Let’s here from a prolific share market investor. Mr. Porinju Veliyath says – ‘Keep it simple’ is the investment mantra. I don’t have any hard and fast rules while picking stocks. I am very flexible and open to any ideas which could create wealth, including unconventional ideas. SEBI guidelines is the only Rules I follow while picking stocks.’
“A set of any rules or guidelines that keeps your invested corpus intact and allows its appreciation over a period of time is the best practice”.
We bring you a set of guidelines that can help you in capital appreciation and are among the best practices:
1. No Goal no investment
If you don’t have the goal and investment strategy, then simply don’t invest. Here we can agree to disagree, but there are so many types and methods of investing that, without a particular destination, you will be just beating around the bush.
2. Only invest your extra money in share market
Keep your personal finances in order first before you put your hard earned money into share market. If you are weighed down with bills and loan payments that you can’t meet, take care of those more serious difficulties before getting too deep into investing. So, always invest those money into stock that you have in spare after clearing all your debt.
3. Complete Research about company before buying stocks
Try to get tough answers from CEOs, CFOs, CPAs as your money is invested and you have hired them for the business you own by buying shares of that company. Investing is all about the art of getting answers for the right questions than it is about deciding when to buy and when to sell. Before you question to the CEOs, CFOs, CPAs you will need to educate yourself. Especially on the topic of financials of the concerned company. So read in detail not just about the financials of the company you own but A to Z of everything your company does and its future plans.
“Never invest in a business you cannot understand.” – by Warren Buffett
4. Start with Passive investment in share market
Investing passively by sticking to funds, indexes, etc. is a perfectly acceptable practice. The problem comes when people move from passive investing to an active portfolio. There is a lot of available information for such investors – much of which is true – but accepting those information of a company with an uncritical eye and neglecting to check it yourself is what leads to herding mentality. Critical analysis of those information is must before you.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – by Warren Buffett
5. Avoid over-confidence & micro trading
Over-confidence often leads to over trading. Taking pointless risk and eventual losses when the bull turns bear. Also keep in mind that you have to pay commissions every time you trade – this expense often eats into profits & increase losses.
6. Keep Patience
Patience pays for itself. When the market falls, or even when a particular stock dips, there are always weak investors who panic and sell. If it is just a small correction, ride it out. If it is truly a problem with the stock, use your time to find a way to use it in a gain-loss transaction that will save you taxes.
7. Deep Share Market Analysis before investment
It is said that the pain of a loss is much more than the emotional strength of the pleasure of a gain. As a result, many tend to pull out of the market prematurely. So before you buy any stock make sure your job was correctly done before purchasing the script.
“If the job has been correctly done when a common stock is purchased, the time to sell is almost never.”– Phil Fisher
8. Buy & Hold Mentality
Avoid churning – Warren Buffett directs to a buy-and-hold mentality. He has held some of his positions for a number of decades.
“The stock market is designed to transfer money from the active to the patient.” – Warren Buffett
9. Portfolio diversification is utmost important
You should never put everything you have into futures, but you also shouldn’t hold everything in Treasury bills. There is an appropriate level of risk for investors of every age and creed.
10. Create your own investment plan
There are no absolutely perfect investors in today’s market. Benjamin Graham, Warren Buffett, Rakesh Jhunjhunwala, George Soros and Peter Lynch, all have lost heavily from time to time. It doesn’t mean that they were bad investors. That said, you should never mimic an investing strategy that you do not fully understand. Try to discover your own style that suits your strength & weakness.
So just be sensible. Invest according to the right rationale and even if your judgement is wrong, you won’t be repeating that again in future. Even if you lose money, at least someone else is not responsible for that.
Apart from above mentioned stories we bring you in short the best practices for trading as follows:
- Losses are part of trading – Limit your loses, accept them and move on for the next trade. Also analyze why you committed the mistake.
- Always believe that Share Market is Stronger than you. Never try to tame the market as per your will.
- Learn to preserve the capital before you can appreciate it.
- So always sell a loss and hold on to the profit in a trade. Never be speculative.
- Prepare a trading plan and execute your plan accordingly. Be ready for gap up & gap down opening. keep your trade insured using options combination.
- Always use stop loss!
- Don’t be afraid to buy a new high or sell a new low when you are confident and indicators suits, but don’t forget point number 6 above.
- Improve your psychology. Improve your discipline, patience and determination as the key to be successful trader.
- Go with the trend not against it. Trend is a friend.
- Self-control is a more valuable instead of predicting the markets.
- Learn to avoid mistakes.
- Don’t Let Ego and Greed Inhibit Clear Thinking And Hard Work whenever you are losing or winning.
- Somewhere A Change Is Occurring That Can Make You Rich. So can happen when you are losing. So try to analyze the reason or logic behind that.
- Last but not the least. know all the rules of trading in details that comes time to time.
Example- STT trap might be waiting for you.
How many do you practice?
The best of the best practices are hardly sufficient. You learn every day. Keep investing and continue learning. It’s a never ending learning experience. Even the top successful investor/trader learns every day.
Happy Investing & Trading!