If you are looking for an investment option which could beat inflation and give a better return as well, then the one option could be to invest in the stock market. The stock market could make you rich, but poor as well if you are tempted to invest randomly without knowing the fundamentals of the market. Let’s do a deep dive into the stock market.
Hence, there are many things you should know before you start investing in the market. Below are the few which we think are the most essential once. Let’s gets started.
1.Do not jump only because the rest of the world is doing so.
Many a time you hear about the stock market and how people are making money out of it. You never have an investment in the stock market or even might not have thought about it, but when you hear the success stories of the people particularly your closed ones you also decide to jump into it blindly. Nevertheless, if you enter the market just to be there in the club of few, you have got into the market for the wrong reason. We always encourage people to invest in the stock market but also advocate to have some basic knowledge of the market before you enter.
2.First thing first, Educate yourself.
As we said in an earlier point, you need to have the basic knowledge of the market. Once you decide to jump into the world of the stock market, try to understand how the market works and how an individual stock behaves in the market. Focus your study on understanding the particular stock you want to invest in and the impact of the economy and the other factors that drive your stock. Some of the critical areas you should be familiar with before getting into the market:
– Understand the financial matrices and definitions like market cap, PE, ROE, EPS etc.
– Know the methods of analysis, like Fundamental and Technical analysis.
– Basic terminologies and their meaning – market orders, limit order, stop market orders, stop-limit orders, trailing stop-loss orders, F&O etc.
– Gain some knowledge about the factors which could influence or affect your investment like inflation, GDP, fiscal deficit, crude prices, rupees values against dollar etc.
3.Start with the surplus fund.
Do not invest the money that you cannot afford to lose, and this is what exactly many beginners do. Because one thing you need to keep in your mind is that investing in the stock market is risky and you could lose all of your money. the stock market also allows you to bounce back and recover or make a profit out of out of your lose. But for that, you need to have money with you, and you need to have patience as well. Sometimes risks in the market are unavoidable; one such example could be covid19 pandemic. In this kind of situation, lose will be unavoidable, and the market might take a lot of time to recover. Hence, to begin with, invest only surplus fund which you can afford to lose. Investment is always to make money, but not by investing your emergency fund.
4.Have reasonable expectation
Expecting best out of your investment is not wrong, but it could lead you to a turbel if it linked to an unrealistic goal. For instance, many stocks have given a 100% return on recent past during bull run in the market. But, you cannot expect the market to behave the same and give you a similar kind of return. If you do so, you will be disappointed, and you might lose interest as it is not helping you to reach your goal. We would always suggest you look into your portfolio and take corrective actions as and when required.
5.Diversify, but do not over diversify
We never encourage you to put all your money in one stock. Well, a diversified portfolio will help you to reduce the risk and save you from big losses if a few stocks in your portfolio does not perform well. On the other hand, even over-diversification could be harmful as the number of stocks you have invested can’t get the proper growth momentum.
6.Do not just go with the public.
You should avoid the mentality of getting influenced by the people around you without evaluating the information and understanding the stock. Many a time you invest in the stock which is being discussed a lot by people around you. Hence, this might lead to a risk of heavy losses as you have not done any study to understand the stock. Understand the fundamentals of the company before making any investment. While starting out, invest in companies or business which you understand. Because we are not investing in stock, instead you are investing in a business. Thus, if you do not understand the nature of the business, you will never be able to evaluate the potential of the stock.
7.Be realistic, not emotional.
One of the most important principle to succeed in the stock market is not to let your emotion to impact your investment. Many a time, people lose money as they are unable to separate their emotions while taking decisions. Most common emotional mistakes are – this is my favourite stock, this stock has given me a profit in the past, I should wait as the price might go up etc. The most common emotional mistake is unable to sell the stock at the right time by hoping that the stock price might move further up. So, this might lead you to lose the opportunity of profit booking.
8.Exit at the right time.
To succeed in the stock market, you need to champion the art of exit at the right time. As discussed in the previous point, it is essential to exit at the right time by keeping all the emotions aside. So, this will enable your chance of booking profit and eliminates the risk of loss.
9.Find the right stockbroker.
You need to partner with a good stockbroker as they would assist you in every stage of your investment. Being a beginner, you would not be familiar with all the systems and processes. The broker will also have a dedicated research team who will help you with their research report and assist you in clearing your doubt. A dedicated relationship manager will be assigned to you to help you with all the doubts and queries. Do not fall into the trap of low brokerage at this point as you are not going to do massive volumes. You need to be focused more toward product and services what they provide to you.
10.Invest in customized products.
If in case you are not able to invest by yourself or not able to give time to research, then go for customized ready-made products like StoxBox. The benefit of investing in this kind of product is that you do not need to worry about doing research. The research experts will do all the hard work, and your trade will execute with few click of a button.
Finally, it is crucial that how much time you dedicate to understand the market and the stock in which you are going to invest, and it will also determine your success in the stock market. Keep yourself updated about the market and its ecosystem.
All the best…happy profiting…
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