The stock market can be a competitive place, but that does not necessarily mean that it is extremely difficult to make good trades. There is enough room in the market for the majority of the traders to make money. Hence, for anyone starting out at the share market, it must be realized that it is in your hands to make the most of your investment and if you stick to a few disciplines then getting attractive returns is not a very difficult task. In this article, you will find some crucial tips that can help you achieve great success in this competitive market.
Purchasing stocks in the share market is not a particularly difficult task. In reality, the toughest task in share trading is picking the right companies that can consistently beat the share market. This is what many investors in the market are unable to do. The following rules and regulations are some of the most tried and tested formulas for success as far as the stock market is concerned. Although there are many factors that determine your success in the stock market, we have tried to cover as many as possible. However, it is always good to research more about the market and get your personal insights before investing large sums of money.
1. Control Your Emotions:
Once you start investing in the share market you should leave your emotions out, as making emotional decisions at the stock market is one of the cardinal sins. You must realize, that stock market investment is not a yardstick for your intelligence quotient. There is a need to develop a certain type of temperament to succeed in the share market. All the stock market-related decisions should be made using your brain and not instinct or gut. Historically, trading overactivity has been a cause for the downfall of many talented traders and their portfolio returns. The remaining tips in this article will guide you with various tips on how to develop the stock market temperament.
2. Know More About the Companies That You Intend to Invest In:
The stock market can help with all its advice and advertisements can often shift your focus from the primary business aspects of it. Trading can be profitable when done right, and picking stocks needs a lot of focus, calculation and above all research. The art of picking stocks for investments should never be an abstract concept to the investor. It must always be there on your mind, that once you buy a company’s stock, you become a part owner of that particular company. Hence, you should focus on the hard facts of the businesses rather than the flashy aspects.
In most cases, it is not unusual to find an abundance of information about the companies available. You need to screen out the information that is not useful to you as a potential investor. Once you wear your investor’s hat all you need to do is to focus on the core business aspects. Among the many things that you may want to know, basic information like how the company operates, who are the major competitors, the company’s long-term prospects, its place in the industry, and if it can bring a new dimension to your portfolio of business are some of the things that you should definitely consider.
3. Plan Ahead and Maintain a Journal
The stock prices can be extremely tricky, and it can make some very strange things. As an investor, you have to take prior steps to avoid taking hasty decisions based on a sudden change in the stock prices. If unchecked then making spur of the moment decision can lead you towards the ultimate blunder in the share market, i.e., buying high and selling low.
In order to avoid such classic blunders, it can be helpful to maintain a journal buying stocks. In the journal, once you buy a stock, you can write what the purpose that it serves in your portfolio and the reasons why you were buying it is. You should not only write the points that exist at that point in time but also what you expect from it in the future. You should also mention the metrics and milestones that you would use in the future to judge the progress of the company. A list should also be made marking the disadvantages of the stock and the potential deal breakers.
In the same journal, you should also mention what would be the circumstances in which you would be comfortable or forced to sell it. In this regard, it is best to avoid short-term price drops to a certain level and so on. The reasons should be based on changes that can impact the potential growth of the company, such as, loss of a major customer, new leadership attempting to take the company in a new direction, or the rise of a strong competitor or technology, etc. You can look back on these factors before selling the stock. This will ensure that you do not end up making bad decisions in the heat of the moment.
4. Avoidance of Trading Overactivity
The dynamic nature of the stock market is such that every investor is tempted to check the activity of their shares on a regular basis. Unfortunately, over-eagerness can often lead to overactivity. This simply means when an investor checks the movement of the prices too frequently; they are prone to making changes in their portfolios when there is no need for it. This can also cause the investor to react on the basis of the share prices rather than the company values. Many successful trading experts advise that it is sufficient to check the performances and the prices of the stocks once every quarter.
Even if you happen to find out that one or more of your stocks have experienced a significant drop, then instead of selling it off hurriedly, it can be more fruitful to check what exactly caused the drop in prices. There can be a variety of reasons for such a trend. It could be that it has been a victim of collateral damage to the market’s reaction to a completely unrelated event altogether. However, if you find out that there has been a change in the core operations or vision of the company, then the action may be warranted.
Apart from the tips mentioned above you should also try and remember a few other things like investing not more than 10% of your total portfolio in individual stocks, and building up positions of your stocks gradually and with minimum risk. Overall, if you do not focus on all the short-term noise made in the stock market from time to time, and concentrate on reacting only when it warrants a reaction, you should be able to make successful investments.