With the right skill and knowledge, the stock market can be a big prospect for generating wealth. Stories of people earning exceptional returns from stock investment are doing the rounds on social media. If you have been wondering about taking a plunge in equities to high returns on your investment, all you need is to follow these five important lessons.
1. Learn the rope – understand the basics.
It is the universal rule. To enter something new, learn the basics. Investing is no exception. Firstly, you need to become an apprentice, learning every necessary thing there is to learn, because ‘knowledge is power’.
In the meantime, there is a slew of information that you can look upon the internet to absorb the basics of the stock market, investing, and other financial concepts. You can also pull ample information from the broker who operates your demat account.
2. Learn how and when to make your move – perfect timing is the key.
When it comes to investing, correct timing means everything. Your chance of earning a decent ROI (Return On Investment) hinges on it. That said, it is crucial to enter the market at the right time when shares are trading at their lowest. Similarly, it would be best if you made your exit when the prices are at their peak. But, always remember, your peak should be decided before you put your money on a stock(s). For example, if you have set a target of 15% returns on a particular stock, never get greedy when your investment touches that level. The same rule applies to losses, too. If you had a risk appetite of incurring 5% loss on your favourite stock, never think twice about selling it at that level.
In the meantime, it is essential to make the appropriate choice regarding the companies in which you choose to invest. You can play it safe by making your move in tandem with the herd mentality and follow professional traders and analyst reports. However, though this approach may help you get a grip on the workings of the market, you still need to exercise discretion before making investment decisions.
For example, many times, in the short-term, the markets and professional traders behave on the basis of immediate rumours and multiple sources of news that may not reflect the true value of the stock. As an investor, you may be tempted to follow what everyone else does. But if you, through your understanding of the markets and the sector are able to take a long-term view on the stock, it will help you earn better returns than others.
3. Zero in on the investment amount – it determines the level of your exposure.
It is essential to know how much exposure you want for yourself in equities. If you are a young investor and have at least 30 years of work-life ahead of you, commit more money for the long term investment. You can create a large portfolio of shares belonging to different sectors. However, if you have entered the stock market in your 50s, then remember, caution is the key. Make your bet only on stocks with a history of giving stable returns.
4. Learn from your mistakes – do not be disheartened by errors.
Review your portfolio and identify your mistakes regularly. This action will help you avoid making the same mistakes in the future. Also, to gain more experience, you must invest in different sectors and learn as much as you can from that enterprise.
That said, even experienced professionals make mistakes, so do not be disheartened when you make an error. Continuous learning is a part of the journey. Every mistake is one step closer to becoming a seasoned investor.
5. Be clear about your financial goals – short-term or long-term?
When investing, you should be clear about your goal and the probable time in the future when you are likely to need the funds back. If you want your ROI within relatively short years, you will have to invest in less volatile stocks. But, if you are having a long-term plan, like your children’s foreign education or purchasing your dream home, then you must invest accordingly.
As an investor, you need to know about your personal needs and preferences while zooming on the sectors and stocks. You see, not all companies are profitable. For that reason, you must choose very wisely, and making an informed decision is the key. To that end, you will be off to a great start if you research with due diligence. It will help you mitigate the associated risks of investing in the stock market and come out as a winner.