Spend, Save and Invest Smartly

How to Invest in Stocks?



A famous saying by Warren Buffett comes to mind when investing in the stock market. “An investor needs to do very few things right as long as he or she avoids big mistakes”. The key to making money in stock markets is not how lucky you are or how great your knowledge is of the stock markets but how few mistakes you make when you invest in the stock markets.

Patience is the key

You need to be able to withstand shocks while investing in the stock markets. You need to accept that the movements in the stock markets (Upward and downward movements in the stock markets called volatility) are out of your hands.

Sometimes even if you make all the right moves while investing in the stock markets it might simply not be your day. You need to be patient as just as the stock market goes down it will certainly rise again.

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” is a famous quote by Warren Buffett.

Investing in the stock market is not like playing cards

Investing in the stock market is not gambling. If you want action and excitement you should go to a casino. At least you will have a good time watching your money blow away. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas - Paul Samuelson.

Double or nothing

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."- George Soros. You need to do your research and identify good stocks. When you are 100% sure that you have found a gold mine (great buy) commit a huge sum of money so that when you get a profit it should be a big profit. If it is a loss well you are out of the game. “Win big or lose big”. If you invest in the stock market and the loss pinches you (you make a huge loss) then you will take all the precautions when you invest so that you don’t lose money. This might actually benefit you as when you get a profit on your shares it is a big profit.

You don’t earn…You only save

You feel guilty for overspending on that family vacation. You resolve to save money and do so by denying yourself almost everything you can think of. At home you unplug every electronic item from its socket. You expect to save money on your electricity bill through this drastic move. While saving per se is not a bad idea, you also need to earn money. Yes, the rich do not waste their wealth, but they also earn a lot. There is a limit on what you can save, but no limit on what you earn.
Remember : Invest in your career. It is the engine of your growth.

Your gut feeling

"I rely a great deal on animal instincts."-George Soros. Sometimes the best investments you make are those you don’t make. You need to rely on a hunch (funny feeling) which tells you that something is wrong. Your research might tell you that an investment in a particular stock is the best you can make. Your gut feeling tells you to wait before you make an investment in this stock. Sure...some bad news comes along and the share price falls. Stock market investments are not all logic. Sometimes you need to follow your instincts and disregard logic while making an investment in stocks.

Buy on the rumor and sell on the news

You must have heard a rumor that a small pharmaceutical Company is being acquired by a highly reputed larger Company.

You anticipate that the small pharma Company will benefit immensely from this deal.
• It would have a better management under the larger Company.
• Access to huge amount of funds would lead to better product development.
• Access to a larger market for the small pharma Company.
This is an unverified rumor and may and may not be true. If you buy the stock of the small pharma Company (on the rumor) it soon rises and may even hit the upper circuit (only buyers and no sellers).
Once the larger pharma Company acquires the smaller pharma Company and the news is out everyone would purchase the stock and its price goes higher. This is the time to sell and exit the stock.

Past history bores me

If past history was all there was to the game, the richest people would be librarians.-Warren Buffett. Never pick up stocks for your portfolio solely because they did well once upon a time. A stock is valued based on how it performs today and how it will do in the future. Yesterday’s winner’s have no place in today’s World.

Cold logic and not emotions

You might have favorites: If you work in real estate you might have purchased real estate stocks as you have a preference for such shares. These stocks might have gone nowhere in the past few years (Remain at the same price or even gone down). You don’t want to sell these real estate stocks as you have grown emotionally attached to these stocks. Your head and not your heart must rule your investment decisions. Stocks are not some item you collect or a lottery ticket. It is part ownership of a Company.

What happens if my favourite stock rises?

If your favourite stock rises rapidly you must sell and make a profit. You cannot get attached to this stock and when you have to sell...well you have to sell. If you think you have all these qualities then you can boldly jump into the stock markets and make your investments.

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