Let’s
introduce do’s and don’ts of investing:
Most of
us have our own perception of investment based on our experiences, but also
tend to be confused with the opinions given by others. Knowing the do’s and
don’ts of the stock market would help us turn really as a smart investor.
The do’s
and don’ts in the stock market are:
slow, steady, and
boring wins the race:
It is
best not to panic over information about stocks on the media. Being slow and
steady with looking at the activities that your money is to be used for
would ensure that you invest in ventures that are good, useful and
profitable.
Reading
good books on personal finance will help you in taking right financial and
investment decision. In addition, finding good financial advisors would help
you get advice regarding stocks and mutual funds, along with entrusting the
custody and management of your funds to them.
All this
may seem too boring and time consuming, but it is better to be cautious than
bitten too hard.
Don’t give any
weight to market forecasts. All opinion pro and con is already built into
the price of equities today:
Market
forecasts on the media has got good entertainment value but doesn’t have any
investment value. It is just enough for long-term investors to invest in
good stocks, and mutual funds that would appreciate in the long run.
It is
best to understand that market forecasts only show you the expected
direction in which the market is heading based on the available information.
This forecast is only a forecast and need not become reality.
In
addition, market fluctuations are the very nature of share markets and
should mean nothing to long tem investors. Making accurate market forecasts
is tough, as they are influenced by various factors like the outcome of
political elections, the direction of the economy, interest rates and world
events. It is also wise to know that these fluctuations are incorporated in
the price of the share, stock or mutual fund.
Do make
your own analysis of the stocks, shares and mutual funds:
It is
unadvisable to place your full faith on analysis of others regarding stock,
shares and mutual funds. No wise man would always tell you all about his
market beating strategy. Making ones own analysis keeping your financial
goals in view and framing a strategy would help.
This
involves studying the performance of top performing stocks and mutual funds
over 5 years and existing mutual funds over a period of 3 months to decide
on which stock to maintain and which to dispose off. All this would ensure
that you are investment smart.
Don’t
think you can successfully engage in short-term market timing:
As a
long- term investor you should never contemplate taking advantage of
short-term market dealings and speculations. Playing with shares and mutual
funds in the short-term market may give you a profit in a few transactions
but will not give you profits forever. So you can’t have an investment
strategy which gives profit inconsistently. We need a strategy which can
bring profits consistently so as to be a successful investor in the long
run.
It is
true that playing in the share market is neither entertainment nor fun. It
is also futile to borrow or work on short-term margins to make money.
Don’t assume that
if anyone were genius enough to devise a market-beating strategy he would be
stupid enough to share it with anyone:
Stock
tips are good to learn, but not to act on for speculations. It could prove
dangerous to act on speculation tips given by one and all, as they may not
be correct. In addition, everyone has his or her own perception of
investment, with other not having full knowledge or skills.
You need to take time to think over each tip and analyze if it
contributes to your long-term objective of capital appreciation. Similarly
it is not advisable to subject your money to risk with investing in
investment fads that may or may not earn you huge profits.
The final advice:
You need to make a calculated decision considering the pros
and cons whenever you make an investment. In addition abstain from trading
often in the stock and mutual funds market. Always think in terms of long
term investing.
The
author is
Ramalingam K,
an MBA (Finance) and Certified Financial Planner.
He is
the Founder and Director of
Holistic Investment Planners (www.holisticinvestment.in)
a firm that offers Financial Planning and Wealth Management. He can be
reached at
ramalingam@holisticinvestment.in.
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