I was just reflecting today about how I started investing in stocks and what I have learnt over the years. Like any other novice, I dabbled for some time, made mistakes but learnt every time. I believe that investing in markets is more of a mental thing than anything else. I would say stock market asset management is more about mind management than about managing the assets themselves.
If there are any beginners out there, it’s never too late to start. This post is targeted towards beginners. Here are some starting tips to keep in mind when you take the plunge into the unknown world of stocks. I am just touching upon a few points here in brief and will elaborate more at length in my subsequent blog posts.
Be realistic with your expectations – Some people think that stock markets are money multiplication machines. If you are a beginner and have this impression, I can tell you that you cannot be more wrong. The years 2001 till 2007 were the golden years for investing in Indian stock markets. If anyone entered the markets during this time, there was a good chance they made some money. The economic climate today is very different. Before entering markets ask yourself what returns you are targeting and be reasonable. If you can get a 20% annual return you should count yourself fortunate.
Choose the right investing tool – Once you are clear about your expectations, ask yourself what kind of risk appetite do you have? Based on that, there are a host of options available to invest in. If you are looking for a roller-coaster ride, you could go in for Futures & Options or Margin Trading. If you are under 40 and have a good risk appetite, you could go for stocks directly or even aggressive mutual funds (MFs). With advancement of age and reduction of risk appetite, you should settle for balanced MFs or even debt funds.
Never get emotional or carried away – If you are a beginner, it is easy to get carried away if you see sudden gain. Always be level headed when it comes to your exposure to stock markets. Similarly, if the market falls and you are in the red, don’t let it depress you or discourage you from making further investments.
Don’t bother about notional losses or gains – In stock markets, there are often situations when you make a transaction and suddenly find yourself looking like a fool. Eg. You just buy a stock and its price starts falling. Or you just sell a stock and its price starts shooting after you sell. NEVER ever care about these notional gains or losses. This is all part and parcel of investing. Nobody can time the market correctly.
Have a mechanism to track your investment – People invest money in different ways. Some invest through demat accounts and some through agents. Whatever be your vehicle, you must have a means to track your investment at your fingertips. This is important as stock markets are news driven and can suddenly turn volatile requiring you to make quick decisions. In such a scenario, you should always have an up-to-date statement of accounts available at a click.
Respect the market – Stock markets are great levelers. One can never think that they are greater than the markets themselves. Remember, the stock market has the ability to consume you completely if you are not careful. Humility is the biggest virtue to keep while you are investing. Never be over-confident and think that you can dictate market terms. E.g. If you find yourself in a situation where you have made some good profits but don’t know whether to sell or not, my suggestion would be to just book your profits and go home. You don’t have to hold on and look brave. Things could change overnight making you look silly.
Know when to enter and when to exit – This is the trickiest part of investing and unfortunately there are no ‘correct’ answers for this. I can only say that you must avoid impulsive moves and track your prospective investments before investing. Try to balance your portfolio. Avoid over-exposure to specific stocks or sectors and be aware of the market trends that could affect your stocks.
A lot of tips and techniques are available on stock market investment, but ultimately it depends upon how you condition your mind while making investment decisions.
If you need any suggestions or advice, don’t hesitate adding a comment and I’ll be glad to help.
Happy Investing!
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