Being well- prepared is well-armed
This age old cliché holds true for investing in Stock Markets as well. Many experts including those who have burnt their fingers while jumping into deep waters without being fully equipped to handle choppy waters would also tell you that Stocks are not for the weak-hearted. The point is that there is an inherent amount of risk in any investment one makes. The trick to be successful is to be aware of the mechanics of safe investing.
Making your strategy
For a beginner, the most important thing is to arrive at a sound investment strategy. Make an effort to first study the nuances of Stock Markets to understand how they function. The first thing is to decide whether you are entering the markets as an investor or as a trader. If you want to learn from other’s mistakes, you would do well to start off as an investor first. Enter with a fixed corpus that you can afford and avoid biting off more than you can chew.
Discipline in investing is the bedrock of success. Avoid following investment advice blindly. Discipline also involves self-control. Avoid trading just for the sake of trading. This is easier said than done and one has to keep reminding himself every now and then to remember it. Keeping your gambling instincts under control is also very important and beginners will do well to stay away from trading in Futures and Options till such time they understand the ropes of normal trading completely.
Half your problems are avoided if you created a well thought out portfolio. Keep the number of stocks in your account to a manageable level as it may be difficult for you to keep track of a larger number. A Portfolio must also be revisited and tweaked at regular intervals so that your investments stay abreast of the current flavour.
Markets have a mind of their own and often move in direction independent of various cues. Perhaps the most difficult habit to form is to learn to ride market fluctuations. Staying invested for long duration is a good idea; however, you must be willing to book your profits when you have made reasonable returns on investment. Without exception, every expert will tell you that even long-term traders need to place reasonable Stop Losses in a bid to protect their capital from erosion.
Trade only when you must
Be aware that every trade you enter into, attracts certain mandatory charges. These include Brokerage, Security Transaction Tax, Stamp Duty, Turnover Tax, SEBI Turnover Fee and Service Tax/Swachha Bharat tax associated with your transactions. In the initial stages, keep your transactions to the minimum. Being aware of tax liabilities is also part of being prepared. Holding on to a stock for more than one year gives you 100% exemption from Long Term Capital Gains so where is the hurry to sell.
Don’t let your Portfolio take over your life!