Foremost strength of stock market is its unpredictable multi-fold growth. Likewise, the downfall can be deadly. If you want to multiply your money you should also be able face a 100% loss. No other investment is as profitable as stocks. Asian paints has given 3000 times yield since its issue. Can you image such profits in any other investments?
Here are some rules to follow.
Change your attitude
Taking some profits doesn’t mean you are creating wealth. Wealth creation refers to the multi-fold growth of your one time investment with which you can live the rest of your life in peace. Your aim should not be on taking out certain percentage of profit. You should focus on how many times your investment is growing compared to the market growth.
Intraday trading can result in a loss or a profit of several thousands in a single day. With this profit and loss occurrences no one can create wealth. Intraday dealings can only give an impression to the outsiders that you are active in share market. It is not your route to create wealth.
It is not possible to know everything before investing or trading stocks. In fact, there is no one who knows everything about share market. When you feel happy about bullish market, you should also be able to accept the downfall you face with a bearish market.
Investment is not a hobby
Do not consider investment as a hobby. Hobby is something what you do when you are relaxed and have free time. But you should be a lot careful and cautious when you want your investments to multiply and hence it cannot be done as a hobby.
Never think its ok to Lose
If you have this attitude, you will never pay enough attention on your investments. This might even turn into the reason behind all your losses. Instead of having 10% or 20% profit in mind, think huge about making 10 times or 20 times money. Patience and dedication is important to achieve such goals.
Also Read – Why Traders fails to Make Money in Trading
Not all nuances are applicable all the times. The technique you used once might not be successful the next time. Learn what type of investments are best suited for you and avoid those that are not. This is very important to safeguard the money.
Don’t rely on gold
Gold and FD’s are not good options to create wealth. Equity investments are best to get multi-fold returns in short period. Gold and FDs are best suited for retired people and senior citizens.
Safety before profit
Investing in share market is like fighting your enemy in war field. Soldiers safeguard themselves before attacking. Similarly securing your money is very important in investments.
A generation in share market has now shrunk to 3 years. If you are investing for a longer term like 5 – 7 years, the investment should stand out for generations. To get multi-fold returns in that period, say 10 times, you should atleast expect the stock to show a growth of 35% per year. Such stocks, which are apt for long term investments account for only 15% of entire stocks. These will not be available at lower price like Rs. 10 or Rs. 20. You should be able to pay higher prices to grab such great stocks. Investing in already better performing companies will assure security to some extent.
Learn about the companies
To predict the long term performance of the company, you should thoroughly analyze the financial parameters like market capital, profit, earnings per share etc,. and see how it has improved over the years. If it shows a consistent growth, then the stock is likely to continue the trend
Concentrate on fewer stocks
Your portfolio should contain fewer stocks say 6-8. To manage and keep a constant eye on these itself is an immense task. If you have 40 stocks, it will be like having 40 kids at home. You cannot track which kid you fed and which you dint. Same logic applies to your portfolio.
Go for sector leaders
It is always a wiser approach to invest in sector leaders. It clearly has a positive trend. Most of us often want to predict the future trend. In an attempt to do that, we end up being stuck with poor companies. Hence, go with the trend and buy top performing stocks. If the leading companies shows a bad or a flat performance, it might indicate a trend reversal. You should be careful at this point and decide to book profits if needed.
Also, it is better to avoid steel and coal stocks. These have huge government involvement and you cannot predict how government policy would change at any time. These are not good candidates for wealth creation.
Never take loans
Taking loans to invest in stocks is a huge risk. You might end up incurring huge loss, even more than your capital. So, never take loans for your stock market investments.