Benjamin Graham, the celebrated American investor and economist once said, “In the short term, the market is a voting machine. But, in the long term, the market is a weighing machine.”
The internet is replete with many such powerful and meritorious aphorisms.
Rakesh Jhunjhunwala, known famously as the Warren Buffet of India, made his first million bucks when he was in his late 20s. This can be attributed to his business philosophy, stock-picking wisdom, value investing knowledge and right attitude.
To acquaint yourself with stock picking wisdom and value investing knowledge, delve into the each-and-every sentence of this informative article.
Tip #1: Start small
For beginners, investing in stock markets can get risky. Let me quote Warren Buffet.
“Risk comes from not knowing what you are doing.”
Do not commit big investments. Start small. Go slow. Build upon your experience by analysing stocks of a couple of companies.
Buy no more than a couple of stocks of each of the companies.
There’s no rule of thumb. However, it’s advised to spend no more than 8-10% of your net monthly earnings. It’s important to test the waters before diving deep.
Set your investment goals and time horizon. Investing goals should be associated with an expected rate of returns.
Your time horizon should be atleast 3 years. You will then be able to book profits accordingly.
You can reap the benefits of quality and undervalued stocks if the time horizon is at-least 5 years.
Tip #2: Don’t let emotions influence your decisions
We are humans and hence, we tend to have emotions. But emotions can impede our decision-making abilities.
Do not get carried away. Hoard mentality is dangerous.
Let me explain.
In a bull market, investors buy stocks aggressively. Following the same train of thoughts, emotions may influence you to buy stocks.
In a bear market, investors sell stocks aggressively. There’s loads of confusion and little clarity. Emotions may then influence you to sell stocks.
But what do smart investors do? They buy stocks when everyone is selling and sell stocks when everyone is buying. Smart investors are known for their clarity of thought in chaos.
In conclusion, use your discretion. Do not panic. Do not get upbeat.
Tip #3: Avoid leverage
If you are beginner, avoid leverage. It’s a complex trading strategy.
Many full-service stockbroker firms promise to triple your money in less than a week by using this complex trading strategy.
You may end up in irrecoverable losses. This trading strategy is ideal for elite and experienced investors.
Avoid futures and options. For all intents and purposes, futures and options are for day traders.
And yes, do NOT invest your retirement savings or education assets in stocks.
Tip #4: Track your portfolio
If you are planning long-term, you are likely to acquire a handful of stocks in the next decade or so.
Keep tracking your portfolio of stocks every six months. Keep an eye on deep price falls and sharp price appreciations.
It’s important to perform fundamental analysis of your portfolio of stocks every second year.
There have been multiple episodes of investors not tracking their stocks thereby piling up huge losses.
Tip #5: Read financial reports
Your knowledge of stock market analysis shall remain limited if you fail to read and comprehend financial reports.
There are 3 financial reports:
1. Balance sheet
2. P & L (Profit & Loss) account
3. Cash flow statement
If you read and comprehend the above-mentioned reports, you will be able to identify the financial strength of companies. Also, you will be able to know their potential risks.
Stock help is always available. You can read newspapers like Mint, Economic Times and Financial Times. You can subscribe to full-service advisory stockbrokers and receive currency tips, stock tips and nifty tips. Happy value investing. Cheers!