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
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
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