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10 Steps To Become An Expert Investor

16 Jul

We all know that investing in equities is the key to building long-term wealth and becoming rich. However, it is important to remember that not all stocks are created equal. While mid- and small-caps do have the potential to generate high returns, large caps do offer stability to your portfolio. But this does not mean you should ignore any of these stocks.

So it is essential that you should benefit from the high growth offered by mid- and small-caps while enjoying the stability offered by the large caps. Also note that mod caps and small caps faces wild swings in stock market and lot of midcaps become small cap in  a matter of few days and small caps just vanishes with no trace or no buyer and you are left with all the dud stocks of the world.

Remember that nobody is an expert investor; even Warren Buffet lost pots of money in 2008 meltdown.

Be strict with your stop loss. It means when you are losing money, cut your losses and get out of the market. Similarly, if you are on a winning spree, setting a proper stop loss will protect your profits when the stock markets start going down. But it is difficult to face the wild swings in the stock markets in volatile times. Your stop loss is triggered and stock again goes to upper circuit and you are left with huge losses.

Learn whenever you suffer a loss. We lose money in the market due to our mistakes. Find out where you went wrong and ensure you don’t repeat it.

Avoid greed. It is easy to put money in a dud stock just because it is going up. You might be in a hurry to whip up some quick money for a down payment for your home loan or the down-payment for a new car hitting the roads. However, be wise and remember this price rise is due to market manipulation rather than any genuine change in the company’s financial situation. Also, understand that to reap the best benefits you need to stay invested in a good stock for a long term.

Avoid leveraging. Many people borrow heavily from others in order to maximize their profits. Though this may work in certain instances, it can also cause massive losses if the market cycle turns. This can lead to financial as well as mental stress, and can lead to destruction of family lives as well as suicides in certain instances.

Don’t act if you are not sure which way the stock markets will move. In such instances, it is better to be a passive onlooker instead of participating in the market action.

Read a lot. There are many good books on investing available on the subject. Always keep on updating your knowledge. Also follow thoughts and opinions given by respected investors like Warren Buffet, Rakesh Jhunjhunwala, etc. It will expand your knowledge and help you tackle any market situation comfortably. But also remember they are big guys and you a just a small fry so when you lose its huge and when they loss you will rarely get to know that why his firm is known as Rare Enterprise.

Limit the number of stocks. Ensure your holding comprises not more than 20 stocks. Also ensure these stocks are from companies operating in different sectors to protect your portfolio from losing its value. I always suggest stay with the top class stocks with high quality and I have seen that there are less risk involved in case of large caps. Comparatively mod caps and small caps are dangerous and should not be 5% of your portfolio.

Don’t use various investment strategies. If you are comfortable with buy and hold strategy, use the same one for all your stocks. Otherwise you might be confused with which strategy actually helps you make money.

Remain patient and disciplined, whatever the market condition. If the markets are crashing don’t get out of the market, but wait for the market to go up. Also don’t continue to invest in the stock simply because it is going up.

Choose stocks as per your risk profile instead of the returns they generate. If you are not comfortable with the high volatility of the small- and mid-caps, don’t invest in them. I always avoid small caps and mid caps and stay with large caps with good liquidity and excellent management.

Don’t ever think that you are the master of the market , if you are not confident or comfortable there are other secure ways like mutual funds and SIP which pays good money in a horizon of 5-10 years. I have written about the good options among mutual funds where you

get handsome returns in longer term.

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Posted by on July 16, 2013 in Uncategorized

 

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