Most of us have our own perception of stock market investment based on our experiences. We also tend to get confused with the opinions given by others. Knowing the do’s and don’ts of the stock market would help us turn really as a smart investor. Here are some do’s and don’ts in the stock market:
Slow, Steady, and Boring Wins the Race
It is best not to panic over information about stock market in the media. Be slow and steady. Keep an eye at the activities that your money is to be used for. This would ensure that you invest in ventures that are good, useful and profitable.
Read Good Books on Personal Finance. This will help you in taking right financial and investment decisions. In addition, find a good financial advisor. This would help you get right advice regarding stocks and mutual funds. This would also help you with entrusting the custody and management of your funds to them.
All this may seem too boring and time consuming. However it is better to be cautious than bitten too hard.
Don’t Give Any Weight to Market Forecasts
All opinion pro and con is already built into the price of equities today. Market forecasts on the media has got good entertainment value. But it doesn’t have any investment value. It is just enough for long-term investors to invest in good stocks and mutual funds that would appreciate in the long run.
It is best to understand that stock market forecasts only show you the expected direction in which the market is heading. These forecasts are based on the available information. The forecast is only a forecast and need not become reality.
In addition, market fluctuations are the very nature of stock markets and should mean nothing to long tem investors. Making accurate market forecasts is tough, as they are influenced by various factors. These include the outcome of political elections, the direction of the economy, interest rates, world events and so on. It is also wise to know that these fluctuations are incorporated in the price of the share, stock or mutual fund.
Do Your Own Analysis of Stocks, Shares and Mutual Funds
It is not advisable to place your full faith on analysis of others regarding stock, shares and mutual funds. No wise man would always tell you all about his market beating strategy. Making ones own analysis keeping your financial goals in view and framing a strategy would help.
This involves studying the performance of top performing stocks and mutual funds over 5 years and existing mutual funds over a period of 3 months. This way you can decide on which stock to maintain and which to dispose off. All this would ensure that you are investment smart.
Don’t Try to Time the Market
Don’t think you can successfully engage in short-term market timing. As a long- term investor, you should never contemplate taking advantage of short-term market dealings and stock market speculations. Playing with shares and mutual funds in the short-term market may give you a profit in a few transactions but will not give you profits forever. So you can’t have an investment strategy which gives profit inconsistently. We need a strategy which can bring profits consistently so as to be a successful investor in the long run.
It is true that playing in the stock market is neither entertainment nor fun. It is also futile to borrow or work on short-term margins to make money.
Don’t Act on Stock Market Speculations
Don’t assume that if anyone were genius enough to devise a market-beating strategy, he would be stupid enough to share it with anyone.
Stock tips are good to learn, but not to act on for speculations. It could prove dangerous to act on speculation tips given by one and all, as they may not be correct. In addition, everyone has his or her own perception of investment, with other not having full knowledge or skills.
You need to take time to think over each tip and analyze if it contributes to your long-term objective of capital appreciation. Similarly it is not advisable to subject your money to risk with investing in investment fads that may or may not earn you huge profits.
Final Advice on Trading in the Stock Market
Make a calculated decision considering the pros and cons whenever you make an investment. In addition, abstain from trading often in the stock market and in mutual funds. Always think in terms of long term investing.
The author Ramalingam K is a Certified Financial Planner and an MBA (Finance). He is the Founder and Director of Holistic Investment Planners, a firm that offers Financial Planning and Wealth Management Services. He can be reached at ramalingam[AT]holisticinvestment.in.
Stock Market Basics: Do’s & Don’ts in the Stock Market is a post from riyaz.net.