By the end of May 2023, India’s stock market cap stood at an impressive Rs.286.6 lakh crore, making it the world’s 5th largest. As the country’s markets continue to grow, people will find plenty of opportunities to make profits from share market trading.
But making profits from the share market is not as easy as it seems. It requires research, discipline, and patience to make profits consistently. Although there are no hard and fast rules to success, the following golden rules can help anyone make substantial gains.
Golden Rules of stock market investments
Brokerage firms have made stock market trading and investments much easier. To get started, people can easily open a Demat account along with a trading account by registering on a trading app. But making profits in the stock market consistently is not an easy task.
Therefore, here are some golden rules of stock market investment for investors who are new to the market:
- Avoiding the herd mentality
It has been observed that people tend to buy stocks recommended by friends or relatives or even acquaintances. If too many people are investing in a particular stock, it is a common tendency to do the same.
It has been observed that decisions taken on a herd mindset have a very high chance of being wrong. This is especially true for stocks that are overhyped in the market. It is a good idea to consider the popular saying that it is wise to be fearful when others are greedy and vice versa.
- Focusing on long term
Entering the market when it is at a low point and exiting when it is at its peak is one of the oldest share market trading strategies. However, it is not as easy as it sounds.
Sometimes, a stock may go down despite strong fundamentals while a stock with weak fundamentals may have its price soar. But investors should focus on long-term averages than short-term volatility to make wealth over time.
- Conducting research and homework
Stock selection is the core component of a successful investment. Purchasing stocks without proper research or homework can be equivalent to jumping into the ocean without knowing how to swim.
Therefore, before investing, one must study the business models of companies, analyze their financial statements and calculate the financial ratios. One must be capable of interpreting the information.
- Diversifying the portfolio
Portfolio diversification is one of the traditional strategies of stock market investment. It is always recommended never to put all the eggs in one basket. Similarly, do not put all the investible funds in one stock or similar kinds of stocks like companies belonging to a common sector.
- Investing in bits and regularly
It is always recommended to make investments in small amounts but regularly rather than investing a huge lump sum in just one go. Alongside this being a cheaper option, it also allows an individual to be flexible.
- Avoid trying to time the market
Investors should not try to time the markets. Despite warnings from experts, people just try to do the opposite and end up losing their hard-earned money. It is impossible to predict when a market will reach its highest mark and when it will decline. Rather, investors should focus on spending as much time on the market as possible.
- Understanding the business models of companies
One should always invest in the business that they understand. It is important to figure out the companies’ business models and how they are making money. Having a clear idea of some of these core aspects can help one in analysing its fundamentals and interpreting the same with ease.
Always try to avoid those companies whose business models and strategies are not clear.
- Maintaining a disciplined approach
After finalising companies to invest in and determining an investment strategy, it is important to stick to the plan. It has been observed that investors who have been investing systemically and monitoring their investments regularly can generate outstanding returns through share market trading.
- Monitoring regularly
After investing one, should monitor one’s portfolio regularly. Stock market investments are not about investing once and then forgetting. Constantly monitoring gives an idea that when is the right time to exit from some stocks, which are not performing well.
- Investing only, one’s surplus amount
It is always advisable to invest only the surplus amount, which one can afford to lose. It is not necessary that one lose money in the current scenario but markets are risky and volatile. Therefore, one must set aside funds for emergencies and living expenses before investing in stocks.
It is important to understand the basics of share market trading and investment to turn in profits over the long term. Some of the notable rules for stock investments include conducting research, portfolio diversification, keeping a focus on the long term, etc. The above-discussed golden rules will surely help one in understanding stock markets better and help in securing their future financially.