Investing in mutual funds isn’t so hard, but the stock market is. Investing directly in the stock market requires a lot of expertise and lit bit intelligence.
Look, the stock market is hard, but not as much as physics, it requires basic knowledge and you need to learn it once. Your investing skills will improve with time, but for that, you need to start!
So I made a small list of 7 advices which you should read before you start investing in the stock market.
1. Stay Away From Penny Stocks.
Before I tell about penny stocks, read the definition of penny stocks.
List companies having small cap, micro cap or nano cap and priced below a dollar are considered penny stocks in the US. But in India, the price of a stock needs to be below 10₹ to be called a penny stock.
I wish someone told me this before I started. My first every investment was in a penny stock. That stock is named as Suzlon Energy and it was priced at 2 rupees at that time. We all make the same mistake at the beginning thinking like,
“I will get the number of shares and if those shares’ price goes up, I will get huge returns”
But that doesn’t happen mostly, those penny stocks are often frozen or may go down and ultimately end up losing money.
2. Research Properly Before Investing.
A proper research is always needed in stock market. One must check whether is a stock is overvalued, fairly valued or or under valued. You can check many ratios to have idea for the stock’s valuation, but mainly P/E helps to figure out.
You can read about the company’s history, past performance and try to understand future prospects.
There a note should be taken that there are many companies having high P/E and still growing with same high P/E. Take D-Mart as example, it have P/E of nearly 100 but still its considered as good company to invest. High P/E means investors are confident on the stock’s future performance.
3. Plan Before Investment.
By planning, investment I mean the you should have a time horizon, you can keep the money in the stock and you need to have a target.
Look, when I invest in any stock, I always have a target on which I’m gonna sell it. Time horizon means how long you’re going to stay invested. It can be months or years, but don’t be unplanned.
Unplanned investment rarely performs. Make planned investments. Either you will succeed or you will fail but if you fail, you can try to find mistakes or error in your plan but supposed unplanned investment fail to perform, what you learn? You can try to find mistakes in your investment to avoid making them later.
4.Don’t Invest By Looking at 52-Weeks High or Lows.
Well, if you have plan about an investment, investing in a stock which is trading at its 52-week high won’t be a bog problem.
But you know what? Many of us (at the beginning days) see a growing stock and assume that the stock is great and going to grow in near future. Many people try to enter in the 52-week high stocks thinking that the stock will make new highs and they will make some good profit. These types of investments often fails.
On the other side, mostly beginners think that a stock 52-week low is its rock bottom and it won’t go down further
5. Have A Portfolio That Suits Your Risk Profile
Look, there are 5 types of risk profile and you can have only one. You can find your risk profile from here. Make sure your investments in your portfolio suits your risk profile.
6. Have Stop Loss If You’re Not A Long Term Investor
Many people make a mistake by avoiding putting a stop-loss. Well, sometimes a bad news can ruin your investment you made and it can take a long time to recover.
Having a stop loss makes sense only if you’re not a long term investor. The long term investor average out when stocks get down much.
7. Invest Only When You’re Confident Of Your Decision.
That’s just simple. Investing when you’re not completely confident can just destroy your hard earned money.
After a complete research, you will come to a point that a stock is worth investing or not, but sometimes you won’t able to conclude with a point, in that case I just advice to avoid that stock and move to the next stock. There are many more stocks and you get many choices.
At the end of this article, I will conclude by saying this.
Miracles don’t happen in stock market neither you should expect to happen.