The simplest rule of making money in the stock market...Buy low, Sell high. Making money in stocks is really simple. Just follow this rule. But, if you are an investor in stocks, you realize just how difficult this is. How do you decide which stocks to buy? When to buy them? When to sell these stocks? All these decisions are very difficult to make. If you want to make money in stocks, there's another rule you must follow. Buy the Right Stock at the Right Price.
Making money in stock markets is not a quick job. It takes hard work, experience and a little luck. Want to be rich? Just read the 5 ways to become rich in the stock market. Want to know more on mutual funds and stocks? We at IndianMoney.com will make it easy for you.
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One of the best ways to learn investing in stocks is to invest small sums of money in a select set of stocks after doing your research. You study these stocks and see the profit/loss you get from them. Once you are confident, you can easily invest larger sums of money in stocks.
The great investor Warren Buffett sums up all there is on greed and fear, " Be fearful when others are greedy and greedy when others are fearful." Making money in stocks involves the basic emotions....Greed and Fear. If you are buying stocks, you do so with a purpose. You want returns fast....This is greed. If you are afraid (fear) your stocks may crash, you sell. These two forces...Fear and Greed are eternal.
You have to handle the twin emotions of fear and greed, if you want to make money from your stock investments.
2. Know what you own and why you own it
When you invest in a stock, the first question you need to ask yourself is, why would you want to hold this investment? Peter Lynch sums it up nicely....Know what you own and why you own it. The most difficult part of investing in stocks is acknowledging a loss making investment. It's the 3 Letter word EGO....You just don't accept that you made a wrong decision.
You continue to hold the loss making investment with the hope that one day it will go up. The same holds true for an investment which has given you decent profits. You sell this stock just to impress your colleagues or prove them wrong or enjoy boasting rights. This stock might still have some steam left and go up in the future. But, you have lost the opportunity to make more profits.
Always judge the merits of your stock investments.
SEE ALSO: Long Term Investing in Stocks
You can never predict when stocks will go up. A couple of days back, Finance Minister Arun Jaitley made a very important announcement. Public Sector Banks would be recapitalized with Rs 2.11 Lakh Crores. The next day Punjab National Bank zoomed over 30%. SBI, Bank of India, Union Bank all of them zoomed up by more than 20%. If you had invested in Public Sector Banks you would have made a lot of money.
You need a little luck sometimes or a smart investment. With stocks you can never sit on the fence. You always must stay invested in the stock market.
4. Stocks are all about the future
With stocks all you need to be concerned is the period from now on. The past is the past. Never rely on past data and history of a stock. Always focus on the future. Read up on the management of a Company, articles which give you an idea of the Company and its growth prospects, the outlook of the industry and the economic moat.
For those who don't know, economic moat is the ability of a Company to protect long term profits and market share from rivals.
With stocks past is the past. Always concentrate on the future.
See Also: Stock Exchanges In India
You may be tempted to copy the portfolio of successful investors. When a successful investor buys a stock, you buy and when a successful investor sells a stock, you sell. This is copycat investing or coattail investing. Buying the shares a successful investor buys or selling them when he sells, can be an easy way to make money without doing your research. But, coattail investing can be very dangerous. Your entire investment can be wiped out.
The expert investor has a diversified portfolio which protects him. The reasons for this investor to buy or sell shares are different from yours and you risk your hard earned money, copying him.
If you want to be a successful investor, the first thing you must do is keep it simple. Learn the 5 ways to become rich in the stock market. Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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