| 1 |
Keep a Long Term Plan
If you are among those who think that long-term investment means
buying shares at low prices and forgetting about them, you are taking a
huge risk. The economic environment and market scenario are very
dynamic. It does make sense to sell if the stock price appreciates too
much above its value or if the fundamentals have drastically changed
since purchase so that the company is unlikely to be profitable any
more.
However don’t invest money which is required by you in less than 3
years. If you do so, you may need to sell your stocks for loss when
market is not performing well. Short term investment may be detrimental
to your wealth. Profits from Short Term Investment may not sustain in
stock market. Your quick profit from one scrip could be offset by
another.
| 2 |
Don’t Invest Borrowed Money
Before you can invest, you need money. When you invest borrowed money
into stock market, you tend to make more mistakes than you do usually.
You might expect quick profit to repay your loan and you might expect
more profit% to pay off the interest on borrowed money.
Don’t start investing until you have six to twelve months of living
expenses in a savings account, as an emergency fund. Stay away from
market till the time you save money for investing and spend your quality
time on learning market.
3 |
Creating a Good Portfolio
Choose stocks of companies with proven records of profitability with
at least some earning in each of the past ten years, pay at least some
dividend in each of the past 15-20 years, at least 30 percent EPS growth
over the past 10 years. A portfolio should contain different stocks
from different sectors to minimize the risk and utilize the growth of
different sectors.
An investor should review his portfolio at regular intervals. If the
outlook of a company improves, or at least remains stable, he should buy
or hold the stock. When the assumptions under which he bought the
shares no longer hold true, it might be time to offload them.
| 4 |
Don’t be Greedy, Don’t Fear and Don’t Panic
These three important emotions drives the market. When greed sets in,
all a trader can focus on is how much money they have made and how much
more they could make by staying in the trade. However, there is a major
fallacy with this type of reasoning. A profit is not realized until a
position is closed. Greediness leads to Destruction.
When traders become afraid, they will sell a position regardless of
the price. Fear leads to panic, and panic leads to poor decision making.
Fear is a survival response. People have been known to jump off of
buildings during market panics. By contrast, no one has ever jumped off
of a building because of greed.
| 5 |
Don’t Buy on Margin
Margin trading is buying stocks without having the entire money to do
it. The exchanges have an institutionalised method of buying stocks
without having the capital through the futures market. Read this to
understand What is Margin Trading?
Leverage is a multi-faceted and
complex tool. Use of leverage can be quite profitable, but the reverse
is also true. Your entire capital can be wiped out in a single trade. Be
careful!!!
| 6 |
Practice with Paper Trading
Though paper trading is age old practice and very different from
actual trading with real money, its recommended for novice trader to
begin from this. It is a great tool if taken seriously. Trade stocks on
paper before actually trading stocks with real money. Record your stock
trades on paper, keeping track of dates of the trades, number of shares,
stock prices, profit or loss, including commissions, taxes on dividend,
and short or long term capital gains taxes you would have to pay for
each trade. Calculate your net profit or loss less commissions and taxes
for at least 1 year and compare it against the performance of index.
Do not start trading with real money until you are comfortable with your
trading abilities.
| 7 |
Don’t Buy on Expert Tips
No one can predict/decide the future of stock market. Learn
strategies and techniques from experts but don’t buy anything based on
their tips.
Thanks to cheap bulk messages, you might have received SMSes tipping
you about a ‘golden opportunity’ to earn huge profits. If you have acted
on any of these tips, you probably have lost some
money. Success/Failure doesn’t matter, take your own decision. If
success, be happy else learn from your mistakes. This is how you learn
stock market. If you can’t take your own decision, don’t enter into
stock market.
Always perform due diligence before placing an order with your broker.
| 8 |
Are you Tracking Global Markets?
There are many factors which impacts Indian Market such as Oil price,
Dollar Rate, Gold Price, Key Interest Rate decisions from Federal
Reserve Bank etc. It’s good to track US, European and Asian market
conditions on daily basis.
| 9 |
Learn Fundamental Analysis
Investors should look at companies that have consistently delivered
earnings growth and good corporate governance. Never invest in a firm
without understanding the dynamics of the business. Try to understand
the basic facts of company through Balance Sheet which reveals a
company’s assets, liabilities and owners’ equity (net worth). Successful
investors always base their investment decisions on a shares’ intrinsic
value and hunt for bargain stocks. They will buy shares of a company
with strong fundamentals when it’s beaten in the market and sell when
prices surge.
| 10 |
Learn Technical Analysis
Technical analysis is a method used to forecast future trends of
stock prices using past market data. It is widely used among stock
traders and investment professionals. Technical analysts do not measure
the stock’s intrinsic value but they use stock market charts to identify
patterns and trends that may suggest future price movements.
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