Dos and Donts of Investing in Stock Market

Are you new to stock investing? Are you confused with what you should do and what you should save yourself from before investing in the share market? Are you looking for genuine guidance and help?  Well, we have an answer to all the questions you have regarding the do's and don'ts of investing in stock markets. Some idea for new investors, let's get started.

Always remember, investing in the stock market can be a wild ride for new investors. You might take some time in getting comfortable with stock investing, so always be cautious and patient while you embark on your investing journey.

Let's talk about the most important suggestion for stock market investing:

1. Learn before investing:

If you really want to become a successful investor, get a good understanding of the market. Start learning about the market, and there are a lot of ways how you can do that.

2. Start small:

Don't jump into anything big all at once. Start small and gradually increase your limits.

3. Research:

Always research before investing. Always research about the company before you put your hard-earned money in its stocks. Never rely on hearsays; always do your own research or rely on only trusted sources.

4. Invest surplus:

Only invest what you hold in surplus. Decide the amount that you can easily invest so that your lifestyle does not get hampered even if you can't get out of it. Don't invest everything you earn because you obviously need some amount to support yourself, and this amount should be risk-free.

5. Build a portfolio:

Build a stock portfolio year after year. You can keep adding or removing stocks as per your experience and market understanding, and gradually you will see you could have a very strong portfolio.

6. Diversify your portfolio:

Another important "Do" of stock market investing says that you should always diversify your portfolio. You must have heard; do not put all your eggs in a single basket. The risks involved in investing in just one stock are always higher than diversifying your money into a number of companies.

Also, remember to invest for the long term. Buying a share is like investing in a business, and businesses do not get built overnight. Give it some time to grow. You can't build wealth in a single night.

7. Stay consistent and patient:

Another important point that you should remember is consistency. Consistency is the key to success in stock market investing. Consistent and periodic investments help you create wealth in the long term, and above all this, remain patient. Good things always take time, and this same principle works really well in stock market investment.

8. Exit on achieving the target price:

If you have bought a stock to earn a specific profit, you should exit on achieving the target price for stocks that achieve the target price. It is advisable to hold them only if and when you are ready to buy the stock at the current price.

9. Check management quality:

Besides the company’s financials, management quality or corporate governance is one of the critical factors that an investor should consider. Even a company with sound financials with poor management should be avoided.

Now, let's talk about some very important don'ts of market investing.

1. Don't rely on free tips:

First and foremost, don't invest blindly on free tips and recommendations, no matter how appealing they appear. Always remember, no one in this world will give you tips about multi-bagger shares for free.

2. Have realistic expectations:

It is human tendency to have expectations, but don't keep any unrealistic expectations, such as very high returns in a short period from the stock market.

3. Do not over-trade:

Don't over-trade when trading with leverage; you expose yourself to significant risk. Make confident decisions and transact as per your risk appetite.

4. Don't blindly follow the herd:

Always remember, no investor can achieve significant success from the market by following the herd. Do your own research, understand how much your pocket allows you, and invest as per your goals and risk appetite.

5. Balance risks with potential rewards:

Do not take unnecessary risks. Safeguard your money against volatile trends. Always balance your risk and reward before investing.

6. Don't think emotionally, use data:

While investing in the stock market, do not take emotional decisions. No matter how much you like a company, if it is not financially sound and doesn't have bright future potential, it may not be the right investment decision. Also, don't allow emotions or ego to come in the way of a sound investment strategy.

For instance, you may think it is foolish to purchase a stock at rupees 60 and sell it at rupees 55, only to repurchase it at rupees 65. Keep aside that emotion and view it as a good learning experience. You may have jumped at buying the stock earlier, but avoid hesitation if you feel the time is right. Selling the stock must have no bearing on whether you wish to purchase it at a later date. Remember, every decision is a new one.

7. Avoid penny stocks:

Do not consider low-price and low-quality stocks. These stocks may look attractive but may not be financially sound. It is better to check the financials of a company before investing.

8. Greed and fear:

It is said that you should be greedy when others have fear, and you should have fear when others are greedy. The stock market is full of ups and downs, and it is usual for the market to fall. You should not panic when the market falls; if you hold good stocks, after every fall, there will be a rise.

Similarly, when markets are rising continuously, you should not be greedy and should exit at an appropriate time. It is dangerous to be greedy; it could wipe out all the gains you have already made.

9. Avoid blind averaging:

Averaging could be helpful if a quality stock is available at a low price due to some temporary poor performance or fall in the market. However, averaging could be risky if you buy a stock at every fall without knowing why stock prices are falling.