Money lures one and all. Big and easy money lures more and more people like a Pied Piper. This lure of big money brings people to the stock market. But let me clarify you must be aware about Indian stock market overview to make money.
Many people have lost their entire life savings and are debt-ridden. Their greed has brought them on the verge of or have committed suicide. The other side of the coin is that few have made good money too.
Let’s see the others few who have made good money, who had patience, done a lot of research, solid understanding of the market, and had disciplined way of trading.
Market volatility is one of its inbuilt characteristics. New investors are in a state of confusion during this volatility period, should they hold, sell or buy the shares.
Market swings (up or down) are impossible to predict. But there are some rules and cycles if followed, then probabilities of good returns are high.
- Surplus funds.
One should only use surplus funds that one has and it should not create an unbearable financial loss if in case he loses, fully or partially that amount in share market. In present market condition though chances of losing are very less because huge data is available on the internet to satisfy one’s analysis. But still, there are chances ( the risk factor associated). Best thing is to invest 10% of your surplus funds regularly and whenever gain is made, book profit over a period of time.
One should diversify his investments (spreading risk) by investing in small-caps, mid-caps, and large-cap companies. Every segment has different returns and volatility. One can also diversify on bases of sectors (bank, IT, metal, pharma, FMCG,) as some sectors perform better due to favorable government policies or announcement. One can diversify on basis of thematic indices (commodities, energy, MNC, PSU).
Diversifying investment in different ways helps to reduce the risk factor of your investment. But too much diversifying can have a bad effect on your returns as they will go out of control. You will not be able to take proper advantage.
Multi-bagger stocks are those stocks which have given unimaginable returns over a long period of time. There are tens of thousands of shares. Out of which only a handful have given unimaginable returns. And also only in the bull phase of the market. It is very very difficult to figure out which “unknown” stocks will give these type of returns.
We always hope that the stocks we have give the best returns, but practically it is not so. We should not have unrealistic returns of any stock. One should know at the maximum how much return our stock will give in future, say few years down the line. Warren Buffett said that one can expect 12 percent returns. Above it is just luck. If your expectation is more than that, one is just inviting trouble. One cannot be lucky each and every time.
- Known business.
It is better to invest in a company whose business you understand and have knowledge about, like transportation, textiles, automobiles, paper, electronics etc. In this way, you can figure out how much return you can expect the business can give practically.
- Keep the tab on news.
World news does affect our stock market (in a positive and negative way). And ultimately our share prices move up and down. One should always track Indian and world news regarding what is happening in different parts of the world. Change in government policies, rules, an outcome of meetings held, mergers and acquisitions, company announcements, financial results and business related news on regular basis. This will help you in knowing which shares to purchase and sell.