Why do you invest in the stock markets? If your answer is for your money to double in no time, then you are not alone. You have lakhs of fellow investors looking for the same thing…. Money Doubling In A Matter of Months If Not weeks….. However if you esquire with friends and relatives before you decide to invest your hard earned money in stocks, you will find tales of grief. Many of your friends and relatives have lost a lot of money in the stock market. How did this happen? Well…they made some costly mistakes while investing in the stock market.
Blindly following others. This is the herd mentality. You cannot make decisions for yourself. This is when you follow the herd. Sheep are known to do this.
You see your friends making a lot of money in the stock market. You imitate their investment strategies thinking…well they made money this way. Now it’s your turn. You need to remember that your friend’s financial goals are different from your financial goals. How can their investment strategy apply to you?
It is very difficult to identify a winning stock. Everyone wants to buy winning stocks. Most of the time you end up buying stocks because everyone is buying them. You invest blindly without doing your research. When the stock price crashes, it is too late for you to exit the stock market. You and several of your fellow investors suffer a heavy loss. You need to understand the Company whose stock you plan to purchase. What is the business of the Company? What are its products or services? Is its business profitable? What are its growth prospects? Does it have a capable top management?
You have done your research and identified a very good stock. Should you invest all your money in this single stock? No, definitely not. You need to diversify your investment in stocks. You need to invest in stocks of different sectors. If one sector is doing badly, (say oil and gas or pharma sector is doing badly), then IT or automobiles might be doing well. If your pharma stocks have taken a hit (crashed badly), then you can still be happy…at least your IT stocks are doing well.
You have bought a stock for INR 100. You expect the price of this stock to rise to INR 150 in a few months. Unfortunately the price of this stock has crashed to INR 50. You have not sold the stock. You tell yourself…. This is just a paper loss. (Notional loss). The stock price will soon go up. However it has been several months and the stock price is still languishing at INR 50.You have not sold your stock. An emotion takes over …Hope…You are confident that the price of the stock will rise, at least a year from now.
The stock price has not risen even a year later. This is when another emotion takes over…Regret…. Your friends had told you not to invest in that stock, but you did not pay heed to their advice.
Investing in the stock market is not rocket science. If you avoid common mistakes while investing in the stock market, you can profit from your investment.
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