Do you have some extra dollars to spare? Are you ready to take a little risk and try and make some money? If yes, one option you definitely cannot ignore is investing in the Indian Equity Market.
Stock trading is like running a business and it is no different in India. It involves money, strategy and close monitoring of stocks. It is essential that you follow a few rules of the game:
Plan your investment carefully. Decide on an investment amount and a strategy and believe in your strategy.
Invest wisely – in sound and undervalued stocks.
Do what Warren Buffet did. Invest some money in shares from companies, which have made their Initial Public Offering (IPO) at least 10 years ago.
Look at earnings per share (EPS) of stocks and not net profits. Track the past history of growth of EPS and carefully analyze the Book Value of a stock rather than its net worth.
You must avoid over-diversification of your portfolio by investing in too many stocks from different industries.
Never invest in a stock without understanding the potential risk of investing in the stock. Be absolutely sure about your investment. Keep yourself informed about the companies’ fundamentals. The least you should do is to monitor whether sales and net profits of the organization are rising. If the results are consistently poor, it’s best to get rid of such stocks.
Invest a fixed sum regularly as in a systematic investment plan (SIP). It’s best to keep rotating the money, which you get back when you short sell some stocks. For this, invest in some stocks, which are short-term investments, and some, which are long-term investments.
Book your profits when a stock starts yielding returns beyond your expectations. For example, you have purchased a stock valued at USD 2.5 per share with an expectation of a 50% return over the next one-year. You observe that the stock value is rising by 15-20% within a month. At this point it is wise to sell a part of your total holdings of the stock. This ensures that your holding cost for this stock is reduced, while you get some money in hand for other investments. For example, if you sell 25% of your current holding at USD 3 per share, your cost for the remaining 75% of the stock gets reduced to USD 2 .27 per share.
Try and keep at least 15 % of your total money earmarked for trading as cash. This will help you invest this amount in fundamentally strong scrips, which can be bought at cheap rates during market corrections and crashes.
Carefully consider the debt to equity ratio in your portfolio. Always have some debt instruments too in your portfolio.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment