… Continued from Part 1 & Part 2 of the series …

What you should NOT DO in the market

1. Try and time the market. As mentioned in Part 1, the market does not follow any fixed pattern or trend. It will take its own course. Trying to time the market is a common mistake made even by veterans who have spent years and years studying and understanding the market. Its better to let the market decide its own course, we as investors need to do our homework first, keep stop losses and select stocks as per our risk taking ability.
2. Keep idle cash and wait for the bottom to invest all your money. Don’t ever do this since no one really knows where the bottom of the market lies & when will it reach. We need to keep investing at regular intervals in a systematic, disciplined and well planned manner for our money to grow. Remember that correction and intermittent falls are a part and parcel of a larger market rally.
3. Fall into a trap by investing all your money in one particular stock or sector. Keeping all your eggs in one basket can prove to be dangerous. Stocks follow a herd mentality. Always diversify your portfolio across sectors. Have a blend of mid-cap and large cap stocks as well as a mix of old economy and the so called “sunrise” sectors. This will help you to hedge your risks and at the same time reap the rewards of investing in a variety of scrips.
4. Blindly buy what the media reporters or experts tell you. Listen to their opinions and reasoning, have a look at the research reports and then do a bit of your own research before taking the final call. Also never go by a “hot tip” of a friend who has just whispered to you a non-descript stock name which he believes will be a “multi-bagger” within 6 months time.

In conclusion, we as investors need to realize that stock markets globally are reeling under a meltdown and it would take some time before they recover and instill confidence amongst the distressed investors. At the same time it needs to be borne in mind that staying away from the market is NOT the solution for your investment needs but relying on enactment of timely and informed decisions is the need of the hour.

Remember if you have a plan in place, invest regularly, take limited risks, and enter and exit in a timely manner; you will make the most of the market momentum and definitely register handsome gains from the stock market. Follow this mantra on a sustained basis to reap benefits in the long run.

(Source: ICICI Direct research reports)