By Chitransh Sharma
Never jump blindly into stock markets
if you entered the market just to remain in the mainstream fashion, you have landed for the wrong reason. You should invest in the stock market after getting the basic knowledge about it and your financial goals.
Stock market is not a money-making machine
It is true that a lot of investors have made profits through the stock market. But it was only possible because they’ve good market knowledge, made some really smart choices by adopting carefully thought strategies, and are also much disciplined in their approach.
Educate yourself, handle basics first
Before making your first investment, take the time to learn the basics about the stock market and the individual securities composing the market. Understanding financial metrics and definitions such as PE, EPS, ROE, Market Cap, Stock Selection and Timing, terminology, and so on.
Invest only your surplus funds
The biggest mistake newbie investors make is to invest money that they can’t actually afford to lose. Investing is risky, and that means that you can potentially lose everything. If you want to take risks in the stock market, then only invest your surplus funds which you can afford to lose.
Leverage means the use of borrowed money. It sounds great when the stock market is moving up but considers the other side. In that case, your loss would not only erode your initial investment, but you will also have to pay interest to the broker.
Avoid herd mentality
You should avoid the herd mentality that is influenced by the actions of your acquaintances, neighbors, or relatives without evaluating the current information and underlying stocks. Before investing in a company, you should know about its business.
Diversify, but refrain from over-diversification
Never put all your money in one stock. Create a well-diversified portfolio of stocks that can help you reduce the risk and save you from losing money if a few stocks do not perform well. Also, avoid over-diversification.
Don’t let emotions impact your investment
Do not invest in any speculative unknown stock lured by its past fabulous return without understanding the risk involved that will lead you to suffer loss. In a bear market, control your fear and don’t panic, and sell shares at rock-bottom prices.
Have realistic expectations
Hoping for the ‘best’ but you could be heading into trouble if your financial goals are based on unrealistic assumptions. Like, lots of stocks have generated more than 100% returns during the great bull run. However, it doesn’t mean that you should always expect the same kind of return from the stock markets.
By Chitransh Sharma