I think one of the easiest way of becoming rich is by buying a share. However, it is one of the easiest way of losing the money too.
In my investing history, I’ve seen people becoming optimistic and pessimistic exactly at the wrong times which leads to huge loss. This is simply because when the market is on a bull run (performing well), people put all their hard earned money by just looking at the past history and not realizing the actual value of that share, (when the P/E ratio has hit all time high).
I have seen a lot of people buying shares of companies just based on someone’s recommendations and tips. However, that’s not the way to invest your money in share. You must have certain skills and qualities to make money in shares.
“If you give a hungry man a fish, you feed him for a day; but if you teach him how to fish, you feed him for a lifetime.”
If you are buying shares based on someone’s advice or recommendation and even if it works, its like taking a fish from someone. You should focus on how to catch a fish on your own.
One must develop a lifelong habit of learning the market and learning from the setbacks. One important lesson that helped me pick the right stock to make fortune was to follow your own instinct and making decisions on your own. The book “One Up on Wall Street” helped me a lot in my financial journey.
For instance, if you’d have invested Rs.1 lakh in Bajaj Finance in Feb-2009 then your value would have been worth Rs. 679 crores now (Nov-2019). Can you believe it?
Or if you’d had invested Rs.1 lakh in Relaxo footwears in Dec-2011 then your value would have been worth Rs. 46 lakh by now (Nov-2019) in just 8 years.
So if we look at the bright side, there are people who have become rich and as you can see the stats above, anyone can become rich. However, I’m now going to share some invaluable tips here that no other investor or book is going to teach you.
These are the qualities a person should possess to make money in stock market. If you don’t have these qualities, you either need to work on them or you’re going to have a hard time.
1. Patience is the key
The number thing I notice which people lack is patience. I’ll share my own story, I purchased Adani Green Energy stock when it was Rs.44 and I did my own research and based on that, I planned to stay invested for long term. However, after few days, the price went down to Rs.40 and remained there for a while and as soon as it went up to Rs.52, I sold it. Now the same stock is available at Rs.106 in just few months. If I had remained invested then my value would have got double in just 2 months.
I have heard numerous stories of people buying the company at the right time however they sell it immediately in a few months or within a few years. Rich people stay invested for long term or they keep their position forever.
I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years.
This is the exact strategy we need to work on. The problem with us is we need everything today, we can’t wait. When the whole world is working on increasing the speed of internet, next day delivery of product or 2 hour delivery. We are becoming less impatient. However, investing is and will forever be for the ones who are patient because good companies take time to get recognized.
When we think of buying a share for profit, we expect its market cap (the market value of company) to grow. This can only happen when someone else is willing to pay more for the same company. Why will someone pay more for the same company within months? It only happens after a few years when the company has shown strong profits and promise.
2. Let Go Regrets
No one can ever buy the company at the exact low and sell it at exact high. I repeat, no one. Except someone who’s got inside information.
So when we think of investing, we must accept the fact that we’re either catching a falling knife (buying when the price is going down) or selling when the price is still going up.
When we sell a stock and the price still goes up, we regret thinking why did I sell the stock. On the other hand, when our investment made a loss, we think why did I invest in this company. Moreover, if we make a good profit, we regret thinking why did I not invest more in this company.
There will be regrets with every decision we make and this can be stopped by either creating a mindset that we’re going to stay happy with whatever decisions we’ve taken (because that is exactly what you wanted to do at that time). Or by creating a start to end strategy before investing. (For ex. fixing an exact time scale and amount and sticking to it).
3. Think At Least 10 Years Ahead
Whenever I make an investment decision, I think 10 years ahead whether that company will still hold its charm 10 or 20 years from now? For ex. Do you think a company like Instagram or Reddit will keep its market position same after 10 years? On the other side, do you think a company like Coca Cola or McDonald will keep its market position similar in future.
If your answer to the earlier tech company is yes then we must understand the fact that the IT companies have just started to take a boom recently and the competition is higher than ever. Facebook was only launched 13 years ago and this Quora platform was launched only 10 years ago. However, companies like Coca Cola and McDonald have been in the market since more than 70 years ago. There are possibility that people will change the way they use internet in future and that can impact the use of these IT companies however people will never change the way they eat or drink and even if it changes, these companies will still be in demand.
However, that doesn’t mean we should not invest in IT companies, the main idea here is to explain that if we find a new start up or a company that we think has got the potential to capture the market of the future then go for it. We must not invest in companies that have already become so obvious that 50 news reporter and analysts are covering them day and night.
4. Calculated Risk
This is a very simple and always suggested tip for stock market. However, I’m going to share my perspective on how I take risk.
When you think of buying any goods such as a laptop or a mobile for a specific amount, say Rs.50,000. We do a lot of research and we do it in a specific pattern. For ex, we first google best phones under Rs.50,000. We get a list of all the phones, then we shortlist few of them, then we read the features of all the phone. Once done, we narrow down the list and read the details of those few options and go to the store or on Youtube to check reviews and videos with detailed specs. We at least spend a few days investigating before making a decision.
Similarly, when we invest in a company, we must use a solid pattern to shortlist the company and go through its specs like reading the financial results to understand the financial health of the company. Most people invest a huge amount without any research and sell it the very first time when the stock hits a low price. That is the easiest way of losing money.
We must only invest that money which we won’t need in next 5–10 years (or for the period you’ve decided to stay invested). Because we all know markets come with ups and downs and if you happen to need the money when there is recession then you’ll hardly get any value. You might want to park your fund in safe investments. More Info here
Making money in stock requires, patience, skills and a different mindset. I think its more of an art rather than science. Because you may use a specific logic to buy the share and it goes up for a different reason and you still enjoy the profit. Hence there are no governing laws for making money in profit. You just need to follow your gut but the profits comes with experience and patience.