In this blog, you will come to know about tips and tricks about investing in stock market. You have to assume that in the worst case, you may lose out all the amount of money or the corpus of money which you are putting in the stock market. So, if you are ready to take that kind of risk, then invariably, you will land into few opportunities which will give you disproportionate gains.
So, following are my simple rules for investing in stock market:
Try to invest in two to three companies every six months and do not take out your money after suffering initial losses. Try to keep invested in the stock market for good amount of time.
Set your targets before investing. Let us say if you are investing in Company A, so your target set is that you want to gain 30 percent from this company in one month. Suppose that within only two days, the company rises by 30 percent, but you should not be greedy and just take out that money. Your target was to achieve either minus 5 percent of loss in this company or thirty percent in two years. So, In the year time frame, whenever the company goes below minus five percent, you have to sell or whenever the company goes above 30 percent, you have to sell.
Therefore, try to keep a lower and upper cap for your investment criteria for every stock. Once you do that, you will always be a rule-based investor or trader and then it would not be difficult for you to overcome your behavioural tendencies.
Stock market investing is easy, but it is the people who invest make it difficult and it is the behavioural aspects of a person which makes investing quite difficult in nature. The idea here is that a part of it is an art, it is not a very hard science. So, you need to learn, how to master this art of investing.
To master the exit point is decided by your behavioural tendencies. So, I would suggest you to read a bit of economics, behavioural finance, psychology and investment behaviours and then understand how to get over this.
Whenever you invest in a company, try to first look out for P/E ratios. When you look for P/E ratios, what happens is that whichever company has a higher P/E ratio than their peers, might be a high growth company, or there is some kind of overpricing in the company, or there is some kind of manipulations in the company’s share. So, try to avoid such companies which have more P/E ratio than their peers.
Dividend Yield
Try to look for companies which give predictable dividends. If a company is giving you a predictable dividend, you can earn money without even exiting the market. So, keep invested in a company which is giving you a consistent dividend. There is also a downside to those dividend companies, but still, the downside is not that great because if you are getting money on a regular basis, you also get appreciation of stock market and also get the dividend income.
Current Debt
If their current debt which can be found in the balance sheet of the company, is of the same order as their current cash, then that company has a reasonable health.
EBITDA If EBITDA and profits are very different from each other like half of each other, then you need to see that why the EBITDA is so different than the net profits.
Hence, there are many rules for investing in stock market. Once you start searching how to invest, then you can go down the rabbit hole of investing. But the key idea here is that you need to learn continuously or else you will keep finding investing as gambling.