Warren Buffet once said, “You only find out who is swimming naked when the tide goes out”. The meaning of this legendary quote from the stock market legend himself is that during the strong economic growth phase, you do not understand which companies are having poor financials or governance as there is a general uptrend in the market and prices go up. However, during the volatile market conditions or economic turmoil, you find these companies and the stocks as they dip drastically and within the blink of an eye. So, if you are wondering how to become a successful investor who can dodge these kinds of investments, here are some timeless investing tips for you.
1. The Concept of Time
The first tip is about time in the stock market and not how you want to time the market. Often investors want to gain exponential returns within a short frame of time. Even there are misconceptions about stock market investments like doubling money in a few months or so, which are still prevailing in many parts of the country. However, the actual thing about earning a good return from your investment is about how much time you spend in the market or for how long you invest.
2. Learn to Diversify
Diversification is the key as you may know and it may seem cliché to most the ears but still, diversification is one of the primary things to consider while investing in the stock market. If you put all your eggs in one basket, you can lose them all. So, you need to diversify to optimize your returns and minimize your risks.
3. Understand the implication of cycles
You need to go against the cycle to earn great returns. For instance, suppose you are investing in a company that produces winter garments, so, the revenue of the company would go up during the winters, so is the stock price. But if you want to make an above-average profit, you need to invest in this stock during summers, when the revenue is low so is the stock price.
4. Guard your emotions
You should be invested in your investments but not emotionally. This is a key rule of investing that you should never let your emotion cloud your investing judgment or logical thinking.
5. The art of rebalancing
Due to the market movements, if your asset allocation gets hampered, rebalancing your portfolio would come in handy. This would help you to maintain your ideal asset allocation under all market conditions.
6. Learn to differentiate between news and views
Investing after hearing the news? Are you sure it is news or just a rumour? While listening and reading daily news is important; investing solely based on the news can be gruesome. You need to recheck and analyze the effect on your investment thoroughly before taking any step.
7. Corrections are normal
Corrections in the market are natural, investors must be patient enough to observe whether it is a normal correction where stock prices move around 8-12% either upside or down. However, if the change is beyond normal, then maybe a bigger event is around the corner.
8. Make learning a constant habit
Continuously learning is another habit of successful investors. Whether you read economic news, journals, stock analysis reports, or financial blogs, the more you learn, the better your investment skills can be.
9. Analyse the risk potential
Your friend bought a stock that will probably give exponential returns as per his analysis. You invested in the stock as well. The company failed, and both of you lose the money invested. However, your friend has a monthly income of Rs. 2 lakhs and you have Rs. 50000. So, the loss may not affect your friend much as it does you. Investing is a very personal affair, while you can discuss it with your friends and family but investing according to their plan is never a wise choice. You need to analyze your earnings, risk appetite, and investment goals.
10. Think differently
Finally, thinking differently is what successful investors do. They do not go by the herd mentality and invest when the prices are high and sell when the prices are going down. They analyse, observe and invest even if it is against the market timing. While with the advent of technology in the investing arena, investing has become easier. But still, these above-mentioned rules of investing haven’t gone out of the market. Even when the market becomes volatile, abiding by these rules helps every investor and also helps them succeed. Contact us at Tata Capital Wealth to get your doubts clarified.