Here are my dozen tips for thos who start on the stock market - One of the important investment vehicles for urbanites. Not that I have had great success on the Street, but after seeing multiple highs and lows, I think this is what it boils down to.
1. Invest only the surplus amount (i.e. that you are ready to lose or wait for long time)
2. Never invest borrowed amount or any amount that is essential.
3. No one can time the market to perfection. Believe this to save lot of stress, pressure and disappointment.
4. Don’t try to time the market, Know that market is always volatile and wait and ride the waves – up and down. Don't fret over lost opportunities. Remember the Market is volatile and will keep testing lows and highs.
5. Buy and Sell in parts rather than whole.
6. Be prepared to wait through cycles.
7. Be ready to sell at a loss in order to get money to invest and make profit.
8. Track trends not specific stocks or news
9. If you read in newspaper it is already too late to buy or sell.
10. Expect an average of 15-20% over a couple of years’ time – Do not expect 50% or 100% as a trend. Don’t believe exorbitant return stories – They may hide a lot of losses. Devil is in the details.
11. Capitalization based parameters
Capitalization | Risk/Volatility | Returns | Time/Analysis Required | Importance of acting quickly | Liquidity/sale ability) |
Large-Cap/Blue-Chip | Less | Less | Low | Low | Good – Almost always sellable |
Mid-Cap | Medium | Medium | Medium | High (Mainly during drops) | Medium – Sellable at a loss |
Small-Cap | Highly Volatile | High | High (Lot of Analysis, Track daily for triggers) | High (Mainly during drops) | Low – Might even get de-listed |
Decide your portfolio/stocks based on your needs and your plans. Also note that the definision of large,mid and small caps differ among analysts. Safe way is to go with the stocks that are part of Mid cap/Small-cap Indices.
12. Spend time to review, Re-plan and Re-organize.
Important: The only way to learn is to invest and try out. No amount of books/literature/blogs can provide you with the learning that comes with getting successes and seeing losses.
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