Stock market investor. Beijing is motivated to succeed, and that's a great backstop for investors, writes Jeff Reeves.

Stock market investor

Peter Lynch On How To Pick Stocks

Stock market investor. So you've decided to invest in the stock market. Congratulations! In his book "The Future for Investors," Jeremy Siegel showed that, in the long run, investing in stocks has handily outperformed investing in bonds, Treasury bills, gold or cash. In the short term, one or another asset may outperform stocks, but overall.

Stock market investor


Never miss a great news story! Get instant notifications from Economic Times Allow Not now. However, making money in equities is not easy. It not only requires oodles of patience and discipline, but also a great deal of research and a sound understanding of the market, among others.

Added to this is the fact that stock market volatility in the last few years has left investors in a state of confusion. They are in a dilemma whether to invest, hold or sell in such a scenario. Although no sure-shot formula has yet been discovered for success in stock markets, here are some golden rules which, if followed prudently, may increase your chances of getting a good return: The typical buyer's decision is usually heavily influenced by the actions of his acquaintances, neighbours or relatives.

Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But this strategy is bound to backfire in the long run. No need to say that you should always avoid having the herd mentality if you don't want to lose your hard-earned money in stock markets. The world's greatest investor Warren Buffett was surely not wrong when he said, "Be fearful when others are greedy, and be greedy when others are fearful!

Proper research should always be undertaken before investing in stocks. But that is rarely done. Investors generally go by the name of a company or the industry they belong to. This is, however, not the right way of putting one's money into the stock market. Never invest in a stock. Invest in a business instead. And invest in a business you understand. In other words, before investing in a company, you should know what business the company is in.

One thing that even Warren Buffett doesn't do is to try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth.

It is so till today and will remain so in the future. In fact, in doing so, more people have lost far more money than people who have made money," says Anil Chopra, group CEO and director, Bajaj Capital. Historically it has been witnessed that even great bull runs have shown bouts of panic moments.

The volatility witnessed in the markets has inevitably made investors lose money despite the great bull runs. However, the investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind. Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed.

In a bull market, the lure of quick wealth is difficult to resist. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time. Instead of creating wealth, these investors thus burn their fingers very badly the moment the sentiment in the market reverses. In a bear market, on the other hand, investors panic and sell their shares at rock-bottom prices.

Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them. Diversification of portfolio across asset classes and instruments is the key factor to earn optimum returns on investments with minimum risk. Level of diversification depends on each investor's risk taking capacity.

There's nothing wrong with hoping for the 'best' from your investments, but you could be heading for trouble if your financial goals are based on unrealistic assumptions. For instance, lots of stocks have generated more than 50 per cent returns during the great bull run of recent years.

However, it doesn't mean that you should always expect the same kind of return from the stock markets. Therefore, when Warren Buffett says that earning more than 12 per cent in stock is pure dumb luck and you laugh at it, you're surely inviting trouble for yourself.

If you want to take risk in a volatile market like this, then see whether you have surplus funds which you can afford to lose. It is not necessary that you will lose money in the present scenario. You investments can give you huge gains too in the months to come. But no one can be hundred percent sure. That is why you will have to take risk. No need to say that invest only if you are flush with surplus funds.

We are living in a global village. Any important event happening in any part of the world has an impact on our financial markets.

Hence we need to constantly monitor our portfolio and keep affecting the desired changes in it. If you can't review your portfolio due to time constraint or lack of knowledge, then you should take the help of a good financial planner or someone who is capable of doing that. Better put your money in safe or less-risky instruments," advises Kapur. Choose your reason below and click on the Report button. This will alert our moderators to take action. Get instant notifications from Economic Times Allow Not now You can switch off notifications anytime using browser settings.

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