Rules to follow for investing in stock market

8 Rules to follow for investing in stock market

Making money from stock market is a hype now-a-days. But it is not that easy as it seems. It requires not only knowledge but also patience and discipline in Investment. With the use of knowledge in doing research about stocks, one needs faith in one's investment without sentiments and patience as well.

Though, there is no sure shot way of being successful in Stock Market (as it is in any other field) there are some rules that apply for Investors, as follows - 

• Disciplined Investment Approach - 

Investors must put in their hard earned money in shares which their research shows to be with high potential in future. They need to keep a long term broad picture in their mind and follow a systematic plan, have a well defined and diversified portfolio instead of putting all money in one stock or industry. NEVER PUT ALL YOUR EGGS IN ONE BASKET. Always remember that.

• Avoid the herd -

The herd is not always right. Many investors do not suggest genuine views because they care about their money, not yours. The majority does not have to be always correct. The social value of a stock matters but rely on your on judgement and research rather than blindly following the herd of sheep. Warren Buffett was surely not wrong when he said, "Be fearful when others are greedy, and be greedy when others are fearful!"

• Do not try to time the market - 

It is not possible for anyone to tell the time span in which your expected goal will hit. I personally have experienced my targets hitting with huge time variances. They lie between 1 day to even 3 months against my expectations of 1 week. Not everyone in the market is trading in every share. So, maybe the share that you have considered good enough for long term investment may not have huge trades. Growth maybe slow but at least you are sure that there will be growth.

• Do not get emotional - 

Fear and greed are the biggest enemies of Investors. A fall in price scares investors and many book their small profits. Corrections are a part of growth. sometimes the prices fall due to a current short term effect news that is irrelevant for long term targets. Investors must not get all emotional and book the small profits. Say for example, right now due to demonitisation of Rs. 500 and Rs. 1000 currency notes (in India) the market is falling. This does not mean the market has changed its trend and will continue to fall. This is actually an opportunity to buy at dips. The same thing happened at the time of Ind-Pak surgical attack when the market took a dip for a day and the very next day the losses were recovered.

Second emotion is GREED. If a stock has been performing well in past and has given you good returns does not make it suitable now as well. you need to do research and keep track on your holdings. Investors hear short term results of  a stock which have been great and put in their money without seeing whether its overall performance has been impressive or not.

• Have realistic expectations -

If you think you can double your money in a month, dude that is not so gonna happen. Speculators may be able to do it. But, you being an investor, who is trading his hard earned money should have realistic expectations. At times, some stocks rise as high as 10-15% in a day. That is mere luck, you purchased it and it rose that same day. Being able to earn 30-40% in a year is not bad. But sometimes the economy may give less return like 10-15%. If your stock is not giving high rises currently that is not a signal to exit it, hold on to it.

• Do not invest lent money - 

NEVER EVER invest lent money. Because in case your investment did not go as planned, not only you will lose expected profits but also the money you invested and over that will be the burden of cost of borrowings (interest). Market is volatile. No one can be cent percent sure of the stock expectations. So putting in lent money is a big NO.

• Invest Surplus funds only - 

Just like you don't invest borrowed sums, you also don't invest your money which you have to use in your daily life. Only Savings part is to be invested, else your liquidity for current needs will suffer. Remember you need to follow Sustainable Investment policy. Keep in current needs of money in mind with a portion for uncertainties, before investing.

• Continuous check - 

It is your hard earned money. Just don't put it in and forget about it. You need to keep a watch on it. Keep yourself updates with the companies policies, announcements and latest news. And keep your research updated with respect to them.