Are You New to the Share Market? Follow These 6 Investment Tips
With the Indian indices scaling new highs every few months, many people started share trading for the first time. While investing in equities is good, beginners should know some time-tested tips to make positive returns in the long run.
During the financial year 2020-21, a record 14.2 million new Demat accounts were opened in India. This indicates that Indians are gradually shifting away from traditional investment avenues like bank term deposits, gold or real estate.
While new investors exploring the stock market is an encouraging trend, it also means that such investors can potentially make the wrong investment decisions without the right knowledge or experience.
Therefore, novice investors should remember some basic investment tips followed by almost all good investors.
- Research Well
The thumb rule of investing in the share market is to do an in-depth fundamental analysis of a company before investing. It’s important to have a clear understanding of how the company works, its business model, its financial position, shareholding pattern, and management quality.
Try to find out as much as you can about the company. Legendary investor Warren Buffet has followed a simple rule all through his investment career: “Never invest in a business you cannot understand.”
You can also make two different checklists about why you should invest in the company and why you should avoid investing in the company.
- Patience is the Key
“Did I miss the chance to buy a stock at a low price?” “Should I sell the stock as I am in profit now?”, “Everyone is buying this stock. Should I invest in it too?” “Nothing is happening in the stock since I bought it. Is there no action left in the stock?”- The train of thoughts never stop in your mind.
A stock market is a place where investors’ patience is tested in every possible manner. As an investor, you should teach yourself to have patience and ignore the noises around you.
- Maintain Discipline
New investors can often get carried away by the thrills of the market and end up investing all of their money in the market. This particularly happens when they keep getting news about different stocks.
Make a plan about how much money you will invest in the share market at a time and stay firmly on that plan.
- Firmly Believe On your Choices
If you are confident of the quality of the company, then you should stay invested in the company as long as the company fundamentals don’t change. Keep note but don’t act on other people’s opinions on when to sell the company’s stock.
- Keep Emotions at Check
The flip side of patience is that you can often develop an attachment toward a stock that you have been holding for a long time. As a result, you might fail to see the changing dynamics of the market and hence miss the opportunity to sell the stock at the right price.
- Diversify Your Portfolio
You are always a step away from a potential disaster if you invest all your money into one or two stocks. It is always advisable to divide your investment amount among 12 to 15 companies to spread the risk. Furthermore, try to invest across different sectors so that your portfolio is unaffected by one bad performing sector.
Investing in shares can be one of the best investment options for you as long as you take it seriously and don’t look at it as another “Get Rich Quick” scheme. While some people have lost their savings in the share market, intelligent investors have managed to generate unprecedented wealth from the market by investing wisely.
Moreover, many investors have taken the mutual fund route, which enables them to take advantage of the stock market under the guidance of a capable and expert fund manager. So, create an investment plan keeping the factors discussed in this post in mind and get ready to play a long inning, whether investing in a stock market or a mutual fund.