Investing in stock market is not easy; the route is covered with uncertainty, trepidation, and an inability to make decisions. However, if you have proper knowledge, stick to a disciplined approach, and have patience and a deep understanding of businesses along with their facts and figures, you can ride the waves of uncertainty with dexterity and reap rich dividends. To this end, you need to stick to some basic rules of stock investments. Though investment in stock markets is never guaranteed to provide good returns, these basic rules may help minimize the risks and get a good return over a long term.
It is a basic instinct to follow others when you are not very of things and prospects of a stock to invest in. However, this mentality can be dangerous in the case of stock investments. You might get attracted to certain stocks that you might have heard about from your friends, acquaintances, relatives, or colleagues; however, this strategy does not work well in the long run.
You need to research on potential stocks to arrive at a conclusion. There are some basic parameters of checking a company’s potential to offer big returns. Price to Earnings ratio, 52-week-high stock price, 52-week-low stock price, the historical average for price earnings ratio, etc. are some of the parameters that you need to check rigorously for each potential stock to invest in.
It is very difficult to understand the performance of a company and its potential for returns if you don’t understand the business the company is in. If you understand the business, you would have a grasp on the ramifications of various factors, including local and global influencers, on the business itself. So, it is always better to invest in a company whose business you know about and understand.
It is a tried and tested proposition—don’t try to time the market. If you sit with your money trying to time the market, you are most likely to lose out on bigger opportunities. So, if you have done your homework, you should see if the earnings per share of the company are within the normal range or not. If it appears absurd, don’t even think of investing in it; it is due for a correction. Otherwise, just go for it; don’t wait for the perfect time, as it may never appear, at least in short term. Even Warren Buffet has never tried to time the market.
You need to lots of patience if you are interested in stock investments. If you have zeroed in on a stock to invest in, it is better to invest in it systematically rather than putting all the money at once. Put your money into it bit by bit in a disciplined way. This will help you to average out your cost of investment which is expected to help you reap rich dividends in the long run. You must stay invested in the long run in order to get good returns. In the short run, volatility may wipe out some value; however, in the long run, you are likely to get a good positive return on your investment.
The values of Index funds go up and down with the stock market index. This is a less risky option compared to other types of investments. In this way, you can reduce the risk associated with investing in a particular company. This is a good approach especially for beginners in stock investments. ETFs or exchange-traded funds also work in the same way and reduce the risk associated with a particular stock to invest in.
Motif Investing is a particular style of investing. In this style of investing, you first need to consider a potential upcoming sector or industry and not a company. When you are sure about the potential of the industry or sector in the coming years, you need to buy a relevant motif. It is a selection of stocks that are slated to grow along with the growth of the sector or industry that you have chosen as the potential one. It is often easy to pick out a potential sector than a potential stock. Motif offers a selection of 150 motifs in various sectors, industries, and niches for stock investments. There are other motifs too which have been curated by some professional and seasoned investors. These motifs are well-researched ones. However, it is always advisable to do your own research on individual stocks of the motif that you have selected and choose one stock to invest in.
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