Most of us think of share market investments as a tool to make a quick buck. This is where we go wrong. Investing in the share market is not a quick process. It requires patience and a good amount of research so that you don’t end up losing money.
The Indian Stock Exchanges have been extremely volatile for the last couple of months. Some experts believe that this is a good time to invest in quality stocks that have been beaten down because of the volatility in the stock market. But, when it comes to research, you and I can be considered a novice, but, with these share market investment tips, you can pick good quality stocks that will give you decent returns in the medium to long term.
They Are Called Fundamentals for a Reason
Fundamentals are the basic products and services of a company and the future stability of the business. Most investor’s, in their haste to invest, overlook fundamentals. They get carried away by the over-confident speeches that the management present during their quarterly and annual results. These speeches highlight the tentative expansion plans and make projections for future sales. The keyword here is “tentative”.
We recommend that instead of going with the flow of management speech, investors research the actual financial of the company. The company’s past performance in terms of delivered earnings growth can be a good indicator of what to expect in the future.
Look For Bargains
Cheap does not always mean bad quality. With the current volatility in the share markets, there are a lot of good quality stocks that are available at cheap valuations. A prudent investor will make the effort to look for such stocks and invest at these valuations. The mantra is “buy right and be patient”.
Share prices are not the best indicator of the health of the company. They fluctuate based on global market cues, consumer sentiments, and government announcements. So, if a share is getting beaten down, it is not necessarily a bad investment. Research the company and you may just end up finding a gem which will give you huge returns in the long run.
Short Is Not the Best Option
Many investors enter the share market with a short-term plan. They get carried away with the Bull Run and want to be part of it. So, they invest when the shares are doing good, which means they are expensive. These short term surges last a short period after which the market will experience a level of correction. This is when the investors who bought shares at high prices will make a loss.
It is always best to have a long term view when entering the share market. A long term view will take into account the bull and bear phases of the market and give you a net positive earning on your investment. A horizon of three years or more is considered a decent period to hold an investment. Also, another plus side is that the taxman will not come knocking on your door for investments held for over a year.
Diversification Is the Key
I’m sure you have heard the quote “Don’t put all your eggs in one basket”. There is a reason for that. If you invest only in one company or one sector, you are likely to experience high amounts of uncertainty. Therefore, it is best to split your investments to make a diversified portfolio. This way, when one sector is volatile, only a small portion of your investments are in turmoil.
Another way of diversification is to invest part of your money in debt. While debt instruments offer lower returns, they are extremely stable and don’t have the uncertainty as shares do. So, having a mix of low-risk and high-risk investments in your portfolio will give you a better return in the long run.
Being Stubborn
Investment in share market is being able to go with the flow. Being stubborn and not booking losses when your stock price is declining can result in a big chunk of your investment disappearing. Experts often recommend averaging, but, unless you have a thorough understanding of the company’s operations and are comfortable with their fundamentals, we recommend otherwise. Make use of our share market investment tips to make sure that you don’t lose all your investment.
Don’t Go All in At Once
Like in gambling, if you go all in, you either come out with a big bundle or with nothing at all. But unlike gambling, investment is serious business. Investments are what you turn to when you retire and want a comfortable life, or want to give your child a big wedding. So, instead of putting your funds in the market at once, invest in small amounts.
There are a lot of systematic investment options available for retail investors. You can invest every month in mutual funds, stocks, debt, and even gold. So, call our broker and start that SIP today.
Investing in share markets can be highly stressful or highly rewarding depending on your strategy. If you follow the above-given tips, you are bound to come out a winner in this fight between the bulls and the bears.
