avoid news to earn in share market. The less news you consume, the bigger the advantage you have.
Conclusion
Thus, a rational investor should at first do thorough research about the market and invest in quality stocks. The stock market may seem like a risky place at first, but once you do your part of research and learning and invest wisely; you can easily fetch good results by the way of long-term investing.
DISCLAIMER: The case law produced above is only for the information and knowledge of readers. In case of necessity do consult with a professional for more understanding and clarification on the subject matter.
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