Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market. Most of us are fascinated by the proposition that the stock market offers. Many people would love to start investing in the stock market but are hesitant due to the lack of knowledge about how to commence. If I would say that all you need is a dematerialized account to start, I am entirely wrong. Investing in the stock market requires much more than that.
Stock investing requires prior knowledge and thorough research about many factors before you decide to delve deep. So for a beginner, always start with the money that you can lose and not rue about it. Alternatively, try to start with the extra amount that you save every month and invest it in good stocks. In this article, we will help settle all the demons you have regarding investing in stock market. We will also help you to ascertain how you can earn the maximum from your investment.
Give yourself a Category
There are many categories of investors who invest in the stock market. You need to sit down and analyze what you want to be and see if your financial position vows for the same. Primarily, you can choose to be either of the following –
Long Term Investors
Long term investors select a company which they think will grow in the long run and invest a chunk of their money in it. The investment commences if it fulfills the criteria set by him. They set out today to buy the best possible future deal at the lowest price reasonable. The sudden price change does not deter their beliefs. They are open-minded and will continue to persist unless something serious happens.
In many cases, they may never sell a single share until they die. Take the case of Warren Buffett and Coca Cola. He had purchased its shares in 1987 and publicly says that he will never sell a single stock of that company. Much of it is due to the persistent growth of these companies. You can never earn enough from them! So a better deal is to pass them on to the next generation.
With the advancement of technology, it has become easier to keep track of the market every single minute. It has helped in the birth of a new type of investor who invests in the stock market, the trader. He tries to benefit from the volatility of the market. He buys for the intention of immediate selling and the gap between may be less than a day in many cases. He does not care about the name of the stock. All he cares for is the price volatility, which allows him to earn.
The activity of trading is mostly carried on by financial institutions who hire innumerable people to keep track of the price fluctuations. It has also given rise to the term ‘Day trading,’ where individuals are involved in buying and selling the same shares in a span of a single day. This activity has been actively discouraged by many security firms and big investors.
Bogleheads love to keep things simple. They use simple investment theories that are proven over time and earn more than what regular investors do with the same resources. The idea of boglehead came from Vanguard founder Jack Bogle and was ridiculed by one and all. In spite of being ridiculed, he kept his faith, and it bore fruit eventually.
A boglehead invests in Exchange Traded Funds (ETFs) or mutual funds in such a manner that it mimics the entire stock market. They invest mostly in resources that charge low expenses to reduce any wastage of their funds. An essential quality in a boglehead is its ability to hold stocks for an extended period. Also, they have the most active community with a massive pool of knowledge. Head over to their forums, and you will undoubtedly be amazed by the quality of discussion.
These are the most exciting investors in the market. As the name suggests, they thrive on speculation. They invest or disinvest in the stock market with a view of earning profit from them soon. Even though compared to gamblers, but these speculators trade based on information that they receive before others in the same industry.
These investors believe in the fact that history repeats itself and that the pattern of pricing will always be like it was once. It gives their speculation a bit of heft even though this can never be considered accurate for the ordinary investors.
Remember to Diversify
A typical quality in most of the successful investors who invest in stock markets is that they create a portfolio of investments and not just invest in a single stock. Investing in a single stock poses a high risk, which reduces when we invest in a range of products having different risk factors. We consider mutual funds secure. However, do you know what makes them safe? They spend the funds in a mix of high-risk and low-risk stocks, which helps them minimize their risk in totality. So always make sure that you have invested in a range of products and not just a single product.
The Final Verdict
Investing in stock market is a challenge. You cater to various factors, which makes it an exciting proposition. However, make sure that the amount that you have allocated initially is appropriate. It should not be too high to risk your ability to flow freely and not too low, which may not give enough returns. Choose a broker who will help you diversify so that the risk associated with the investment is not too high.
And in case you are having issues in managing your personal finance, head over to our article on how to manage personal finance and give it a read. Happy investing, happy flying!