The Nifty has just scaled Mount 10K. Yes, just a few weeks ago the Nifty crossed the 10,000 mark for the first time ever. You and lots of other citizens of India must be jumping with joy. It's time for all those bottled emotions to come out. Hope....Joy....Greed....It's a party out there. But hold your horses. Just 2% of our citizens invest in equity. This means just around 2 crore of our citizens invest in equity, out of more than a 100 crore citizens.
Now, lakhs of citizens must be waiting to jump into the stock market. Many of these citizens are first time investors in the stock market. But, stock markets are not all joy. Just as you make money, you could lose money in the stock market. This is a smart tip from an investor who is known for picking multi-baggers. You need to lose some money in stocks to learn the ropes of the market.
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Smart Tips To Pick Stocks
Yes, you need to jump into the swimming pool to learn to swim. You might struggle a little...especially at the beginning. But, nothing beats the joy of swimming across the length and breadth of the pool, once you master swimming. Investing in stocks is no different. Once you master the art of picking stocks, you're the king.
1. A good stock investor learns from the bears
You might be surprised, but it's the bears and not the bulls that teach you the art of investing in the stock market. For those who don't understand, a rising stock market is a bull market and a falling market is a bear market.If you have never seen a falling stock market, you would be investing only on hope and greed. A bear market teaches you caution and makes you a mature investor.
You understand risk and even if the stock market falls, you are never in a panic. You are cautious in your approach and don't blindly chase stocks. Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market says Warren Buffett.
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2. Read annual reports of Companies before buying stocks
Want to pick good stocks? Never miss reading the annual report of the company whose stocks you plan to buy. The annual report gives you an idea of the management of the Company. If you don't study the management of the Company before investing your hard earned money, you could be very sorry indeed.
Study the remuneration/salary benefits of the promoters of the Company, the track record of project execution and the shares pledged by the promoter, to get an idea of the management of the Company.
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“ 90% of the people in the stock market, professionals and amateurs alike, simply haven’t done enough homework says William O'Neil.
When stock markets crash, sometimes stocks of companies which show above average growth and are fundamentally pretty sound also crash. Why does this happen? When investors sell stocks in a panic, there is a tendency to throw the baby out with the bathwater. Lots of investors are selling good stocks in panic.
This is the time, you the contrarian investor, waits for your opportunity. You buy stocks of companies which have fallen during a stock market crash, in spite of delivering a good performance over the last couple of years.
Recently, North Korea threatened to attack the US base of Guam. Stock markets in India and the World over crashed. Many stocks of reputed Companies fell on this news and you the Contrarian investor, could have grabbed your opportunity to buy stocks of reputed well performing companies, at a lower price. Now, North Korea has backed away and the stock markets in India are rising.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful says Warren Buffett”
4. Pick stocks which enjoy a moat from the competition
What is a moat? A moat is a deep ditch sometimes filled with water, which protects a fort or a castle from attackers. It is not easy to attack a fort surrounded by a moat. Now, a company might enjoy a competitive advantage over other companies in the same industry. This is an economic moat.
A Company might have cutting-edge technology, protection through patents, brands and licenses or the company offers a product or a service which is unique and has lots of demand and other companies cannot easily match it. This company enjoys the protection of an economic moat.
If you invest in stocks which enjoy a moat from the competition, you might catch some multi-baggers.
If you want to pick good stocks always look for opportunity. Then look for companies which enjoy a competitive edge.... Think economic moat. Invest where demand naturally exists. Look for companies which have the potential to be large caps. Be Wise, Get Rich.
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