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Basics of Stock Investments

Once your stock trading account is opened and activated, then you can use it either for short term trading or for long term investments. Online trading is a platform for share investing in the most efficient manner. But, before making investment in shares you must learn how to invest in shares. Here are some investment basics and share markets for beginners.

Take a Long-TermView of the Market

When you are an investor you do not invest for a day or for a week or even a month. The best money in investments is made when you actually hold on to the stock for the long haul. For example, Rs.10,000 invested in Wipro in 1980 would be worth Rs.450 crore today. That is the kind of wealth that can be created in investing over the long term. Of course, it is not possible for everyone to take a 40-year view but you need to give time for the company performance to translate into stock market performance.

Ideally Adopt a Phased Approach to Investing

Stock markets by default tend to be volatile. That means if you commit all your funds to a stock in one trade, you may subsequently realize that the stock has gone down further. Instead of ruing your missed opportunity, you can adopt a phased approach to investing. Don’t commit all your money to a stock in one go. Instead try to spread it out over time to get the best possible price. This normally works in favour of the investor.

You Need to Really Work on Understanding and ResearchingCompanies

Investors normally argue that researching companies is not their cup of tea, so they depend on their broker for investing ideas. That is perfectly justifiable. But, every investor also needs to do their own homework before investing. Remember, investing is not rocket science and so you can still find ways to understand the company that you are investing in. Here is how to start! Say, you are working in the pharma industry, which means you will have a much better understanding of the pharma sector. Now try looking at it from the point of view of investment. You will be a lot more adept when you are operating within your comfort zone.

Cut your Losses Fast and Hold your Winners Long

The best of the investor do not get all their investment calls right. What differentiates them is that they cut their losses fast and hold their winners long. What most investors do is exactly the opposite. When they buy a stock and the price goes down, the immediate reaction is to average their position in the hope that the price will bounce back. Remember, hope is a good breakfast but a bad supper. On the other hand, when the price of the stock moves up we are in a hurry to book profits. Try to rethink your entire approach to losses and profits!

Keep Diversifying and Keep Monitoring

It is OK for great investors to say that they only bet on a handful of stocks. As an investor who is starting out in the market, you must diversify your risk. That means, you must spread your portfolio across more sectors and themes so that all your money is not dependent on a single theme. Secondly, learn to constantly monitor your positions. When you buy a stock, keep a tab on its quarterly earnings, news flows etc. Also see if there are new competing products that are coming out that can disrupt the stock that you are holding. Also try to find out if the company is trying to do something different to create a unique advantage in the market. Also keep a tab if price movements are leading to certain sectors being overrepresented in your portfolio.

Apart from all these steps, you must also familiarize yourself with how to use futures and options to hedge your risk in volatile times. That is the key to successful investing!

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