I can imagine the big smile you have on your face after reading the topic name. Many of you can relate the topic with the famous meme.
Well, it is possible to obtain huge returns from stocks provided if you.
Before that, there are two very basic things you should understand viz., money and risk.
- Money: You work at a job, or you have your own business. The cash flows are your income. So, you work hard, and you generate the cash flows from your work. Similarly, think of money as a labourer who is working for you and providing you cash flows.
- Risk: Risk appetite refers to the amount of loss that we can suffer and remain financially independent. Higher risk, higher returns. You should respect your level of risk appetite and respect the same.
What All Should You Have Before investing in stocks?
There are a few basic things you should have before initiating the investment in stocks:
- Demat Account (to store the stocks like a cupboard)
- Trading Account (a platform through which you can buy and sell the stocks)
- Money (Obviously)
Observe your spending. Prioritize your savings. The more money you have, the more you can invest. If you invest higher amounts, you can expect a higher quantum of return. Financial discipline will help you save more. As simple as that.
How Can You Become Rich In Investing In The Stock Market?
Now let’s get down to the details of the hot topic. Here are a few ways and means through which you earn higher by investing in the stock market:
- Stop following the news channel for stock tips. This is called a blind investment.
- Define your risk appetite as per your age, income source, financial commitments, financial support to dependents, etc. Define your monthly savings amount.
- Define your return profile. Have a discipline that you would sell the stock after your desired return is reached (say 25%).
- Define your type of investment. You can be a long-term trader (holding stocks for 12 months approx.) or medium-term trader (holding stocks for 5-6 months) or short-term trader (holding stocks for 1-2 months).
- When you observe a stock, you have to decide whether to buy it or not. For this, you should know two very important spheres of the stock market viz., Fundamental analysis and technical analysis.
- Fundamental analysis refers to how the Company has been performing through the past, how the sales are generated, how cash flows are received, industry risk, economic risk, and many more things. Technical analysis will help you decide whether it is the right time to buy or sell the stock.
- Never put all your eggs in one basket. Always diversify. Diversify your investment in different sectors and market caps.
- Once you have invested in a stock, stop checking it every moment. If you are suffering a loss in stock, observe whether any technical indicator has given any bearish signal.
- Invest in stocks that have high volume.
- Have a daily check on technical indicators for your stocks. The moment you see a sell signal, sell the stocks if your desired return is achieved.
- Have the discipline to invest a fixed sum each month.
- Keep your emotions aside at the time of investing. There is no doubt that stocks such as Happiest Minds, TCS, VodaIdea, Yes Bank, HDFC Bank, etc. are fundamentally strong companies. But there are specific entry and exit points. These points are identified through technical analysis of stocks.
- Never buy in a down-trend (it’s like catching a falling knife) and never sell in an up-trend. Wait for the reversal signals at the end of each trend.
- You can invest a small chunk of your savings in penny stocks (the market price is less than Rs. 10). Such stocks may give returns manifold in the long term.
Conclusion
There is no free lunch. Risk is the cost you have to pay for earning higher returns from stocks. Patience, structured skills, defined financial goals, investment plans, and a focused mindset are essential for anyone to become successful in the stock market. Studies relating to the stock market are always helpful. Keep studying, keep trading.