5 Golden Rules to Understand Before Stepping in the Stock Market
Investing in the stock market is based on the fundamental principle of buying stocks when low, and selling them when high, which looks like a simple activity. Now, online stock trading has made it even easier. However, in the actual parlance, markets follow certain trends and events, making them very volatile. Investing in the right stocks for gaining good returns is, therefore, not everyone’s cup of tea.
Why do Investors Like to Invest in Share Markets?
For many, investing in the stock market means gaining big money and having many attractive investment avenues.
However, it requires a good deal of patience, research, discipline, and a sound understanding of stock markets. This is why most people don’t know how or where to start.
Though there is no one single mantra for online stock trading, there are still some key rules that could help you step up. These could increase your chances of gaining good returns on your stock market investments.
A typical investor mainly invests in a stock market because he is influenced by his friends, family, acquaintances, or the industry they belong to. However, the strategy of online trading because everyone around is investing, is sure to misfire over the long term, losing you your hard-earned money in the markets. So, do not follow the crowd and make your own sound investment decisions. Do your own research. There are various resources online to help you learn more about stock trading. The Margin of Safety: Risk-Averse Value Investing Strategies written by Seth Klarman is a great book for newbie investors.
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5 Golden Rules to Follow Before you Start Investing in a Stock Market
Rule #1: Don’t follow the herd mentality
A typical investor mainly invests in a stock market because he is influenced by his friends, family, acquaintances, or the industry they belong to. However, the strategy of online trading because everyone around is investing, is sure to misfire over the long term, losing you your hard-earned money in the markets. So, do not follow the crowd and make your own sound investment decisions.
Rule #2: Take well-informed and disciplined investment decisions
Take well-informed decisions based on your stock market research. Do not just invest based on the name of the company or industry. Conduct fundamental and technical analysis to get the facts right before selecting stocks. Also, market volatility is a critical factor that should be considered before investing. A systematic and rational approach based on facts would help you invest right and gain good returns.
Rule #3: Invest in businesses you know about
While investing in the stock market, you must follow a business-oriented approach instead of a stock-oriented approach. This means that you invest not in stock but in the business that backs it, which you properly understand. You should be able to carefully evaluate a company’s strengths and risks before investing in its stocks. Otherwise, do not invest in it.
Rule #4: Stop timing the stock market
Never try to time the stock market, as even seasoned investors have not been able to master timing the stock market consistently. It is just a myth that we can accurately judge the tops and the bottoms. Timing the stock market will only make you lose your hard-earned money. Instead, your investment in the stock over time will provide better returns.
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Rule #5: Diversify your stock portfolio
The saying “do not put all your eggs in one basket” is also an apt investment mantra, that investors should follow. Diversifying your portfolio across various asset categories and instruments helps you earn optimum returns on investments at minimum risk. However, diversification is dependent on every investor’s risk-taking appetite.
To wrap up, investing in the stock market is not simple as it looks but yes, with the required research, discipline, basic understanding, and analysis an investor can make the most out of it.