In this world, nobody knows about how the stock market works. Nobody can buy shares at the right time. Whenever you buy the stocks, it goes down immediately. For new investors, the stock market is an exciting game. And everybody wanted to make money. For that reason, you blindly invest in stocks that are in the news and invest your money. Because you do not know the golden rules of investing you lose your money.
If you are reading this article, that means either you want to invest your money, or you already invested your money. But the fears of losing money are keeping you away from this exhilarating market. There is famous Warren Buffet investing rules which I like and follow i.e.
Rule – 1 Never lose your money
Rule – 2 Never forget rule no.1
If you wanted to invest in the stock market & make some money, you should know the golden rules of investing, which are very important.
In this article, you get to know the golden rules of investing that I also follow personally. If you follow and keep in mind, I bet you will never lose your money in the share/stock market.
1) Understand The Business
If you are looking for stocks to invest, you should know what kind of business the company involves. What does the company management think? Who are their promoters & what are their backgrounds? What do they manufacture? How many plants they have & where located? Who are their end-users and their competitors? What are their future business plans? Is the company having a belief in technology disruption or selling the same product from years ago? Also, you should search for the company over the internet, check the company profile. Or visit the website to get the best information about the company business. I request you do not invest your money in stocks instead of invest in company business.
2) Do Fundamental Analysis
After knowing the business of the company in which they involve, next, you must know its fundamentals. Under golden rules of investing you must check the company’s balance sheets, profit/loss statement, and cash flow statements. This information you can get easily from the company site under investor information. These statements give you all the information that requires judging the company’s past, present, or future performances. Also, it provides you an answer about how much the company is in debt. (Also read, debt is good or bad)
If you focus on the long term view then the fundamental analysis is foremost. Stock market fluctuations will not bother you if you already did the study. The fundamental analysis gives you a clear vision of how the company is performing. If you find the fundamentals are worsening and there is no future growth it would be the time to take your money out from that company.
3) Before Take Entry, You Must Know When to Exit
After study the business and the fundamentals, you are now ready to purchase the shares of the company. The fundamental analysis can give you the intrinsic value that can give you an idea about its entry and the exit value.
Warren Buffet said, “Be fearful when others are greedy and be greedy when others are fearful.”
4) Never Put All Eggs in One Basket
Diversification is crucial in investing. You must not put all of your money in a single stock. Money should invest in different stocks in different sectors as well. If you invested all of your money is single stock & if it goes down then you may lose all of your hard-earned money. It is better the same amount of money divided and invests in different stocks.
If one share is going down & the other going up-ward, in that case, the overall return you were expecting will be positive. That will provide you a diversified portfolio. The level of diversification depends on each investor’s risk-taking capacity. That is also the pointer for optimum returns on investment with minimum risk.
5) Never Invest Under Influence of Others
Under the investment, the important golden rule is never investing your money by taking action on any news in the market. Everybody in the market is around the market-hot stock. And typical investor tends to invest in that stock. In the long run, this strategy will never make you money. Even you will lose very quickly.
If I talk about me, I already executed that mistake in the early days of my investments. But I got the experience. So, there is no point that you should focus on a market-hot stock.
Peter Lynch in his book, “One up on Wall Street” said, one of the biggest troubles with stock market advice is that good or bad it stuck in your brain. You cannot get it out of there & someday sometimes you may find yourself reaching to it.
6) Focus on Long Term Golden Rule of Investing
The investor should invest their money for the long term. There is not a short term scheme in the stock market that will provide you better returns. Invest your funds at least for 3-5 years and never touch that money. But you should always keep your eyes over the company performance rigorously where you have invested your money.
If the market is down & the fundamentals of the company are OK, then you should not take your money out of that company. I read one statement in a newspaper that stands by your stocks as long as the fundamental story of the company hasn’t changed. If not, you only hope for increasing your net worth.
7) Be Your Expert in Investing - Mind the Rule
If you want to earn from the stock market you should not listen to any news. Do not come under the influence of anybody. Open your mind to study the company deeply and listen to the news carefully only after you should take the decision. In short, you should be your expert to decide on the stocks you owned.
8) Only Invest in Surplus Money
A salaried person wanted to invest hard-earned money in the stock market. You should understand that the stock market is risky. You may earn in minutes & you also may lose in seconds only. So, if you like to invest in the stock market, always invest that money which you think is in surplus with you. If that money is going to lose, there should not be any effect on your mentality or thinking.
9) Have Patience & Hold Your Nerves
Investment is a long term game you cannot earn quickly but can lose rapidly. So, if you wanted to earn you should have patience and think for the long term only. The Stock market has immense potential to give you huge returns.
Warren Buffet said, “no matter how great the talent or efforts some things take time. You cannot produce a baby in one month by getting nine women pregnant.”
10) Monitor You Investment Regularly
Always remember neither bull market nor the bear market is permanent. We are living in a globalized village where any news may affect the stock market. So we need to monitor our investment portfolio regularly. If we cannot keep an eye on there is a big chance that we may lose our invested money. There is no stock which you buy and get forgotten. If you do this at you may not found that money again or if you found even you may not get its same value.
Before you start investing, get yourself financially educated first. For a successful investment, it is necessary to figure out your goals and risk tolerance capacity. Thus, it is foremost to keep in mind some golden rules of investing when it comes to the stock market investment. There are always fluctuations in the market and gives you the best opportunity for entry. Whenever the market is low than expected, allow the best time to buy the stocks. And when the index reaches the highest levels, it is the best time to sell your shares and grow your net worth.
You can never time the market, just keep in mind the golden rules of investing & you will get some positive returns.