This is where we start sharing what we have learnt over the last few years. We will share our learnings from the Stock Market and what we think is a reasonable approach to investment & trading without taking too much risk. While we are sure that this works well, we understand that many might not agree with our approach (at least not entirely so). Some may want to be more risk taking, some might want less, we can only claim to have suggested a middle path.
We request you to keep an open mind while reading and understand what we are sharing, and then decide which are the actions that you might want to adopt and which are the ones you want to steer clear of. Remember – there is no single style of investing successfully in the Stock Market. The various people who have been successful and their varying backgrounds and styles are testimony to the fact.
Before you get into the Stock Market, we suggest that as a preparation you need to spend some time getting used to what it feels like. Maybe a week or two before you take the plunge. We think the following 2 steps are very useful ways of getting a FEEL!
1. Spend some time getting used to the Stock Market – Try and keep some time aside every day (min 30 minutes) to watch CNBC TV18 or NDTV Profit or CNBC Awaaz (Hindi). Try to figure out what is going on with the help of the Knowledge gained in the previous Chapters. Watch the SENSEX and the NIFTY go up or down and what the experts and analysts think is happening. Learn which companies are moving up and down and by how much. Listen to the possible reasons being assigned to these movements. Watch Technical Analysts being asked for their Analysis on various companies and see how they make their predictions. We feel that this initial step is very important for anyone entering the Stock Market. Not only does it get you acquainted with the terms you have read about so far, it also gets you a feel of what REAL LIFE market looks like. At this stage you might find yourself referring to this book time and again to look up the terms discussed earlier. Don’t hold back, refer to this book as many times as required so that you get totally used to these terms and start remembering what they mean and refer to.
2. Create a Dummy Portfolio on Equity Master or Money Control. There are websites out there that let you create Portfolios. A Portfolio is nothing but a listing of all your Shares – which company, how many shares, when you bought it, at what price you bought it and so on. Decide an amount you would like to invest in total (say ‘X’) and also decide on any 10 companies that you like at the moment – see what their current prices are create a Hypothetical Portfolio with each Share worth approx 10% of ‘X’. Then watch for movement on these Stocks. As the market fluctuates, these websites will let you watch how your Portfolio is doing and whether you are making money or losing money overall, and also how you are doing that particular day. This is an immensely useful exercise and you will immediately find your emotions and thoughts kicking in as you see some of the Stocks doing well (making money for you) and some which are not. This is what will happen when you actually put your money in (though you will probably feel things more strongly then), so a week or two spent watching a Hypothetical Portfolio can be immensely useful. Two websites that let you maintain Hypothetical Portfolios are:
Once you have gone through the above mentioned preparatory exercises, go ahead and create a list of company whose stocks you would like to buy. You would obviously have a budget, don’t worry if your budget is small – the idea is to learn at this stage. Break your budget down into stocks of 3-4 companies. Decide on a broker, online or otherwise, get an account opened, and purchase your shares! Do not worry if things do not go very well in the beginning, allow yourself time to learn.
Now that you have taken the steps to start investing in the Stock Market, here are what we think are 3 Best Practices to Safe and Profitable Investing in Securities:
1. Buy on information, not on gut.
Though hard to follow all the time, the safest investors are the ones who always make sure they have information about a company they are buying into. Even if they have a gut feel about a small company or a Mid Cap Stock that has been doing very well, they make sure that they do some research about future potential of the company. Once they are sure that fundamentally the company has good numbers to show, they might want to buy into it, but at much lesser risk. Make your investments safer by not buying on impulses.
2. Something you cannot know right in the beginning,
but will learn once you invest is your own basic attitude to investment. There are Short Term, Middle Term and Long Term investors. Again, there is no fixed rule on which is the best, there are enough success stories of people in each investment duration. The important thing is to gauge and figure out what your own tendencies are and then stick to that. Some people are content in keeping stocks for a long time and get restless if asked to sell too soon. Others get restless if asked to hold for too long, they have the desire to book profits as soon as certain personal targets for the stock are met. Listening to brokers and analysts about what your tendency should be towards investment durations will not help if it is not in sync with your own attitude, it will just create restlessness. We urge you to decide in the first 6-12 months what your inclinations are and follow that to book short-term gains or to invest in the long term. We find that a big percentage of successful investors are clear about what they feel is a good duration to hold the stock and then stick to their own style.
3. Stop trying to figure out the Peaks and the Nadirs of the market.
Nobody has been able to do that consistently and we doubt anybody ever will. So if you think that the market is going high and your stocks have given you decent returns, but that there is further possibility of the stock doing well, a good strategy is to sell little at a time and keep selling, as the stock keeps moving up. That way you do not have to predict the peak, and we doubt if anyone can. Similarly if markets go down and you think a particular stock might be a good buy, but you are not sure whether markets will go down further, you could buy a little and then proceed to keep buying more if the market goes down further, that way you would not have to predict when the market is going to hit its bottom.
We are sure that if these 3 Best Practices are followed, you will have a successful investment portfolio within a short span of time. There are people who are unsuccessful investors for a variety of reasons. Do not let them dissuade you from giving this a try and end up missing a big opportunity in life. Remember the ultimate truth is that in the Stock Market – profits made by you are not someone else’s losses. They are profits actually created by the good performance of the company you have invested in. It is wealth generated! So keep yourself tuned in to the Financial Market and you will soon find yourself learning and enjoying the excitement. We wish you all the best on your Financial Journey ahead!