When you think of the stock market what is the first thing that comes to mind? Money doubling in no time. Money even tripling in a year. Sure…it happens but not to everyone.
“90 % of the people in the stock market, professionals and amateurs alike, simply haven’t done enough homework.
– William J.O’Neil
Do you want to make money in the stock markets? Then learn these lessons.
Do your homework
Buying the right stocks at the right time is the key to making money in the stock markets. To do this you need to have time and energy to track your stocks. You also need to do your research. You must join other like-minded investors and do your research.
- Check the management of the Company. Past track record and qualification of the top management which runs the Company is very important.
- Take a look at the balance sheets and profit and loss accounts of the Companies, you plan to invest. The stocks of a Company with a track record of good profits is always a good investment.
- Take a look at the mutual funds which invest in the Company, whose stocks you plan to buy. If a number of reputed mutual funds have invested in the Companies you plan to buy, then this is a good buy.
Know when to buy
You may have tracked a stock when its price was INR 100.Its price shot up to INR 150 a few weeks later. A few months later it has reached INR 300. You have kept watching the stock price rise, but still not made a purchase. A year and a half later the stock price is INR 600 and you have still not bought the stock. If you do not make a decision as to when to buy a stock, then you will be forever watching stocks. This is similar to a fielder “ball watching” in a cricket watch. He watches the ball, all the way to the boundary.
When should you buy stocks?
You do your research well. You are convinced that the Company whose stocks you plan to buy, has good growth prospects. It also has a sound business model. It also has a track record of good profitability. You write down these points in your notebook, as to why you are buying these stocks and stick to your decision. You then boldly go ahead and buy the stock.
You wait too long
It is popularly believed that if you stay invested in the stock markets for a long time (be a long term investor), you will definitely make a profit. This time frame is around 3 years. This holds true mainly for equity mutual funds. Manager’s manage these funds and track stocks on a daily basis.
If you just buy any stock and hold it for the long term (say 3 years), it may not give you a profit. You might even suffer heavy losses. You have to buy the right stock at the right price and then hold it for the long term. If you buy a Company which does not have good fundamentals or has management issues and hold it for even 10 years, you will suffer heavy losses.
Holding to a loss
What if you buy a stock for INR 100 and it falls to INR 50? What do you do then? You would most probably not sell this stock. You will keep this stock hoping that one day it will give you a profit. Studies show that you are likely to hold on to a stock which is giving you heavy losses.
If you find that you own stocks whose prices have drastically fallen in the last few years and have no chance of giving you a profit, you must sell these stocks to limit your losses.If you invest this money in stocks which give you good returns you can make up your losses in no time.
You buy a stock for INR 100 and it rises to INR 125 a few months later. You are quite happy with the rise in price of the stock and book a profit (sell this share). Unfortunately for you a few weeks later, the price of the stock rises to INR 150.You have booked your profit too soon and you would have made much more money, had you waited a little longer. Most investors are always ready to book a profit, but few wait to capitalize on their profits.
Next time when you invest in stocks, learn these lessons and you should make a profit.
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