Stock market investment tips for beginners right from the experts!
Did you know that Rakesh Jhunjhunwala, popularly known as the Warren Buffet of India, made his first million from stock market before he even turned 30?
You might have also heard stories about thousands of stock market investors and traders who had started investing using popular discount brokerage firm after retirement and made a huge amount of money. So, if you believe that age has any relevance for becoming a successful investor, think again!
Even though investing in the stock market requires a decent share trading platform and access to good discount brokers, there are also some equally important aspects for making huge financial gains.
Although there are many ways for investing money like mutual funds, bonds, Exchange-traded funds (ETFs), FD, Forex market etc, here we will focus on stock market investment.
Learning about the experiences of veterans in the field of stock market investment can turn out to be a huge advantage for any beginner traders. This is because you will be able to avoid their mistakes while embracing their successful strategies and ideas. Following are the top 20 investment tips for beginners – straight from the experts!
#1 Always look at the bigger picture:
Before you invest, have a clear idea about why you are investing in stock market. What would you be needing the money for? Do you plan to use the money in next 6 months, or want the money for retiring comfortably? Maybe you need the money for down payment on your house or car? It is important to first have a clear picture on your need. Only then, you can decide how much money you would need to invest and for how long!
#2 Education is the key:
Never jump straight into trading stocks until you have taken the time to learn the basics regarding the stock market. Some of the key areas you would need to learn about includes – the basics about stocks and trading, timings of the market, how to read a company’s balance sheet, basics of chart reading, and understanding the various metrics and definitions like P/E, EPS, ROE etc.
If you check out the website of your discount brokerage firm, you might come across many blogs and educational materials there. It is best to make use of them as well, as they would be created by trading experts and stock market investors.
#3 Start investments in smaller amounts:
You do not have to wait until you save up and have a sizeable amount in hand before you start investing. You can start investing with whatever small amount you can spare on a monthly or weekly basis.
#4 keep a Risk Threshold:
It is very important to draw a line on how much risk you are willing to take in the stock market. In fact, almost all discount brokers allow you to set a stop loss level for the orders in their share trading platform. As soon as you reach the level of risk you are willing to take, exit from that investment and focus on another better one.
#5 Choose the right guide:
In case you need help deciding which stock is best for investment, choose a right financial advisor for getting help. Do not invest by simply listening to what is said in the media or TV. You may make use social media for getting ideas about good stocks, but make the final decision only after talking to your financial advisor or after doing more research on the company.
#6 Don’t let emotions make decisions for you:
Never pick out trades based on your gut instinct or impulse. Any trade should be picked out after careful deliberation, by weighing the pros and cons.
#7 Cut losses immediately:
If a trade or investment is not going in the direction you had anticipated, do not wait and hope for the trend to change. Instead, take a small loss and exit the trade rather than wait and make it into a bigger loss.
#8 Diversify investments:
Remember the age old saying of ‘don’t put all your eggs in a single basket?’ The same theory holds true for stocks as well. Never invest everything in one stock or sector (say, automobile). If that stock goes down, you would lose your invested amount completely! Instead, spread your investment across various stocks and sectors and protect the investment.
#9 Avoid complex strategies and leverage:
You might come across a lot of complex trading strategies and trading using leverage that would guarantee triple the money. A leverage is basically borrowing money from brokerage firm for trading. It is best to avoid doing that until you gain a lot of experience as well as confidence in your knowledge and decision-making abilities. To quote Warren Buffet – “Risk comes from not knowing what you are doing”
#10 Never invest money you need:
Investment should be done only using the money you can spare. This means that even if you lose the money in the market, you would still be able to meet your daily expenses.
#11 Read the fine print:
Many of the discount brokerage firm have hidden costs for using their services. Some of them might charge monthly fees for using their share trading platform, while others might charge you if you don’t trade for a while. So, always read the fine print before signing on the dotted line.
#12 Don’t trade futures and options initially:
As a novice investor, it is best to keep things simple! So, in the beginning, it is advisable to start your trading and investment in stocks, as they are somewhat simpler and easier to understand. You can start trading in derivatives once you have gained the required knowledge and confidence.
#13 Choose stocks whose business you understand:
Although there are many stocks available for purchase, it is best to start with stocks whose business seems quite straightforward, and which can be easily understood by you. For example, it is easier to understand the business of a company that manufactures shoes (eg: Bata) or paint (eg: Asian Paints) or even Maggi Noodles (eg: Nestle) when compared to a company that has a lot of things happening in parallel like software development, consulting, infrastructure development etc (eg: TCS).
#14 Don’t keep buying new stocks:
Instead of buying new stocks every month, it is best to add more shares of stocks that you currently hold in your portfolio.
#15 Space the purchasing of stocks:
For getting a good average price, always split up your stock purchases into three equal amounts and buy the stock every 30 days. This is because it would protect you from any bad earnings reports that can lower the share prices. The investment strategy like Cost Averaging has also been proved to be beneficial in the long run. In Cost Averaging, you typically buy lesser shares of the stock when the price is higher and more shares of the stock when the price is lower.
#16 Book profits:
One of the common mistakes made by newbies to trading is failing to book profits. This can be explained using an example. Assume that you buy 1000 shares of a stock for Rs 100 and the price of the stock suddenly rallies to reach Rs 150. Now, the Rs 50,000 profit you have is a virtual one, as you do not realize that money until you sell the stocks. This means that if the stock corrects to Rs 120 the next day, you would lose Rs 30,000 that you had gained in profits. Hence, it is best to book some profits by exiting at least half of the stock when you reach good profit levels. Remember that companies do not always remain at high prices!
#17 Re-evaluate your portfolio occasionally:
After investing in stocks, check your portfolio on a regular basis to keep track of your investment. You can also occasionally add or remove stocks according to your risk tolerance and return rates. For instance, in case a stock is not moving as expected, you can sell it and switch that money to another stock that is a better investment option.
#18 Don’t try to get the top and bottom of a move:
Most of the time, a stock might have already started its upward trend when you enter into an investment. That is perfectly fine, as even veteran investors find it difficult to exactly time their entry into trading at the lowest point before the start of a stock rally. Similarly, it is fine to exit stock before it reaches its highest level, as long as you gain good profits from the investments.
#19 Short selling is equally profitable:
You don’t always have to buy stocks and then sell them at profits for making money. There is also a concept called short selling stocks. Here, you would sell stocks and then buy them back when the price becomes lower. This is also an equally profitable way to trade stocks.
#20 Ask for Help:
If you have any issues with setting up a new investment account, don’t hesitate to take help from the customer care of the discount brokers that you had selected. The representatives will be glad to help you with any of your questions like how to open an account, transfer money, and any relevant questions. Although they won’t typically provide investment advice, they can point you to the right tools required for helping you pick out stocks.
Now that you know about the various tips and tricks to become a successful investor, it is time to venture out to stock market investing and start making some money! Good luck!!
Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyse all securities before investing in one.