Stock Market Lessons

I entered the stock market about 2 years ago. Have seen a lot of ups and downs already.  Just thought of sharing some of the lessons that I learnt in the market.  It is not exhaustive by any means and also it is pretty clear that the behavior of the stock market is not something that can be predicted very easily.   Here are the lessons.

  • Stock market is not bad:  Many people, when they loose money in the stock market tend to come to the conclusion that stock market is bad.  A simple analysis will prove that it is not so.  Even though many manipulations happen in the market, stock market as a whole is not that bad. You see that almost all the products that we use are manufactured in big companies that are listed in stock markets.  Even if you speak about the telecom companies like Airtel or Idea, they are very much dependent on the stock market. So the first thing that you should be clear is that stock market is not evil

 

  • Investing is better than Trading:  Unless you can dedicate yourself to the stock market full day and full time it is advisable to be an Investor in the market than a Trader.  Trading puts you under lot of pressure to keep an eye on the market thereby affecting your other works.  Since the market behavior can never be predicted, it is very likely that you will end up loosing money if you sit for intraday and margin based trading. But as an investor you need not worry a lot about the market except checking for the stock price movement when you are free.

 

  • Listen to everyone but make your own decision: This is as applicable here as everywhere else.  When you see TV shows, read news paper articles and listen to friends, you are likely to get a lot of advice and opinions about certain scrips.  Unless you know that the person has made a very good study of the scrip himself, don’t follow him.  Study the scrip, look at the past performances, current issues, future challenges before you put your money on the scrip.  Invest only when you feel that you can afford to risk your capital.  There is nothing like a defined bottom or top in the stock market.  Once you decide to invest, be prepared for the downward movement.  Don’t repent later on.

 

  • Have a Target: It is advisable to define your targets and also be flexible in altering it based on circumstances.  I brought IDBI Bank Shares at Rs. 106/- looking for a target of Rs. 116.  IDBI shares had fallen from almost Rs. 200 to 106.  I didn’t expect it to bottom down further.  Unfortunately for me, the scrip started going down till it touched 76.  I didn’t have any spare cash to buy extra shares.  I waited for about 4-5 months till the share price came back to 106 and touched my target of 116.   Whatever may be the market conditions, if you are sure of the worth of the share, you better continue to hold it if you don’t like to book loss.  Stock market involves risks.  Everything will not go according to your plan but you should be prepared to wait, if the need be.

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