Thursday, January 26, 2012

Lessons to Learn from the Stock Market to Make You a Better Investor

The Stock Market collapse over the past couple of years, the uncertain global economic scenario and the losses that Investors were forced to make have made investors shy away from the Stock Market. There is an inherent feeling of Panic and Fear when it comes to Investing in the Stock Markets. A Good Investor is one that doesn't get bogged down by such setbacks. We must take this opportunity to learn lessons that this stock market volatility has taught us and make ourselves a Better Investor.

Shall we get on with the topic?

Lesson No. 1:

History Does Not matter; what matters is what you do with your present.

This is a great lesson. Dont get unnerved or disappointed if some of your investment decisions were poor. Its ok. Everyone makes mistakes and especially when it comes to the stock markets, the number of people who make mistakes far outnumber the ones that are successful. So, a good investor is one that learns these hard lessons and uses those learnings to make wise investment choices in future. Don't buy stocks on an impulse or just because your colleague does so. Do your research, spend time finding out how good the stock is and then only invest.

Lesson No. 2:

Find yourself a mentor.

The best way to learn something is to find a good teacher/mentor. In all probabilities you may have a good colleage or friend who is a seasoned investor. Keep your eyes and ears open and learn from them.

Lesson No. 3:

If you are a Beginner/Novice Investor, Invest only in top-rated and successful companies/mutual funds.

A smart investor is one who can identify the best stocks or mutual funds. There are numerous stock market websites that rate the best performing mutual funds. Funds with an established track records usually perform better under difficult times and yield good profits. If you want to invest in stocks, select large company's that have years of history of profits under their belt and the chances are that you will make profits. Even if there are going to be losses due to economic events, they will be far lesser than what you will lose if you choose bad performing funds or junk stocks.

Lesson No. 4:

Stick with a few simple investment products in the early years.

Identify a few investment options that you easily understand and are comfortable with. Don't buy too many different financial products in the initial years of your investment. Only when you get a hang of the financial markets and have made some successful investments, should you consider investing in different products and upcoming companies. If you start with Futures/Options you will never become a successful investor.

Lesson No. 5:

Move to riskier and specialized products only after you become a reasonably successful investor.

This is a continuation of Lesson No. 4. Riskier investments like Derivatives and Commodities are extremely risky and are only for seasoned investors. There are numerous Novice Investors who are lured by super-duper profits and loose all their life's savings in get-rich-quickly kind of schemes. The likelihood of you too becoming a multi-millionaire would be determined by just how good you are at managing the resources you have. If you cant take wise investment decisions, the chances are that you will make very little profits.

Lesson No. 6:

Don't be GREEDY.

Good investments usually have a decent rate of returns which is around the 12-15% range. Any investment that promises exorbitant returns like Double your money in 2 years or Triple your money in 5 years is most probably a Bogus Propaganda. Practically speaking no investment can do that. Unless the stock market rockets upwards to 21000 in one year from its current 17000 levels, such kind of returns is impossible. Expect a decent rate of returns from your investments. A Good Stable investment that offers a good chance of 15% returns is on any day than a scheme that promises a 50% returns at a high risk. Remember the age old saying "A Bird in Hand is better than Two in the Bush"???

Last but not the least "Have a Positive Attitude". Someone who is level-headed and has a positive attitude towards investments has a better chance of success than one who is careless and impulsive.

Being Successful in the Stock Markets is not easy but it isn't Impossible Either. Be Wise and you will make profits easily!!!

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