5 Precious Rules of Investing in stock Market - Anthony Norman
1. Avoid the herd mentality
The
typical buyer's decision is usually heavily influenced by the actions
of his acquaintances, neighbours or relatives. Thus, if everybody around
is investing in a particular stock, the tendency for potential
investors is to do the same. But this strategy is bound to backfire in
the long run.
No need to say that you should always avoid
having the herd mentality if you don't want to lose your hard-earned
money in stock markets. The world's greatest investor Warren Buffett was
surely not wrong when he said, "Be fearful when others are greedy, and
be greedy when others are fearful!"
2. Take informed decision
Proper research should always be undertaken before investing in stocks. But that is rarely done. Investors generally go by the name of a company or the industry they belong to. This is, however, not the right way of putting one's money into the stock market.
3. Invest in business you understand
Never invest in a stock. Invest in a business instead. And invest in a business you understand. In other words, before investing in a company, you should know what business the company is in.
4. Don't try to time the market
One
thing that even Warren Buffett doesn't do is to try to time the stock
market, although he does have a very strong view on the price levels
appropriate to individual shares. A majority of investors, however, do
just the opposite, something that financial planners have always been
warning them to avoid, and thus lose their hard-earned money in the
process.
"So, you should never try to time the market. In fact,
nobody has ever done this successfully and consistently over multiple
business or stock market cycles. Catching the tops and bottoms is a
myth. It is so till today and will remain so in the future. In fact, in
doing so, more people have lost far more money than people who have made
money," says Anil Chopra, group CEO and director, Bajaj Capital.
5. Follow a disciplined investment approach
Historically
it has been witnessed that even great bull runs have shown bouts of
panic moments. The volatility witnessed in the markets has inevitably
made investors lose money despite the great bull runs.
However,
the investors who put in money systematically, in the right shares and
held on to their investments patiently have been seen generating
outstanding returns. Hence, it is prudent to have patience and follow a
disciplined investment approach besides keeping a long-term broad
picture in mind.
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