Nov 222009
 

Disclaimer: This is a general guideline for earning in a stock market for long-term. Intraday is a risk which I rarely take. And the opinion in the post is my personal opinion, and not a hard and fast rule for achievement in market.

I started investing in the stock market a few years back. And with the results, I am quite happy.

People say that no one has ever earned anything in the stock market. I beg to differ. Fools have surely not managed it, but wise guys have. I do not wish to implicate that I am wise in this matter, but there are people, like Warren Buffet, Rakesh Jhunjunwalla, who have always shown wisdom.

My idea about it is, if the value of the stock is increasing, then surely someone is making profit out of it, else the prices would keep on going down. So why not that person be you or me?

A little wise decisions, and we all could make decent money in stock.

Some rules :

1. Carry out day trading for around 3 months, and find out the average at the end. You will find that you have lost overall. Or gained some amount which was not worth the risks taken. So  my advice is, do not go in for day trading. Believe me, only your broker is earning, not you!!

2. Again the caution, do not go for day trading.

3. But if you still insist here are the some guidelines :

a. Never, never ever, do short selling(selling if you do not have holding). You ‘might’ earn something but in majority of the times you end up losing a huge amount. The risk in short selling is that you have to finish your trade by buying at day end, else you may have to pay up huge penalties. So be ready with the amount which you want to book losses for. Short selling can be done if you have holding in a script and its making some good profit. That way you can sell at a price, and book profit if the price goes down, or you can always be in profit if you let go of the holding.

b. If you do normal buy for as sell later, you can always hold it if the value goes down. But be sure you want to hold that script.

c. Do not believe in tips by brokers. These tips are meant to increase the turnover at their terminals. Trust in your instincts.

4. So you decided not to go in intraday trading. First rule, read. Stay informed about happenings in the market and overall business conditions. It will give an indication of which company is healthy and in position to give good returns. In long-term point of view, it’s always good to invest in a company with good expansion/diversification plans.

5. Do not panic. If your script goes down, always say to yourself, ‘never mind, its long-term investment and it will come up’. In a down market, you can always pick up more stock of the same script to average out your investments. After all you have done some study on the company. Never sell a long-term investment for loss, if you really do not need the cash immediately.

6. Fix your target price. And get out of the stock when the target is achieved. Do not become greedy if the target is achieved. A sudden downfall, can make you wait for some more years to get to that level.

7. Never buy entire quantity of stock all at one time. I always buy half the quantity and stay satisfied. If the price comes down, I can buy more and average out.

8. Many of the stocks double their value in quite a short period. In such cases, take out the investments that you have made. You will be left with the quantity which has only the brokerage as the invested amount. Nearly free.

9. A company with good physical assets and long-term business, is much more lucrative than a fly by night operator whose profits have shot up in a very short span of time after entering market.

10. Look out for the promoters stake. Ideally for any promoter, to run his business, the stakes should be around 30 to 70 %. The promoter is thus confident of getting good returns himself if the business is good and its benefits are passed out to shareholders.

11. Never take loans to invest in stock. You will be looking for a return amount, somewhere more than your investment plus the loan interest. This situation might not materialise. Try to invest only the spare cash in hand as much as possible.

12. Don’t go by the promises made by a company. Look into the dedication of the company towards achiving those promises.

13. Spare a minimum amount to play an uncalculated game. Hold a large quantity of few penny stocks, as they come cheap, but might give good returns. Such case has happened in India when people had a holding of a particular script(the name I do not reveal, as I do not intend to advertise a particular script) for few years at its face value but it gave them returns by thousand times, yes thousand times!!

14. Diversify. Go into many a fields during investment. Stocks follow a cyclic trend wherein a certain industrial sector goes up at one time while some other industrial sector goes down. Thus your investments will be balanced against the possible dowfall of a particular sector.

There are lot more. But in the end if you start taking all of them in to consideration, you may not be able to markout good stocks for investments, as many guidlines will contradict each other. So use your brains, not mine, not the experts’.

And be always satisfied with your returns.

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  5 Responses to “Taking ‘Stock’ of the Situation”

  1. very nice ,, informative , golden rules for those wanting to make an entry into the financial markets … Keep it up Nilesh ,, way to go !!

  2. The post may look like much more a detterent to entry on capital market. But trust me, capital market can be good if invested wisely.

  3. A very informative post indeed…..

  4. I knew that!;-p

  5. An addendum to point 4. about fixing a target price. Be realistic!! Don’t set unachiveble targets like 10 times profit or so…. That way you may end up married to the stock for life. Double or triple amount is achivable but only in limited scripts.

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