How many Millionaires do you know who have become Wealthy by investing in savings account? – Robert G Allen
Many of us choose to stay away from the stock market because of the risk involved.
Equity is an asset class that rewards you the most if you stay invested for a long period of time and is probably the only asset class that has the potential to beat inflation.
While equity investments can yield spectacular returns, they can also lose money very fast.
As a thumb rule, if you can cut off your losses in stocks, you will end up making money.
Follow Below Points To Make Money In Stocks
#1. Conduct your own research:
How much we can earn from our investments will depend on the time and effort we put into research. Find out if it is making profits or has the fresh orders it claims. Then evaluate various other aspects of business- operating margins, product mix, quality of management, visibility of cash flow, among others.
Tip: Do your homework before investing
#2. Don’t get emotional
Don’t let greed, fear, excitement and frustration guide your decisions. Maintain a disciplined approach. We get emotionally attached to stocks. Even today, I do. But I am learning how to break this pattern.
We buy shares of a company and it starts rolling down. Every day we think that our stock will not go further down, but it does. We don’t bother to re-check fundamentals of the company and think that stock is already at 52-week low price and it will get stability here. But you know what happens.
Tip: Don’t get married to a stock.
#3. Diversify your investments:
Having a concentrated exposure to a few firms or sectors can be risky.
Spread your investments in quality names across sectors such as banking, technology, automobiles and pharma. However, avoid over-diversifying.
Too many stock holdings will not only make it difficult to manage the portfolio but also give subdued returns.
Tip: Buy a business that you can understand. 5 quality stocks in your portfolio perform better than 30 mediocre stocks.
#4. Learn to cut losses:
Have strict stop losses in place and act firmly when they are breached. Sell a stock if it falls 20% below buying price.
Once I forgot to place a stop loss during investing in ‘Just Dial’, stock price fell and I lost Rs. 8000 in a single day.
#5. Buy penny stocks at your own risk:
Penny stocks are so called because they trade at very low prices, usually below Rs.10 .
Given the low base, these stocks can potentially offer massive returns. However, the risk of losing capital is also higher.
Check the portfolio of Warren Buffet or Rakesh Jhunjunwala – they buy quality, stocks not penny stocks.
Most are small firms about which information is not available.
Tip: If you still want to invest money in penny stocks, only invest 5-10% of overall capital.
#6. Prefer cost averaging:
This is the important strategy to avoid losses. Avoid investing large amounts in the beginning. Buy small quantities at regular intervals and try to get a feel of market.
When our stock starts trading below our buy price, don’t panic.
Start buying more as the stock keeps dipping further if you are confident on your research and you will remain in the market for the long run.
By averaging price , I lost 150 rupees per share of 650 average buy price of 50 shares – total loss of 7,500. Without cost averaging loss could be more than 17,000 rupees. ( Referring my worst investments in Just Dial & Sejal Glass).
#7. No hot tips:
I started investing in stocks in 2016, during my engineering. I was eager to invest in stocks but had no clue about the market. I started following the advice of brokers & analysts and made losses in almost all shares in early days.
Tip: Do your own research
If you have the stomach for the volatility that will come your way and if you stay away from the temptation to speculate about the future, you will see that the equity markets are nothing to fear.
Wish you best, invite you to write few words in comments. Your thoughts will be valuable for all investors (including me).
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