The recession induced by the ongoing health crisis brought about many changes to the world as we know it. But many business-minded youth and adults took this as an opportunity to invest. Guess what? So did I.
But unlike many of them.... I read up on articles, research papers and books in order to find out how exactly to do it well. After all, I'm a young economist...We like to make calculated decisions.
A land of risk and rewards is the way I see investment. I agree... I too am still a rookie at this.
I'm not here to convince you that you'll quadruple your principal amount if you follow my steps.... There's no way to predict the future.... But here are a few tips that will help you get a better understanding of the market in order to make better decisions for yourself.
1. Know current events
Knowing what's happening in the world isn't just useful for your entrance exams and job interviews. If you have invested in a company or are thinking about it...you have to be aware of what's happening in that company or industry. News about any change in management, big deals, scandals, losses, innovations, court cases...they all make it to the newspapers and social media. So know about it and stay aware. This is one of the things that molds investor/business expectations and this is reflected in the stock market.
Even past events could be significant as some of them either made a company's reputation or destroyed it.
2. Buy cheap, sell costly
Many investors make the mistake of buying when a stock is costly and selling when its cheap. Your goal is to appreciate the value of your stocks and maximize your profits. So, buy stocks when it's priced less than its usual value and sell it while its value is peaking. Some investors even do a calculation called "Value investing" to find out the intrinsic value of a stock.
3. Study historical stock and dividend data
Its freely available online to view and it's fairly easy to analyse with all those fancy graphs. Of course, you can't predict the future with the past, but if you see a company come out of several crises....you'll understand the resilience and discipline of their management. So even though no company is immortal, you would get an understanding of which company has a good chance of fighting every adversary that comes its way.
4. Know the products and services you and your friends/families love
Invest in products you believe in and are confident in their potential to succeed. Investing is all about giving a good innovator and business, the money to be able to do even better in the future.
5. Don't expect quick returns
It takes a little patience for the stocks you buy, to grow. Don't be impatient, you can do something else which you wait. Check it on it periodically though, not all stocks are destined for success!
6. Be weary of shady stocks
"A" group shares tend to be the safest type of shares as they are highly liquidable and tend to have steady growth. The other shares (of T, S, TS, Z, B and other groups) while being more volatile, hence having higher probability of rising suddenly, are extremely risky for a beginner. Buy other kind of stocks, only once you are aware of all the risks they have, are more experienced and when you have an appetite for it. You need not buy other types of shares at all if you don't want to.
7. Read financial reports
At the end of every financial year, a large company prepares their financial report for the public and potential (and current) investors. It's usually available on their site. See their profits, losses and capital. Some may even mention new projects in the works of launching. It's a very interesting document that really makes you feel like a real investor.
8. Don't check your stocks every day unless there's a reason to
Unless you know of a major crisis in the industry or company, there's no reason to check the share prices of your stock every day. It will only stress you out unnecessarily. Check your share prices every few months or once a year...that's more than enough.
9. Don't believe in stock market influencers
Many people follow every move of big business men and investors. I'm not sure if anyone has ever made money out of it though. Many such influencers buy their stocks long before they announce it. Then, because of their announcement, they artificially inflate the value of the stock and make their profit out of people's naiveness. Don't fall for the trap.
10. Invest in other types investments
There is a real risk in stock markets. Don't shy away from other investments that could keep your money safer.
11. Learn about the taxes you'll need to pay
Taxes aren't fun....but it's your duty as a citizen to pay them if you fall under a tax bracket payable to the government. Stay organized and aware of areas to put in your money for tax deductions instead of running in trouble later on.
Recently, there was a change in taxation by the new tax code. Earlier, the companies would pay an amount of tax for dividends they give, now the tax has been shifted to the investor. (1)
Like the above example, there are many important laws you will need to take care of now and when your wealth has grown considerably. Don't shy from the challenge...money is a headache, but it's also a power.
12. Don't treat your stocks as a showpiece
Don't just keep it in the share market forever. I don't understand people who just store shares, never sell them and use that money for themselves. What's the point of all that wealth if you can't use it for yourself? I agree.... It's being used for productive purposes. But don't you want to eat the fruit of your hard work instead of just viewing it?
It makes sense to not sell all your shares at once. But by just keeping it in the market forever, you never know when your golden stock's value will drop down and fail. So when the opportunity comes up... consider using it sometimes.
13. Learn about the various investment strategies
There are many investment strategies that are popular among investors. Some of them are: Value Investing (buying stocks at a discount), Growth Investing (buying potential), Momentum Investing (riding waves), Dollar-cost Averaging (buying at regular intervals) and Barbell Strategy (high risk, high returns and low risk, high security). Do Google them for more information.
14. No need to feel bad about missed opportunities
Lots of investment teachers talk about all the missed opportunities of their lifetime. They talk about how great it would've been if they had invested in Warren Buffet's stock when it first came into the stock market. Here's the thing, for every hidden-treasure stock that makes it big in the future, there are hundreds of similar stocks as well. You can't predict the future so don't be hard on yourself for not knowing.
15. Never stop learning
Go to investopedia, seminars, books about investing. And hopefully, over time, you'll build wealth over the stock market.
References and further reading:
1). India to consider shifting dividend tax to investors from firms, Economic Times
2) Investopedia https://www.investopedia.com/
3) Rich dad, poor dad - Robert Kiyosaki
4) Fooled by Randomness - Nassim Nicholas Taleb
