Understanding ‘The Stock Market’

Fund-Matters | July 30, 2022 | Financial Planning, Investing, Share Market, Stock Market Investing, Stocks, | 0 Comments

 

Let’s understand the following few points which can help beginners to understand the stock market better:

 

  • Understand stock market basics & learn about market behavior. An investor who knows the market basics and understands the market cycle can definitely bear the market volatility better than other average investors.
  • -The greed for big profit has always thrown many investors into the lap of stock markets. However, one needs to understand the fact that making money in equities is not easy. The stock market is a valid option of investment like FD or bonds and like all other investment options, it requires oodles of patience and discipline, with a great deal of research and a sound understanding of the market.
  • Avoid crowd psychology. We usually get heavily influenced by the actions of our friends, acquaintances, or relatives. Hence, if everybody around is investing in a particular stock, we also tend to do the same. But this strategy is bound to backfire in the long run.
  • Do your own research. It is easy to say ‘Buy the right stock’ but so much hard to find which is the ‘right’ stock for you. If you want to succeed by investing in individual stocks, you have to be prepared to do a lot of work and research. You can do some basic fundamental analysis like finding out the company’s past record, financial statements, future plans, EPS, P/E ratio, competitive advantages, etc. Initially, you may find it hard to learn and apply but with time it will become easy and you will be able to find the right stock for you.
  • -And one easy thing to keep in mind- invest in a business you understand well. In simple words, before investing in a company, you should know what business the company is in.
  • Focus on ‘time in the market‘ not on ‘market timing’. Finding the correct time in the market is the biggest myth. Most financial planners recommend not to time the market or wait for the ‘right time to invest in the market. However, investors often do the opposite. It is always important to focus on time in the market. For example, the down market gives the opportunity to buy some quality stocks for a lower value, hence, if one has some money to invest after covering their basics, they should invest more in the market during such time for the long term.
  • Accept the market volatility. Volatility is an integral part of the stock market, no one can separate it. Therefore, better to accept the stock market with its volatility and learn to manage it. The more you understand volatility and risks in the market, the better you understand the stock market… Mind it 🙂
  • Make a diversified portfolio: Diversification helps to reduce the market risk. When it comes to diversification, one thing is important to note that it doesn’t just mean many different stocks. It simply means investments that are spread among different asset classes. One can also take the ETF or mutual fund route than direct stock market investment.
  • – Prepare yourself for a down market. The stock market fluctuates and can turn your portfolio profits into losses. As long as your portfolio is diversified, you can always minimize your losses. Though you need to prepare yourself for a down market and need to ride out short-term volatility to get decent long-term returns. Remember like an up market, a down market is also a temporary state. Stock market recovers., always.
  • Have the ‘right mindset’ as an investor. Right mindset means to learn and apply different traits and skills to become a successful investor:-

 

  1. Keep learning about money and investments
  2. Patience and discipline are important
  3. Invest for the long term as they need some time to grow and to give positive returns
  4. Invest after understanding the product and after doing your own research
  5. To trust in your choices and decisions
  6. Do not follow others or copy others’ investment decision

 

If one has the right mindset as an investor he can surely achieve financial success, can bear the short-term losses, and can stick to his investment strategies to achieve the goals.

 

Investing in the stock market can be very rewarding. It is the only investment option that gives you inflation-beating returns. In order to understand the stock market better, all you need is to understand its volatility and invest regularly and for the long term.

 

With time, with returns & losses, with market ups & downs, you will automatically understand the stock market better and will get more comfortable with stock investing.

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