10 factors you should look before investing in the stocks
Now that you have decided to invest in the stock market all by yourself and you do not want to take the route of the mutual fund, it will indeed be a good idea. But the thing is that you need to taste the waters. According to the legendary stock investor, everyone possesses the knowledge and ability to follow the stock market. He believes that a fifth-grade student can crack the idea of stock investment. He means that if an investor has passed his fifth-grade elementary education, then he will be able to invest in stock markets like a pro.
But there are certain things that you need to keep in mind before you start investing in stock markets. You will be able to save a lot of your precious time, money, and effort by following the below-given guidelines:
Choosing an online trading account: It is possible to place orders for stock purchases over your phone or even online. There is a lot of transparency in the transactions of online trading accounts. It will also make you capable of tracking the whereabouts of your order that, too, in real-time. Also, one thing that you need to keep in mind is that there should not be any broker in between trading on your behalf. Only you should have access to the stock trading account.
Acquiring Demat and trading accounts: You will require a Demat account and a stock trading account to begin with your stock market investments. You can easily choose amongst the several brokerage firms. You can choose the simplest option, i.e., contacting your bank. Most of the banks offer services related to Demat and brokerage. If you are already having an established relationship with your bank, then you will feel at ease in contacting your bank to get a Demat account.
Being mindful of the broker advice: As soon as you open your stock trading account, the broker will shower you with umpteen offers and services. These will include guidance and stock tips. You need to acknowledge the fact that your requirements will always be secondary to the broker. He will have his primary interests, which will be in frequency with your trades. So, he will want you to indulge in trade. According to Nassim Nicholas Taleb, an investor should not take advice from the brokers. They can bankrupt you. One should never ask a general for advice on war. Similarly, one should never take tips from a broker about money. You should never feel forced to sell or buy according to your broker's advice. Instead, you need to research a lot and then analyze the situation and come up with your judgment.
Starting with small investments: In the beginning, you must invest a small amount of money. The initial phase is meant for your learning. So during this learning period, it is better to invest a small portion of money in the stock market. Even if you are holding a large corpus of money, do not give in to the temptation of investing a large amount. After gathering enough experience and knowledge and becoming fully confident about your capability to invest in the stock market successfully, you can think of increasing your investment amount.
Keeping records: There should be a contract note sent by your broker after every trade that you make. It is utterly significant to verify and archive it. This is proof of the business transaction. Also, do not forget to keep a note of the buying prices and dates, profits, and losses, selling prices and dates, quantities sold and bought, and so on. You can manage these details in an Excel sheet. This will be extremely helpful in tracking your investment results, payment of taxes, as well as bringing discipline to your investing approach.
Staying away from stock trading, stock tips, and derivatives: Stock trading involves quick profits by utilizing the fluctuations in the market. Usually, most of the stock traders tend to lose. S it is not a healthy pursuit. It is better to invest for the long term in the stock market, that too, after proper analysis and research work.
Be aware of the options and prospects. We call them collectively as derivatives. Derivatives utilize the leverage and have the ability to dramatically increase your returns. But they can wipe off your capital too, in a matter of seconds. Derivative traders tend to lose generally. So it is better to keep away from the derivatives. Derivatives can even tear down the entire system of finance. Warren Buffett calls them "weapons of mass destruction."
Investing in education: You must have heard what Benjamin Franklin used to say about investing in knowledge. He said that investing in knowledge always pays the best interest. You can never be successful without investing in educating yourself. You need to acquire knowledge regarding how stocks can help in preventing you from making huge mistakes. You can also teach yourself about the perfect methods to invest in stocks. The major reason for the failure of many stock investors is the lack of adequate knowledge related to the stock market. You can read several good books such as The Intelligent Investor, One Up on Wall Street, and What Works on Wall Street, etc. Also, you can try learning from eminent stock gurus.
Persistence: You must not expect monumental results in day one itself. In the beginning, it is ok to lose money. You need to be persistent in your pursuit. Many people are there who have proper knowledge about the stock market. Yet they fail to make it big. This is so because they often run out of money that is needed for making investments. It is necessary to maintain regularity and discipline in any form of investment. According to Warren Buffett, there is no need to be smarter than the rest of the world. All you need is to be more disciplined and regular than others.
Devising a strategy: As soon as you start operating in the market, you will need a stock strategy that guides you about what to buy when to sell, when to buy, how to track, and so on. If you do not have a sound strategy, then your stock market career can experience a downfall. The stock strategy can safeguard you from any kind of noise and distraction in the market. While you progress with your investments, you can keep modifying your strategies. You can read some good books which will guide you in creating effective strategies. But the real-life experience that you will gain in the market will become your true guide. There will be some small mistakes. So it is advisable to start with small investments.
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