7 tips which everyone should follow while investing in share market
The urge to earn quick money has often led people to invest in the stock markets. However, making money through investing in shares and equities is not that simple also. It involves huge amount of discipline and patience along with smart investment knowledge. Also, an adequate amount of research and a sound understanding of the market is necessary. There is always a state of confusion regarding whether to invest, hold or sell the shares in the demat account amongst most investors.
Buying shares from the share market is not a difficult thing. The difficult thing is to choose companies that are constantly ruling the share market. This is something, which most people are not able to do, and hence investment in diversity, which is mix of low cost index fund and exchange-traded funds, are a smart and long-term strategy followed by an average investor.
Below listed are the 7 important tips which everyone should follow while investing in share market:
- It is easier to forget about the stock quotes that keep crawling along the CNBC broadcast, but stock picking should never be an abstract concept. One should always remember that once you buy a stock, you are a part owner of that company. Being a business buyer, it would always be best to pick the right stuff from the overwhelming amount of information. One should know how the company operates and its place in the industry along with the competitors and long term prospects so that they can know if something new is about to come to their portfolio.
- Patience is needed when you invest in shares or bonds of any company because certain investments are best when held for a longer duration. You cannot make profit immediately; you must wait for the right time. Impatience is the common mistake which most investors make and thus should be avoided.
- The emotions should be done away with because intelligence and success are never related with each other in investment; what one needs is the temperament to control the urge, which generally leads to trouble in investing. This is one thing, which was said by Warren Buffet who has been a role model for investors that are looking for long term and wealth building returns. Buffet had referred to investors who had allowed their heads rather than their guts to take investing decisions. In addition, trading actively has always triggered emotions that hurt the demat account
- An investor’s superpower is time and not timing. Successful investors always buy businesses to be rewarded, which might include dividends or share price appreciation that might happen over years or decades. Which means, one should take time in buying stocks. Timing the markets is something which has not been achieved even by expert investors. Moreover, timing of the market is something to be done by traders and not investors. This is a common mistake committed by investors which others should necessarily avoid. Being an expert investor, you should decide on investing on a product for its advantages and disadvantages and not by timing. Even good products fall down sometimes, it is just a matter of luck. If you are lucky enough you will get the best returns from your investments you never thought of receiving.
- Investors also get tempted at times to change the status with the stocks. However, the heat of moment decisions usually lead to investing gaffe, which is buying high, and selling low. One should know the attractions of the company and the future opportunities of the shares along with the expectations one has with them. One should know the factors that are being used to judge the company’s progress and the pitfalls so that the game-changers and setbacks can be identified. Many times there are reasons to split up. One should know all the reason that could force them to sell the shares. The stock price movement, which includes the short term. However, the fundamental changes, which can affect the long-term growth of a business, must be known which might be companies losing major customer or the decisions taken by CEO’s or some new competitors.
- Diversification in your investment plan is of utmost importance. Investing all your money in a single company is like inviting loss for yourself. You must always invest in shares and securities from a varied array of companies so that if in case one company suffers loss then you have the option of other companies to balance the scenario and prevent you from incurring heavy losses. Also having shares of different companies in your portfolio will help you in attaining the best possible returns to your investments.
- Many people take investment decisions on the basis of free advice which they received from a friend or a relative. Usually people are forced into believing that the investment is for their own good and without proper knowledge they invest their hard earned money. This free advice might cost you a lot in the future in the long run. Before blindly following anyone’s advice, one must should always research and gather facts for himself whether such kind of an investment will be profitable for them or not.
Also, one should usually check stocks once in quarter when they receive the quarterly reports. Keeping regular eye on scoreboard can lead to over reacting to short term events thus removing the focus from companies values and giving a feel to do something when there is no need of any actions.