Learnings from stock market — Part 2
- Diversify your portfolio and stocks.
There is a famous saying, do not put all eggs in one basket. The same applies to the stock market. Don’t put all your investments in one stock.
Financial advisors always recommend investing in different companies in different sectors. So that it will reduce the risk if one industry is not performing well.
Diversify the portfolio based on your risk appetite.
If we are investing in a mutual fund, there are different types of funds. Invest based on your risk appetite.
2. Keep the right stocks and sell underperforming stocks.
This is a mistake most of the investor does. They sell the well-performing stocks once they get marginal profit from them and keeps the underperforming stock in the portfolio, and wait till it gets recovered to sell.
Most of the time, these underperforming stocks will never be recover. As a result investors lose complete money.
We should always keep the stocks that are performing well and should put stop loss to underperforming stocks.
3. Understand brokerage fee.
Most of the time, we forgot the brokerage charge. Should check how much your stock broker charging for the transaction and maintaining of the Demat account.
This makes more sense while we are investing in mutual funds through SIP. Since the broker charge part of the money as broker for maintenance fee.
Look for the broker who charge minimal or no fee for the mutual fund. I am using the coin from Zerodha, where we can directly buy from the mutual fund house and zero broker change.
4. Discipline in investment.
When we are investing for long term decline and patience are the keys.
When we are investing regularly, the stock price will averages in diffrent phases and gets the maximum return.
5. Buy a Value stock.
Identify the value of stocks. A value stock is a stock that trades at a lower price relative to its fundamentals, such as dividends, earnings, or sales, making it appealing to value investors.
Some stocks are over valued because of the market demand. Avoide the stock which is too over valued.
The value stock has the potential to grow faster in the coming days. Understand the actual value stock and compare that value with sector value.
6. Bid for IPO, which is good.
Don’t buy all the IPO available in the primary market. Understand why they are coming to the secondary market? How they are going to use funds came through IPO ?
if the purpose is to grow the company and to develop the infrastrucure its good. If promoters are selling there stocks for liquidating should avoid.
Look out for the companies past performance and management team. Then decide the course of action.
7. Don’t be too ambitious.
The average stock market returns are around 15–17 percent CAGR, if we invest for long time(10–15)years. Don’t be too ambitious while entering the market. It takes more time and discipline in investment to create wealth in the stock market.
8. Be aware of market news.
The market is always sensitive to rumors and predictions, whether its a positive or negative. When the market gets volatile, understand why the market is reacting instead of panic.
It’s necessary to update with the latest news & trends.
9. Always buy quality stock; don’t buy penny stocks.
We tend to buy cheaper stocks by assuming that we can buy a lot. Penny stocks will lose there value quickly then quality stocks.
Look for the quality stock. Quality stock are expensive because company is performing well.
10. Use common sense while investing.
Look around and look yourself while buying the stocks. Look for the products you and people are using for years and still using. Look for product people start using as alternatives.
We are always using the same tooth paste, shampoo and cleaner since childhood. Look for the companies which prepare this products to buy a stock.
As an alternative people start using electric car. Look for the Battery and car companies leading in electric car.
For Learnings from stock market — Part 1 refer here.
Happy Investing!!!!!