Three Guiding Principles of Investing in the Stock Market

by khalid on 20/02/2013 · 3 comments

Stock Market

Come to think about it, stock market trading can be both a high-risk affair and at the same time considered as Safe Avenue for investment. The key factor here is the manner in which people approach stock market investments. The introduction of online share trading nearly a decade ago has made it possible for every man and his mother-in-law to invest in stocks. But how an individual chooses to invest in the markets becomes the make or break factor with respect to the amount of money a person makes or loses in the market.

While the so called seasoned players are well versed with the vagaries of stock market investment, those new to stock trading do have a tendency to get overwhelmed by information overload. They also tend to get misled and easily lose focus which more often than not results in unwarranted loss of capital.

People new to the world of stock investing need to keep the following principles in mind before investing in the stock market. We choose to call this the three guiding principles of stock market investing. If you stick to these religiously, be rest assured that your invested capital would remain safe and you would be at complete peace of mind.

Start Small – Tread Cautiously

The moment you open a demat account, the first thought that comes to your mind is to dabble in a number of stocks across various sectors and possibly invest large sums of money in one go which is definitely not the recommended approach. The best way forward for beginners is to pick only a couple of stocks and invest small amounts until the time they learn the ropes and get a better hang of how trades are executed as well as familiarize themselves with the myriad of stock market jargon. Take as much time as you want until you gain enough confidence to diversify your portfolio and take intelligent and calculated investment calls when trading in multiple stocks.

Pick the Best – Play Safe

Most online trading accounts provide account holders access to a variety of tools such as equity research, real time quotes, price trends, etc., which helps one pick and choose the right stocks. If you are unable to do the research stuff on your own, most brokerages offer plenty of tips and advice that will help you pick the best possible stocks.
Whatever be the case, the gist of the entire matter is to invest in the best companies when you are a beginner. When we say best, it’s largely safe to go with blue chip companies that have performed well on a consistent basis. Following stock tips from unknown or unreliable sources is definitely a recipe for disaster. Staying invested for long term in blue chip stocks has always given investors decent returns on investment.

Look for the Right Point of Entry

This is a fairly common occurrence that even you yourself would have experienced. Most people choose to make an entry only when they see a rally in the market. There have also been reports of people rushing in to open demat accounts whenever they see the market booming. This of course leads to people taking inappropriate decisions when the market starts correcting. The recommended time to enter the market is to start buying when everyone else around you is selling. Now before you go ahead and determine the right time for entry, do find out the reasons why the market is falling and to what levels would it continue to break.

To conclude, if you stick to these guidelines, you should be able to more or less remain unscathed no matter which direction the market is heading.

Author Box
Kotak Securities is one of India’s share broking firm offering demat account, online trading, mutual fund and IPO investing service’s along with a research division specializing in Sectoral Research and Company Specific Equity Research. We also offer you the insights & information about various forthcoming IPO’s thus keeping you aware with the IPO market.

Express your views on their Facebook Page and Twitter Handle (@KotakSecurities) or you can also visit KotakSecurities.com for more information.

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{ 3 comments… read them below or add one }

Shweta Seth February 21, 2013

Two big rallies are expected next week when Rail Budget and Union Budget is unveiled (http://in.reuters.com/subjects/india-budget-2013)
is it advisable to long now and short next week?

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khalid February 24, 2013

Hi Shweta,
Never link your investment decision to any event or festival. Investors are carried away by big events like budget or festival like diwali. Please bear in mind that these are one day events. Yes, markets do react to budget announcement but your long term investment decisions should be based on your investment objectives, risk appetite and investment horizon.

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Shweta Seth February 26, 2013

I agree with you Khalid. Thanks!

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