There are numerous success stories in the Indian Stock Market that inspire us. It is also equally true that most of the stock traders and investors fail to make money in stock market. However, the failures cannot be ignored because they too act as important learning lessons. In our earlier posts, we have shared the stories of ace Indian investors like Rakesh Jhunjhunwala, Basant Maheshwari, Radhakishan Damani, Porinju Veliyath, Sujata Burla, Motilal Oswal, etc. All of them made huge amount of money in stock market.
Now, the question arises – “How?” The reasons are many. In this article, we are sharing those reasons.
Want to make money in stock market? Then the following tips may help you!
1. Be Yourself: Think Smartly before Investing in a Stock
Being yourself is perhaps the most important criteria that can help you make money in stock market. Often most of the people invest in certain stocks just because their friends and relatives have invested in those stocks. Investing blindly in shares is always discouraged. A person can always seek advice from his/her acquaintances and there is absolutely no harm in it. However, before taking an investment decision one shouldn’t blindly get influenced by other’s buying decision.
2. Invest for Long Terms
Long term investments always pay as long as you are investing in the right stock. If we closely study the portfolios of successful investors, we would find that most of their investments became multibaggers in gradual course of time. When an investment produces returns, the same gets reinvested multiple times during the entire period of the investment. Thus, if an investor continues to hold a profitable stock for longer periods, the returns would also be higher.
The potential of compounding and dividend earnings at regular intervals are the biggest advantages associated with long-term investments.
3. Be Patient and have Realistic Expectations
Being patient is a positive approach towards making money in stock market. Investors investing in a stock shouldn’t expect it to become a multibagger stock within few days of investment. Having unrealistic expectations wouldn’t do any good to the investments. Many times it may happen that price of a stock doesn’t move much for years. However, if the company has good potential for growth, then patience would surely pay off in longer runs!
4. Control Emotions
Emotions have no place in investing. An investor should have the strength to control their fear and greed. Markets may fall. At times, the price of a stock may also go down. But, the fear of losing money shouldn’t affect your judgemental ability. If you have faith that a stock in your portfolio shall perform well in the long term, then it is always advisable to hold it for longer periods even if it performs badly because of a market slowdown. The price falls may be temporary. In these circumstances, if you break down because of fear and sell your position in a stock then you might end up losing out on realizing long-term gains.
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Another big enemy of investors is greed. Controlling the greed of making quick wealth is much necessary. Many investors often fall prey to their excessive desires and purchase shares of unknown companies at high prices in a bull market. Excessive buying without proper research backfires most of the times.
Therefore, it is a must to control your emotions if you want to make a good amount of money in stock market.
5. When to Invest and when to Exit from a stock
Before investing, an investor must decide the right time and right price to purchase a particular stock. Expert investors always purchase more shares at lower prices and fewer shares at higher prices. Also, an investor needs to understand when to come out from a stock to maximize the gains or minimize the losses! However, this doesn’t mean one should try to predict the future prices every now and then.
6. Extensive Research before Investing
If you want to make money in stock market then this is an essential criteria. Before buying any stock, it’s important to research all aspects of the company. To find out the strengths and weaknesses of a company is necessary. An investor before investing in a stock should have in-depth knowledge about the business of the company. Without going through the quarterly and annual reports of a company, shares of the company should never be purchased.
7. Avoid Excessive Market Timing
Many investors tend to predict the future prices of shares of companies more often than required. No one can predict the exact highs or lows of a stock in advance. Although from technical or fundamental analysis the future price movements can be found out to some extent but that too won’t give the exact prices. Hence, one should always avoid excessive market timing.
If you seriously want to make money in stock market, then you need to learn the art of diversification. An undiversified portfolio carries with itself a major risk. For example, if all of your stocks in your portfolio are in the same line of business and if that business sector starts performing badly then the value of your undiversified portfolio will also go down. Therefore, picking up stocks of different business sectors is always advisable. When a portfolio contains a mix of stocks from different sectors, then even if a sector faces a slowdown the other sectors shall become the strength. This, in turn, will prevent the value of portfolio from going down. Hence, building a diversified portfolio is a must when investing in stocks!
9. Never Invest just by following an Ace Investor’s Portfolio
This is perhaps the biggest blunder which many people conduct in the stock markets. Following an ace investor’s portfolio will enhance your stock picking skills. It will also improve your judgemental abilities. However, you should not invest blindly based on their portfolio holdings. When following an expert investor’s portfolio, one need to go through the following for a better understanding:
- At what prices different stocks were purchased?
- The reason behind selecting those stocks.
- Diversification strategy to control risk.
- At what prices the stocks were sold? (And, if not sold then what are their present prices?)
If you properly get the above answers, then you are ready to make money in stock market!
10. Learn from your Failures
Some of your investing decisions may go wrong. Remember that no one is perfect. And, most of the expert investors also had to go through many failures. Hence, it is always necessary to learn from the failures. When your investment decisions go wrong, then don’t loose hope and try to figure out why the stocks didn’t perform well. Critical investigations of failures are much necessary.
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