Must Know Stock Market Investing Rules

There is a general tendency among people in Tier 2 and 3 cities of India that anyone who invests in stock market is considered to be a gambler. Even the investor himself feels hesitant to invest in volatile stock markets after listening to thousands of unsuccessful stories in stock markets. So let’s discuss, if you don’t want to invest in stocks, what is the other option left with you. More than 60% of the people in India keep their money in bank saving account which yields 3.5-4% and they feel proud when they invest their hard earned money in fixed deposits which guarantees them 8% yearly returns. But equity investment offers much better returns i.e 16% annualised returns since inception


But one must keep the following points in mind before investing

Invest for long Term Only

There is a general tendency among retail investors to enter markets near all time highs. I still know a lot of retail investors who have their investments made at 2008 year 21000 levels. But I have seen no one who has invested at 2008 lows i.e 7500 Sensex intraday lows. I think, this explains the whole story of Indian investment style. So a learning from here is one should invest in market when all others have a pessimistic view on the markets. It works seriously.

Learn “No one can Predict Market”

Don’t invest on market rumours or invest on the basis of so called TV analyst. If I sit for two hours in front of TV watching business channels, I will get atleast 50 different recommendations to invest and no one invest in all these 50 stocks. So picking a stock randomly out of these 50 stocks recommended blindly can be a bone of contention for your portfolio. It is the market noise only which disturbs investor’s mentality and he looses money by investing his money based on market rumors.

Don’t feel afraid of bears

If I look at the Sensex history of past 10 years we can say that the bulls took control of the markets for 6 years and bears for 4 years. You must have to understand that the markets can’t trade only in one direction i.e upwards. The market has to correct and thus giving ample opportunities to investors to buy and create wealth in a long run. A investor should feel happy when the markets are trading in the negative zone as it is giving him opportunities to do cherry picking. One must get rid of the pessimistic feeling during this time but should invest for long term.

Research before you buy anything

One must do active research on stocks before investing. One must keep a view of investing in stocks for 3 years while buying. Always keep in mind, you are buying a stock, but you are going to buy a stake in the company. There are a lot of websites like moneycontrol.com and money.rediff.com.

Research before you buy 52 week Lows Stocks

A lot of retail Indian investors after listening to the valuation stories of 52 week low stocks jump to buy 52 week low stocks as they think this would make them rich overnight once the market starts its recovery mode. Well, this may or may not be true. A lot of mutual fund schemes holding real estate companies which were trading at significant low prices underperformed the benchmark index.  A lot of technical analysis studies also don’t favour buying 52 week low companies.

Don’t Average Down to feel better

Stock markets in short term behave like a blizzard. Some stocks fall by more than 50% upto even 90%. In such a situation, a investor in order to feel better and make his mind believe of lower average purchase price of total investment, he tend to average out his investment and end up losing more.

Avoid Amateur turned Expert

If India has a population of 121 Crores, atleast 1 Crore people would call them experts in selecting direct stocks without knowing the fundamentals of the economy. In the bull market, every expert has its own basket of “hot share tips”, but they all disappear in the bear run. Avoid taking suggestions from your sub broker or any known person to you who doesn’t have much experience in the stock markets.