… Continued from Part 1 of this series …
Golden rules of investing in the market
- The first and foremost step in making every financial decision is to have a goal or objective in place. Goal can be short-, medium- or long-term depending on the individual’s requirement. Ideally, you should choose a few momentum-based stocks to meet your short term goals and invest the rest in growth and value stocks with sound fundamentals, good track record and professional management to meet your medium and long term goals.
- Short term rallies are witnessed by each & every stock, occasionally though, but what helps that stock in the long run is its fundamentals. Therefore, it is extremely important to do your own research about the company or study and understand research reports. It is absolutely necessary to run through the company’s background, recent developments, financial statements, management team, future prospects, prospects of the industry to which it belongs to and the overall economic condition prevailing in the country and at the global level. Sounds too much, right? But these tasks are absolutely crucial & mandatory to ensure you don’t lose your money!
- Keep a track of your investments (many of us, including me :(, don’t do this too often). Planning is the first step to investing but not the last step. Review your investments regularly; add or discard a few stocks which have performed or underperformed in line with your expectations.
- Maintain a diary and have a weekly or monthly review of your portfolio. In this dairy, you should calculate the present value of your investments and see whether your investments are on track, which will enables you to check whether you are on track to realize your investment goals. Have a Plan B in place (as a backup plan) if your first plan fails so as to live up to your expectations.
- Keep a strict stop-loss on all your investments if you happen to be a short term trader, otherwise you realize that its too late to exit and incur heavy losses. Therefore, it is worthwhile that if you happen to be a long term investor, you should never panic on account of a sudden fall or exit experienced in the market courtesy an overnight rally; as you need to offer some time for your investments to grow. Every Investment is like a tree which requires much more than just water for growth and fruit bearing. Therefore, time is required to bear intended fruits; an early exit may not give you the desired quality of fruits. Have patience!
… CLICK HERE for Part 3 pf the series …
