- Do’s of Stock Market Investing
- 1. Get an Education
- 2. Start Small
- 3. Get Started Early
- 4. Research Before Investing
- 5. Only Invest What is Surplus:
- 6. Have an Investment Goal
- 7. Build a Stock Portfolio
- 8. Average Out
- 9. Diversify
- 10. Invest for the Long-Term
- 11. Hold the Winners, Cut the Losers
- 12. Invest Consistently
- 13. Have Patience
- Don’ts of Stock Market Investing:
- 14. Don’t Take Investing as Gambling
- 15. Don’t Invest Blindly on Free Tips/Recommendations
- 16. Don’t Have Unrealistic Expectations
- 17. Don’t Over Trade
- 18. Don’t Follow the Herd
- 19. Avoid Psychological Biases/Traps
- 20. Don’t Take Unnecessary Risks
- 21. Don’t Make Emotional Decisions
Do’s of Stock Market Investing
Here are a few of the do’s of stock market investing that every investor should follow:
1. Get an Education
This is most likely the most important stock market investing do. Start learning about the market if you’re serious about becoming a successful stock investor. It does not imply that you must pursue a college education. The best way to learn is through self-education.
On the internet, there is a ton of free information that you can access to learn about the market. Additionally, you can sign up for a few reputable online stock market investing courses to get a head start. Start learning now.
2. Start Small
You wouldn’t dive into 8 feet of water if you were just learning to swim, right? Similar to this, start small when investing in the stock market. Start with the smallest investment you can and gradually increase it as your knowledge and confidence grow.
3. Get Started Early
I cannot stress enough how crucial it is to begin managing your finances as soon as possible. When you start investing early, the odds are in your favor. Additionally, even if you suffer some losses in the beginning stages of your investment journey, you have enough time to recover here.
4. Research Before Investing
One of the key reasons why people do not make money from stocks is that they do not put in the initial efforts before investing in the share. Every investor needs to research the company before investing. Here you need to learn the company’s fundamentals, financial statements, ratios, management, and more. Using a web scraping tool for investors will help you extract all necessary companies’ details at scale. If you do not want to regret it later, research the company first before investing. Our Motley Fool vs Zacks can help you make a better choice if you are new to the stock market. Its stock picks are easy to understand and help you decide which stocks to buy.
5. Only Invest What is Surplus:
The stock market offers a huge opportunity to invest in and profit from your preferred businesses. Although no returns are guaranteed, there are always some risks associated with the market. Furthermore, a poor (or bear market) can frequently last for years. Therefore, even if you can’t get the money out, only invest the extra cash that won’t change your way of life.
6. Have an Investment Goal
If you have an investment goal or plan, it will be simpler to plan your investments (and to track your progress). Your objective might be to create a retirement fund or a corpus of Rs. 10 crore in the following ten years. You’ll remain motivated and on track if you have a goal.
7. Build a Stock Portfolio
Just having two or three stocks is insufficient for consistently making good money in the stock market. You must create a successful stock portfolio of 8–12 stocks that can provide you with steady returns.
Although it’s extremely unlikely that you’ll find all the top stocks at once. However, you can continue adding and removing stocks year after year to create a potent portfolio that can assist you in achieving your objectives.
8. Average Out
It’s difficult to time the market, and it’s nearly impossible to buy stocks at exactly the bottom and sell them at the top. You may be fortunate if you’ve done it. A better strategy in this case is to buy/sell in “steps” (unless you come across an incredible opportunity, which the market can occasionally offer).
“Do not put all your eggs in one basket!” When compared to a portfolio of ten stocks, investing in a single stock carries a significantly higher level of risk. In the latter case, even if one or two of your stocks begin to perform poorly, it might not have a significant impact on the portfolio as a whole. It’s important to have a sufficiently diversified stock portfolio.
10. Invest for the Long-Term
It is a well-known fact that all stock market veterans who have made enormous fortunes from stocks are long-term investors. But why does long-term investing contribute to financial success? The eighth wonder of the world is possible because of the power of compounding. Invest for the long term if you want to significantly increase your wealth through the market.
11. Hold the Winners, Cut the Losers
If your losing stocks consistently underperform, sell them; hold onto your winners for longer so they can continue to provide you with higher returns. This is the golden rule of investing, which you must adhere to. Building your ideal portfolio will also be aided by keeping your winners and cutting your losers.
12. Invest Consistently
When the market is doing well and the indexes are reaching new highs, the majority of people become enthusiastic and invest in stocks. You won’t find amazing opportunities to choose inexpensive stocks, though, if you only invest during bull markets and withdraw your money when the market is down, that is, when stocks are selling for a discount.
Don’t make market investments for a single year. Consistently invest and progressively raise your investment amounts if you want to profit from stocks.
13. Have Patience
Most stocks take at least one to two years to provide investors with good returns. Additionally, performances improve with more time. When investing in the stock market, be patient and avoid selling your stocks too soon in order to experience immediate gratification.
Don’ts of Stock Market Investing:
14. Don’t Take Investing as Gambling
This needs to be said again: “INVESTING IS NOT GAMBLING!” Don’t purchase any stock at random and expect a two-fold return within a month.
15. Don’t Invest Blindly on Free Tips/Recommendations
You’ll begin receiving free messages on your phone with BUY/SELL calls as soon as your trading account is opened. But keep in mind that there are no free meals in this world. Why would someone send a stranger free stock recommendations for multi-baggers? No matter how appealing they may sound, never heed a free tip or recommendation out of the blue.
16. Don’t Have Unrealistic Expectations
Yes, many fortunate individuals in the market have seen returns on their initial investments of 400–500%. The reality is that this type of news gets quickly spread (and exaggerated).
When investing in stocks, keep your expectations in check. In the market, a return of between 12 and 18% in a year is regarded as favorable. Additionally, if you compound this return over a number of years, your returns will be much higher than the 3.5% interest on your savings account.
Also, don’t assume that you will make the same profits as others who may have a long history of stock investing and who may possess exceptional skill. Similar results are also possible for you, but only with sufficient training and experience.
17. Don’t Over Trade
When you trade frequently, the brokerage and other fees must be paid repeatedly. Avoid trading stocks too frequently. Make decisions with confidence and only engage in transactions as necessary.
18. Don’t Follow the Herd
Within a year after purchasing a stock, your coworker realized returns of 67%. Now that he is bragging about it, many of your coworkers are purchasing that stock. How would you proceed? Must you purchase the stock? Wrong!
No investor can achieve significant market success by going with the flow. Instead of going with the flow, conduct your own research.
19. Avoid Psychological Biases/Traps
There are numerous physiological biases that can have a negative impact on your ability to make wise decisions and your ability to make investments when you are investing. Confirmation bias, anchoring bias, buyer’s remorse, the superiority trap, etc. are a few examples.
Since most of these biases are ingrained in human nature, it may be challenging for individuals to recognize them. In any case, being aware of these biases can help you prevent them from doing serious harm. A further benefit of these biases is that, like any habit, they can be overcome or changed with practice.
20. Don’t Take Unnecessary Risks
It is never a good idea to put all of your money into a hot stock or sector in order to earn a marginally higher return. Gaining high returns is not more important than protecting your money. When investing in stocks, you should never take unwarranted risks and your “risk-reward” should always be balanced.
21. Don’t Make Emotional Decisions
The human mind is incredibly complex, and both internal and external factors can have an impact on the decisions we make. Do not let emotion influence your stock market investment decisions. No matter how much you may like a company, investing in it may not be a wise move if it is not profitable and does not have a promising future. Avoid getting carried away when making investment decisions.
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