Investing in the stock market for long term can give you tremendous returns. The stock market is one investment avenue that will test your emotions, patience, temptation and a lot more. It is nothing short of a roller coaster ride. However, if you invest after carrying out good research, you can make huge returns.
In order to create long term wealth for yourself, you need to follow certain rules and be disciplined. Yes, you will make mistakes in the stock market, but you have to learn from them and become a smart investor. Although, there is no sure shot formula that guarantees a return in the stock market but there are some golden rules that can make you a successful investor. In this article, you will learn about the 5 golden rules for investing in the stock market.
5 Golden Rules of Investing in Stock Market
- Reason for Investment
Before investing in the stock market, you must know the reason or goal of your investment. Yes, everyone wants to create wealth for the long term but what are you making wealth for is the question? Is the purpose of your investment – children education, their marriage, post-retirement life, medical emergency or something else? The stock market can provide you and your family great support in the financial journey. There are many examples where people make incredible returns from the stock market in the long term and became financially secure. Pick your stocks for investment according to your financial goals like if you want to take a lesser risk, invest in large-cap companies and if you are fine with taking some risk then investing in mid or small-cap companies is a good idea.
- Invest in Business, Not Company
You must invest in the stock market with the view that you are investing in the business and not in the company. With this approach, you will be able to better understand the company and the sector it is working in. Also, make sure that you invest in sectors whose functioning you understand. If you end up losing money and cannot explain why that happened, it is not a good situation to be in. Therefore, never invest in a business that you do not understand.
- Avoid Herd Mentality
In the stock market, you must avoid doing what the majority is doing. In the routine life, you come across different people and many times our decisions are influenced by what other people have to say. This should not be done in the stock market. You would come across a scenario where most people would recommend only a few selected stocks to invest in for the long term. You should not fall into this trap. Instead, you should carry out in-depth research of such companies and find out whether they fulfil your investment criteria. If they do, only then you should make an investment in them.
- Thorough Research
Always invest in stocks after carrying out thorough research of the company. It is always advisable to never go on a blind date in the stock market. However, the question that arises is what points you have to consider to carry out research. Some of the points to consider are business model of the company, price to earnings ratio, debt to equity ratio, management of the company, profit margin of the company, revenue growth, dividend paid by the company, net income, etc. You can create good wealth for yourself in the long term by investing in companies after carrying out detailed research.
- Control Your Emotions
Emotions have no place in the stock market. Many investors in the stock market have lost their money due to their inability to control emotions such as fear, greed, etc. Like for example, when the market is in a bull phase, most of the stocks are in an up move. In such times, it is very difficult to resist the opportunity of making fabulous returns. This leads to investors investing money in unknown companies and falling into a trap. Similarly, when the market is in bear phase, the investors sell their stocks out of fear and end up making huge losses. Therefore, overcoming fear and greed is one of the keys to success in the stock market.
The above mentioned are the 5 golden rules for investing in the stock market. There are many more rules when applied can take you a long way in the stock market. You must always remember that your success in the stock market is directly proportional to the amount of knowledge you have. Therefore, always remain informed about the various aspects of the stock market and companies. Make sure you diversify your portfolio and monitor it regularly. After spending few years in the market, your decision-making ability will definitely improve. However, if you want to take the help of experts before making investment in the stock market, you can contact Kotak Securities. They can help you get all the share market live updates on a daily basis.