Investing in stocks really sounds cool and awesome after you read how one lakh rupees investment turned into one crore rupees but there are two sides of a coin. You should also pay attention to another side of investing in stocks.
Investing is like driving a car, you should not start driving on highway before learning how to drive. I am not creating fear inside you about investing in stocks rather I am just trying to make you cautious. So before you start reading the blog further you should also know why everyone should invest in stocks. Here are 5 points to keep in mind before investing.
1. Stock is an ownership of a business.
Behind every stock, there is a company. Before you invest in stocks of a company make sure that you know about the products or services of the company. Suppose you are going to buy shares of ITC limited then you must know that ITC has a presence in FMCG, Hotels, Packaging, Paper, Agri & IT business.
You must know what you are going to buy and also you need a reason to like a particular stock. Peter Lynch has also said, “You should not buy a stock because it’s cheap but because you know a lot about it”.
Stocks that do well in the long run, belong to companies that do well in the long run. If you invest in companies that you know then only you can tell whether this company will perform better or not.
2. Invest only what you can afford to lose.
No doubt, stocks of good companies will give high returns but you need to be realistic. As you know the stock is a part of a business and if the business fails their stocks will also crash i.e you lose your money that’s why it is advisable to invest only the surplus fund. You must not invest your emergency funds, daily need money or by borrowing money from relatives or friends.
You must be aware that of the 30 stocks that are part of Sensex today, only seven were in the Sensex in 1992. No matter how careful you are, the one risk no investor can eliminate is the risk of being wrong. Nothing kills a company more than its competition.
Debt is also a major factor behind companies going bankrupt and if a company goes bankrupt you as a shareholder of the company will face losses. For example when Nirav Modi flees from India by defaulting a loan of Rs 12000 crore then the share of his company Gitanjali Gems Limited decreases to Rs 1.04 and the shareholders face huge losses.
Be careful of the investment you are making and also you must take a calculated risk. Never invest the money you can’t afford to lose.
3. Do not Invest Blindly.
Many people enter the share market just because their friend or relatives earn some money from shares and you also jump into it to make some money without doing their own research. A few days later they suffer loss and started saying share market investing is gambling.
Share market investing is not gambling, you are the gambler because you didn’t take your time to learn about share market, how it works. You didn’t do your homework on a company before investing in its shares.
Simply throwing your money into shares and praying for the share price to go up is gambling and not investing. Nowadays it has become very easy to learn about share market investing from free resources then why to take unnecessary risk.
If you are entering into the market by simply taking advice from someone then stop and take a few days to learn about share market investing. Prepare yourself by investing in your education first and if you are not willing to learn about it then buy a good mutual fund or index fund in which your money will be managed by a money manager.
4. You need to keep learning from your mistake as well as from other investor’s mistake.
Education decreases the risk involved in any investing. If you are willing to learn and devote at least one hour of your precious time to read investing books, articles etc then share market investing is for you. Reading or watching about the success stories of successful Investors will give you positive insights about investing in stocks.
If you are entering into share market investment then committing mistakes is inevitable. You need to learn from your mistake and not to get scared out of the investment if you want to become a successful investor.
You should not only learn from your own mistake but also you need to learn from other successful investor mistakes. Now you might have a question how you can learn from other investor mistakes? The answer is simple from books. A book is simply the whole life experience of a person. You need to read books just because you can learn somebody’s whole life experience in a few days. This is the awesomeness of the book.
You need to learn from other investors mistake and experiences because you have limited time and you simply cannot afford to make a lot of mistakes and learning from it.
5. You need to hold your stocks and be emotionally intelligent.
It takes years for the businesses to grow and expand but we expect the share price to increase in a few days. In the long-run share price will follow business growth.
Warren Buffett has said that “If you are not willing to own a stock for 10 years don’t even think of owning it for 10 minutes”
If you will pay attention to the daily change in the share price you will be depressed and you will sell your stock without giving it time to give high returns. Make sure you choose the stock of a good company and hold it for long to get maximum return.
You must be emotionally intelligent i.e when there will be panic in the market, you need to stay invested. During correction or bear market you need to buy more shares as it will be available for low prices so that when the market recovers you get the maximum returns.
Thanks for investing your precious time to read my blog. If you have any question comment below.
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