Stock markets are as lucrative as they are risky. The risk reward ratio is pretty high, meaning the stock markets are capable of giving you skyrocketing returns but these returns can also go down because of the volatile nature. In this space I will share stock tips for beginners.These share market investment tips are not for you to make quick gains but to help you to become long term sustainable investors.
Do not chase returns: One of the most important share market tips is to not chase returns. When investors look for stock market tips they are mostly looking for tips to get quick gains on the stock market. They want to look for stocks that can give high returns by looking at current stock market values that are trading in the green at really high prices. Hence my first stock market tip for beginners is to not chase stocks because of good returns. Stock markets are extremely volatile and returns and high values might be voluntary. Stock market movements, a lot of times are cyclical. So a particular stock might be in the greens momentarily but it may not be a ‘good’ stock.
Equities are long term investments: Equity investments will give you returns only if you hold them for longer periods, seven years or more. You can get double digit returns but that is compounded over time and if you do not redeem early. So this is also one of the important stock market tips, get your equity investments stay invested and do not redeem early. Please note that stock markets can be extremely volatile in the short term and you should give atleast 5-7 years for your investments to bear results as equities are long term investments.
Research: What is a good stock? If not returns, how do you know which stock to pick? You will have to conduct in-depth research on the fundamentals of the company, financials, find out if the management is credible and efficient, do some research on the industry the company belongs to as well. You should be able to tell if the growth prospects of the company look strong for the longer term. So if someone recommends you a stock say DLF, then don’t just be tempted to invest by looking at DLF share price. You need to research further into DLF as a company, look at its businesses and how it is run, the management, a few key financials, the industry on the whole etc.
Add during market lows: Many times investors start pulling out money during stock market lows. It is actually better to add when the stock markets are trading low because stocks are cheaper. During lows, even quality stocks lose value . This idea is not to buy cheap stocks. The idea is to buy value stocks when they are trading at lower values. You can know this only when you complete the previous trick I shared with you, which is research.If you have done proper homework, studied the markets and the companies that suit you, you will be able to siphon off value and growth stocks during lows when every other sock also looks lucrative. This is also one of the important share investment tips.
Do not emulate another investor’s profile: Another important share market investment tip is to not copy another investor. When you see successful investors like Warren Buffet or Rakesh jhunjhunwala (in the Indian context) making tonnes and loads of money, did it ever cross your mind to simply emulate, or rather copy the investments of these investors and you will to end up being billionaires or millionaires just like them? More often than not and mostly not, you will not be able to copy the returns of another successful investor even if you copy their investments. So even if you read the news about a famous investor invested in a company say JSW steel and even though you see that JSW steel share price is increasing steadily, it still doesn’t mean you blindly buy the share without checking the company’s fundamentals.
Every investor is different in terms of preferences, risk tolerance and investor profile. Likes of Buffet have high risk tolerance, can afford to lose money and still stay invested to let the returns compound for a slightly longer period of time, longer than you can keep your investment.
Do not invest on the basis of hearsay: Do not listen to your friends and peers for stock market advice or share market tips. You should invest only on the basis of your own risk profile and on the basis of which stocks suit you more. Say you have a risk averse profile and you invest in a small cap or a mid cap stock which have a high risk reward ratio, you might land yourself in a soup. You may not have the appetite to see your money go through volatile changes and high ranges of ups and downs. Also, when such big investors take bets in risky stocks, they also have a huge chunk of money in their emergency funds or safer investment avenues so in case the markets don’t look good, they don’t have to tap on to their investments that are in the red and they won’t end up in lossed.
Avoid redemption during market lows: This is more of a trick than a share investment tip.Now we already have an idea why adding during market lows is a good idea but we also need to know simultaneously why doing the opposite can be extremely harmful to your investment basket. Your losses in your investments are notional and not on paper unless you act on them. If the markets are down, your investments are showing losses but the losses do not translate to your bank account until you redeem your investment when they are giving losses. Your losses can convert to gains if you let your investments be where they are.
Emergency Fund: This is not specifically a stock investments during market lows or economic downturns but this is a tip for any investment you make. If you have sufficient funds as emergency in other avenues, you won’t have to redeem our stock investments during market lows or economic downturns when you need the money.