Financial Instrument (Stocks)

Now that if you have decided to join

"The Club 99"

let us find the ways to get that one gold coin. But if you are not a member of this club, please let me know about yourself in the comments section of this blog.

As per Chanakya

"He who loses his money is forsaken by his friends, his relations & his servants. But when he regains his riches those who have forsaken him earlier will come back to him. Hence wealth is certainly the best of relations."

So let’s look at instrument of wealth: Stocks

This financial instrument doesn't come without a risk. To reduce risk you have to have a solid understanding of stocks & stock market. Online trading has opened the market to more persons to own a stock easily. But does every one understand stocks.

Just because your friend just made Rs 10,000 in one month by investing in some stock last month and now he has got a good tip which he has shared with you, doesn’t mean that you should blindly buy the stock. Be careful you could burn your hands in just seconds. The only solution is to this is educating yourself. There are many sites on the net where this information is freely available.

Make sure you don't get into the market before you are ready. There is an old stock market saying:

"Bulls make money, bears make money, but pigs just get slaughtered!"

Bull: The optimistic person who believes that the stock will go up. (With proper market study)

Bear: The pessimistic person who believes that the stock will go down. (With proper market study)

Pig: The high-risk investors looking for the one big score in a short period of time who buy on hot tips and invest in companies without doing their due diligence.

Can the Bear make money? Yes they can. I will share this information sometime later.

Right now I will share some tips from my personal experience (but you should have your own ways of guiding you through the market. No one is perfect here)

1) Don’t invest in IPO which will start
functioning only after 3-4 years
later.

2) Only invest that amount which
you can afford to lose. If you have invested with long term plans, then don’t
let the market volatility fool you into selling your
stocks.

3) Disaster can strike any time,
so have enough cash ready in your account. Don’t depend on credit
cards.

4) Companies who announce a buy
back are good sign that the company thinks that its stock is undervalued. But
this might sometimes be a gimmick too. So only focus on good
companies.

5) Plan while investing at
what price you will be selling the share and do sell the share at that price
instead of hoping that the price might go further up. Get into cash and if the
market still goes up buy some more, but don’t put all the money
back.

6) Diversify your investment. Don’t
put all the eggs in one basket.

7) If you
are not feeling comfortable with your investment, either you have invested more
than you can afford. Think over it
again.

8) Never buy a stock to get RICH
Quick. There are other ways for that but not buying
stocks.

9) If you don’t have time or
energy to consider individual stocks or want to cut the risk a little, then
invest in Mutual funds.

10) Finally but not the least.. Do
keep a stop loss. If you were to buy Reliance Industries share at Rs 950 and set
your stop loss at Rs 900, the stop loss value would be Rs 50. This will help you
in deciding how much loss can you bear.