Stock Market Investment – 11 golden rules for beginners

Stock Market Investment – 11 golden rules for beginners

People look forward to a bright future, irrespective of life stage, and financial situations. The future is not in our hands owing to its unpredictability.

But we can remain prepared to meet the unexpected situations which may arise in the future. The importance of investment comes here. If you save some amount today and invest it properly your future will be golden.

I started investing when I was 11. My greatest regret is that i started investing late...
Warren Buffette
Investor

Invest in stock markets? are you mad?

     This question may pop up when somebody thinks about stock markets and investments. Yes, people say that the stock market is merely a game of luck and speculation. Many think it is a blunder to enter the stock markets. Your opinion may be based on the fact that stock investments involve speculation.

Stock Market Investment

 

But, in fact, investing in stock markets involves ‘intelligent speculation‘, where you buy at the right price at the right time and sell at the right price at the right time to make a pretty decent return.

Easily said, than done…  

Why should I invest in the stock market, when there are alternatives available?

          There are many channels to park your hard-earned money which you have saved, like FDI (Fixed Deposits), gold, real estate, bonds, etc.

Even though stocks are volatile and involve risk elements in it, they have proven to be the champion in providing good returns in the long run. The returns provided by stocks have been greater than all other alternatives.

This can be analyzed if you look at the performance of stock indices. Between 2008 to 2019, stocks have outsmarted all other modes of investments, making it an attractive choice in the long run. 

Stock Markets and the Risks involved...

Generally, the populace raises their eyebrows when they hear about the risks involved in investing.

          As we have mentioned above, stock markets involve a bit of risk, but we can tackle this by taking intelligent and sensible financial decisions.

Remember, “No pain, no gain.”  You can’t advance in making money without taking risks. This applies to your life too. You can’t progress without taking risks in life. Here are some simple and general ways to reduce the risk involved.

General ways to reduce your risk....

Let us have a look at ways to reduce risk elements in market investments…

1. Don't pump in a huge amount of money in stocks if you are new to stock markets...

The foremost important point to keep in mind to reduce the risk in your portfolio is by limiting your funds in such a way that, even if you lose the entire amount in your portfolio it won’t affect your financial security and future. But the common trend is that people (especially, novice investors) pump in a huge amount of money hoping a huge return. This is a common mistake made by many ‘stock pundits'(what they call themselves).

If your experience is low, it is always advisable to be cautious. You can allocate more funds into your portfolio once you have gained substantial knowledge about stocks and market performance.

2. Don't fall prey to the tips...

Mostly expert recommendations by brokers or firms involve no scientific base and are purely based on speculations. This can be equated to pure gambling. Remember it’s you who is going to lose. They just sit back and enjoy. I am not saying that you should completely avoid these kinds of tips but doing a bit research on the authenticity of the tip may help you in making better financial decisions.

3. Diversify, Diversify, Diversify...

          Parking your money across different sectors can reduce your risk considerably. Look out for the promising sectors (sectors of the future) that are growing consistently and are not likely to fade out in the immediate future. 

4. Don't park the whole of your fund in a single stock or sector...

     Many investors tend to park their money in their favorite stock just because they feel confident with it. This is a very serious mistake that can affect your road to financial freedom. Your personal interest is not the only factor that decides where to invest your money in. There are other factors you should consider while making a financial decision. We should consider factors like EPS, PE ratio, Dividend yield, and so on. 

5. Invest in conglomerates...

      Investing in conglomerates with a global reputation can reduce your risk considerably because these companies have more than one business and don’t have to worry even if one of its business is in danger. There are some pretty good companies out there in India which are conglomerates like ITC, Reliance, etc.

6. Don't copy the investment style of others...

 The rule of thumb here is to ‘take advice from all but copy none’. 

7. Make use of stock simulators...

 

           Many trading analysis sites and apps provide stock simulator services, where you play with virtual money to trade stocks. These apps and sites provide the user with a realistic view of the stock exchange. So you can explore the world of investing without burning your hands. The most popular stock simulators out there on the internet are 

As it is wisely said, the experience is the best teacher. These websites can help you get a real taste of the stock market and will help you identify the mistakes that you would have made if you had invested with real money. This can help you improve your investment strategy.

8. Stop loss and profit margin...

Always set a profit margin and stop loss to avoid further destruction to your portfolio greater than a certain limit.  

9. It is advisable not to invest in IPO's...

Even though IPO’s (initial public offering) tend to be attractive it is not wise to invest in these IPO’s because they carry a high degree of risk. 

10. Invest in a Long term outlook...

          It is better to have a long term perspective on stocks unless you are an intraday specialist because the stock price is highly volatile and a small change in the stock price during the day can cause a severe distinction of value to your portfolio.

11. Don't park reserved money that is intended for special purposes in stocks. 

Don’t invest the money that is reserved for special purposes like buying a home or your children’s marriage just because you have time in hand. 

         And to summarize, the stock market is a place with a lot of challenges as well as opportunities. A successful investor is the one who is ready to take the risk and spot the hidden gems. This requires a bit of experience and analytical skills. In the stock market, you earn as you learn. Wishing all the very best on your journey to financial freedom. 

Ashin S Anish

Mr. Ashin S Anish is a financial market analyst, certified from the Indian School of Business. A certified Money manager from the University of California, Irvine, Cybersecurity tools, and cyberattacks specialist certified by IBM, Certified in Artificial Intelligence from deep learning.ai, Certified in Portfolio and Risk Management from the University of Geneva and Certified in Microeconomics Principles by the University of Illinois. He is also an avid money manager who believes that you have to be agile as a monkey with money matters...

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