3 Must-Dos Of Stock Investment

Stock investment is a black sheep in the family of investment instruments. Unlike other traditional forms of investment like fixed deposits, gold and real estate, stock investment is often looked at with a certain amount of suspicion. There is such resistance for stock investment in the minds of people that only 2% our gigantic 1.3 billion population invests in the stock market. However, contrary to what people believe, stock investment has produced thumping returns for the investors over the years. Not just that, in terms of returns, equity investment has sorely outdone other investment instrument.

The reason people have such misconceptions about share market is that unlike mutual fund and fixed deposits, in stocks, you can't just invest your money and take it out on the day of maturity. Stock investment is little demanding. In the stock market, along with your money, you have to invest your time and have to be patient and vigilant all the time. Many investors while climbing the greasy pole of stock market slip and come crumbling down to the bottom in no time. Perhaps that's the reason many investors leave the market for good with a bad aftertaste.

On the other end of the spectrum, there are some investors who create a fortune in the stock market from the minimum capital. How do they do that? Don't look for any magic or cheat-code, there isn't any. Surprisingly, the biggest of the investors have made their fortune by sticking to the basics.

How do they do it? Let's find out.

1. Reasonable Expectations - A Key To Happiness

Most of the investors start their stock investment on an extremely confused note. The absence of plan and knowledge of market leads such investors to disastrous results. To avoid this unpleasantness one should understand the basic nitty-gritty of market and accordingly set achievable goals. It also helps to keep your expectations reasonable. The reason people think of the stock market as a gamble is that they expect whopping results in a shortest possible time. Investment in stock market is indeed a smart option but like all other investment instruments, it needs time to grow and flourish. So your financial planning has to take into account the time frame of the investment. The thumb rule is - the longer you hold the stock better the results.

When you invest in mutual fund or fixed deposits what returns do you expect? 7-8% from fixed deposits and 12-16% from the mutual fund and most of the times people get the returns they expect. Unfortunately, in share investment, people enter with unreasonably high expectations. Such investors stay unhappy even if they get results better than FD or mutual fund. For example, you if you buy shares of ABC company at Rs. 50 and in 6 months' time the stock reaches Rs. 75. Getting 25% returns in 6 months is a big deal, but if your expectation were 100% then you are bound to be unhappy. It's not that you don't get 100% returns in stocks, but for that, you need to invest in the stocks that offer such growth potential and you should be willing to wait, sometimes for a very long time, for it to reach the set target.

2. Do Your Own Research Or Ask The Expert

As we said earlier, the share market is little demanding. To get good returns in the stock market investors have to be armed with full knowledge of the market. It is difficult to understand the vast world of stocks in one go, but one should keep learning as they go along with their investment journey. However, it's essential to know at least basics of stocks like ratios, market cap of the company, sectors, etc. at the starting point. In case, that sounds like too much of work there are various options available for the investors to opt for like stock advisory firms or portfolio management service which can give a valuable assistance in making your investment experience rewarding.

Investment guru Rakesh Jhunjhunwala has often said that a good advice never comes free. In other words, never trust a free advice. Stock research is a complex work, it requires high diligence and clock-work precision. Many details and technical aspects have to be considered before investing in any stock. Retail investors have the option to do their research on their own but as it is an extremely time-consuming process it's always better to go for professional help. The research analysts of advisory firms help you to identify right stocks which are more likely to deliver good results.

3. Make Smart Choices

Once you enter the market you will come across many enticing opportunities and 'hot tips' which will be difficult to resist. Phrases like 'Guaranteed return' and 'inside information' keep floating around. But remembers these are the stock hoaxes which are created by few operators to manipulate some stocks. For one's own good one should stay clear of such stocks for they bring nothing but losses.

Apart from this, there are some other trading practices which smart investors should avoid. Intraday and Future & Options (FNO) are such things which have to potential to wipe your account clean in no time. Some call it the fastest way losing money while investment giants like Warren Buffett call it the financial instruments of mass destruction. Wise up, don't fall for these traps.

a. Go Long - If your aim is to build wealth through stocks then there is only one way to do that--Long-term investment. Once you get good, undervalued stocks it is your utmost responsibility to hold them for a long period of time. That's not all, holding stocks from long-term also increases the possibility of experiencing a multibagger growth. Going long has many other benefits like dividends, bonus share and the most important - peace of mind as you don't have to track day-to-day developments of the market.

b. Watch Your Financial Planning - An investor in a stock market is just like a kid in a candy shop. In the stock market, every day there are some stocks that can make you money. As the big money is at stake, these stocks make a lot of noise and hullabaloo to which many gullible investors fall prey every day. Not that all of them lose money, but putting your money on the line on the basis of hearsay is just like gambling. The moment you give in to the dazzle of 'quick buck', you put your capital at a great risk. This is the point where your financial planning comes into the picture. How you spend your money, where you spend it, the value you get for that spending is all part of financial planning. Certainly, if you are planning well, you will not allow yourself to get lured by 'quick buck' schemes. Your numbers should always be ready. From the quantity of the stocks to the amount invested in the stock, all the details should be duly documented and reviewed periodically.

c. Emotional Balance - You may ask - what have emotions got to do with stocks? More than emotions, it's about how you hold your emotions (poise) that matter in stock investment. The stock market can bring to fore an array of emotions in you. From fear to greed, all your emotions will wrestle with each other every time the market goes up or down. Let me give you an example to explain this point better. Suppose you have bought shares of XYZ company at Rs. 50. The company is good and fundamentals are solid and you expect good returns from it. For a while, the stock moves in your favour, but suddenly it starts going south and doesn't show any signs of recovery. In such scenarios emotions play a crucial role. Some will succumb to fear and book loss while some are patient and hold it. The fate of the stock is unknown, it may bounce back or it may sink further but such trying times put your emotions through its toughest test.