COME ON…. COMMON MAN!
Money Wise; May-2016;
It is normal for a common man to believe that the stock market is a difficult place to survive unless one knows the tricks of the stock market trade. It is commonly believed that you need to be an expert to trade in stock market else, the chances of losing money are huge. Absolutely not! All that a person needs to be a successful trader is being a good investor and little good luck. Who is a good investor? This is next to a million dollar question. There is no perfect answer for this question but still one can find a suggestive answer to know how to be “good” in investing thereby a good investor. Following are a few important thoughts to be noted and followed for being a good investor.
Trading in stock market is not a short cut to become rich.
It is a well know adage that there is no short cut for becoming success. It is 200 per cent true in case of investment in stocks. It is not a fly by night affair to achieve what one desires. Growth comes slowly over a period. But, one single wrong decision is sufficient enough to lose all the monies earned over several years. Hence, for a good investor, one should have endurance and persistence. It is important for investors not to fall pray for attractive calls and advertisements to double the money in shortest time. In short, any good investment plan should be made over for a minimum period of three years to five years to achieve a reasonable growth.
What is reasonable growth?
Our wants and desires decide what reasonable growth for our investments is. It is possible one may think that 100% growth year on year is the reasonable. It is nothing wrong in thinking high on returns. But the fact of the matter is that except the stock market nowhere the money gets a return of beyond 10% per annum. While the inflation takes away about 6 to 7% of it, the actual growth is hardly about 3 to 4% only. This needs to be understood and appreciated. In such a case, if the stock market returns about 15 to 20% over the investments, that could be called a reasonable growth. If the investment achieves this growth, it is high time for the investor to realise the profit and look for other greener patches.
Don’t put all your eggs in one basket.
This is invariably one lesson that every investment advisor would love to give to investors and advise seekers. Not to put all the investments in one stock. At times of growth the investment would grow in arithmetic mode, i.e. the growth will be slower. Whereas, at times of fall, the investments would fall in algebraic mode i.e. the fall will be much faster than expected. To overcome this, it is advisable to invest the money in multiple stocks, industries and funds. This will help to augment reasonable and sustained growth even in a falling market. For a fresh investor the safe investment portfolio would be investing in a good mutual fund which has shown consistent results.
Make a small beginning Aim big.
The cost of learning in stock market is very high. While the profits come in drizzling losses come like tornado. Hence, it is essential to go slow in investing one own hard earned money. Select a few scripts, study them well still invest in small quantity. If it is difficult, the best way for a small and new investor is to take a systematic investment plan offered by the mutual funds.
Know what not your cup of tea is.
It is essential to invest in the known turf. Investors should be clear in their thoughts that “what is not mine is not mine”. It would be a better idea to understand where the investment is going and how it will generate more money. If the answer to this question is in negative, it is not worth investing. The idea is that one should study thoroughly before investing. If a study is not possible, it is worth avoiding such an investment.
Study the Trading Cycle.
Trading cycle indicates the direction in which the market and the stocks are moving. Ups and downs are common in the stock market but are not permanent. This needs to be understood clearly. What goes up shall come down is another theory. Invest when the market is growing and be satisfied to exit when you achieve the expected growth rate.
Few other points worthy noting are:
- Sell when everyone is buying and buy when everyone is selling.
- Investing in a falling market is not a good idea but, investing in a falling stock, after a proper study is worthy of investment.
- Have an exit plan for your every investment.
- If you are not sure of your returns, avoid investments.
- Keep reading more and more about the investment market and the industry you would like to add to your portfolio.
Wish you all a happy and safe investing.