Investing in the stock market can be challenging sometimes, because the market can be so volatile. You have witnessed many red flags these past few months. Imposition of new taxes, rising yields, lower profit growth, auditor resignations, margin increases and so on. We have seen about two-thirds of the market take a spin. It’s certainly not easying going anymore.
You could liken the stock market to climbing a mountain as of now. The higher you go, the more tired you get. You could easily swing down, but it’s difficult to climb up again. You also need a breather every now and then. As we are at high levels, it’s easier to climb or fall down, than to climb higher. And that is what is happening in the market now. You are seeing more stocks falling, than rising.
DON’T PLAY FOR HIGH-FLYING RETURNS
To make your portfolio work for you, create an investment plan or policy and put the rules in writing. One of the rules to put in writing now is to look for steady, and better than savings bank or fixed income returns. You don’t need superlative returns. You don’t need a kicker in returns. Invest only the mundane companies where returns will be low and steady, but it will keep your portfolio in the safer zone. A dangerous way to invest is to go after big returns i.e. act on tips or buy small- and mid-sized companies where there is more risk.
PREPARE TO DIG DEEP
Be prepared to wait it out. When you are investing in stocks, be prepared to leave them alone for a minimum of five years. Make sure that you are able to manage without that money, as it is the only way you will see a good profit. If the market starts to do poorly, try to remain levelheaded, and understand that just as the market goes down, it will rebound, but it takes time.
Like a rising tide lifts all boats, a fall tide drags all boats. You could – and will – see some really good high-growth low priced companies take a tumble in this market. You need to know that when stocks fall, even the good companies can come tumbling down. Some stocks will lose more than the others. But if you are confident of the potential, then there’s no harm sticking to them.
You have to be aware of potential changes and prepare for them. We all know stocks are like a roller coaster, always going up and down. It is crucial you prepare for the ‘downside’ more than the upside.
ILLIQUID COUNTERS CAN RUIN YOUR PORTFOLIO
Sometimes when stocks fall, they keep tumbling down and down as they lose favour in the market and of market participants, and for reasons of liquidity in the stock, many of these stocks could take a huge hammering. In the game of poker, the players know when the cards are bad, and they don’t play to aggressive. You got to see the market with a realistic view.
Illiquidity can be a big spoil-sport in game of building wealth. In such cases, it is generally better to lose some than to lose all. One of the great investment gurus William O’Neil recommends a stop loss of 8 percent from your buying price.
DON’T FRET OVER LOSSES
Be a humble investor and level-headed investor. If it appears that you may have lost a tidy sum, don’t put good money after bad. Even when it appears you have the stock nailed, you could be surprised with the turn of events. The markets have a mind of their own, and more often than not never go according to plan. Don’t cave in to your emotions at this point. Remain calm and remain watchful of the market conditions.
Whenever you lose money in the stock market try to think of it as a learning experience. You should try to reevaluate the situation and try to pinpoint where you went wrong. You must learn not to make the same mistakes in the future.
CASH IS AN ASSET
You must not have an itch to gamble, but instead you should develop a carefully cultivated analytical mind to invest. If you still think stock markets can make you easy money, think again. If you don’t know where to invest, you are better off holding cash.
