What Are The Basic Principles Of Investment

Whether a man or a woman invests in the share market, they are investors. Everyone should be careful about many things before investing. Here are ten basic principles related to investment-

1. Do not invest your entire savings in shares only. For example, if you have 1 lakh rupees, then invest only 25 thousand rupees in shares. Start with 25 percent.

2. Instead of buying shares of a single company, invest in shares of different and well-reputed companies. For example, one share in the IT sector, another in banking, third in infrastructure, fourth in telecom or cement or steel etc.; but all those shares should be of companies with good reputation.

3. While buying and selling shares, it is necessary to have ‘PAN’ (Permanent Account Number) and Demat account.

4. For buying and selling shares in the share market, choose a broker whose image and service is good. He should have information about all the ups and downs in the stock market. Also, make sure that he is registered.

5. Do not get misled by the tips-culture. People will start advising to buy many new scrips. Their prices may increase, but buying without thinking can be costly.

6. If your relative, friend, neighbor has got a good price by selling a stock, then you should not be under the illusion that you will also get a good price by buying and selling the same stock.

7. Do not invest by hearing about any company or by reading rumors about the stock market in the media. Complete information about the company is available on the company’s website. Take a decision only after reading it thoroughly.

8. Investment is a long-term game, but what is called day-trading is a gamble. It involves buying and selling shares quickly.

That is why understand the difference between investment and gamble. There is a lot of risk in day trading. Your savings can be completely lost in this.

9. Whenever you buy shares, buy them for a long time. If your prices are low today, there are chances of them rising in the future. Despite this, if you are getting good profits in between, you should book profits. Sell at least 50 percent of your shares with profit. If you have bought shares of a company with a weak reputation, be prepared to bear losses.

10. The stock market is very sensitive. It is affected by all kinds of events like the US economy, political events, inflation, company results, Asian markets, industries, so it keeps fluctuating. You only have to keep information about your stock, not about the index. If your shares are of a good company, then they will rise again.

(i) Success of investment is hidden in seven Principles

If the basic realities of the stock market are understood, then success can be achieved by avoiding failures. Here are the seven basic principles of investment-

• First Principles: When the phase of recession starts in the stock market and the buyers lose enthusiasm due to the fall in prices, in such a situation the reality of investors is that they move away from the market. Whereas the truth is that this is the time when investors should enter the market and buy slowly and keep buying shares as they are available at lower prices. You only think whether one should buy or sell at an index of 21,000? And should one sell or buy at an index of 8-10 thousand?

• Second Principles: One should invest in the company, not in the stock market. The market chases away those who run after the rise and fall of the price of shares, whereas those who invest by looking at the performance results and track record of the company do not get scared of the market movements. There are many factors that affect the trend of the stock market, but the factors that affect the company are very few. Therefore, you should focus your attention on the company, not on the market. Your partner keeps watching the movement of the stock market, whereas in real estate, if the company is good, then the stock market also gives good results. After the Satyam scam, the same company was acquired by Tech Mahindra and the rise in the shares is a recent example of reality.

• Third Principles: Decide whether you want to invest or speculate! Generally people talk about investing in shares and start seeing the fluctuations in its price from the very next day. As a result, after investing, they are always worried and later blame the market for their mental fickleness. The market is going to remain fickle. That is its nature. So many news start affecting the market every day from morning that how can it remain stable? But you can remain stable. Yes, to be successful in the stock market, it is important that you as an investor accept both the truth and reality.

• The fourth principle is that whatever comes into your mind, that is profit or loss on paper in the share market is a truth, but not a reality. Whether the price of your shares has gone up in a boom or down in a recession, it shows your profit or loss, but only on paper. Investors should determine the limit of their satisfaction by keeping in mind how much return they are getting in shares as compared to traditional investment instruments. This means that investors should sell their shares at the right time and book profits. Similarly, losses should also be booked at the right time and at the right level. Investors should take this decision keeping in mind their discretion and circumstances. One should not wait for infinite profits and similarly one should not wait for infinite time for the prices of those shares to improve and come back again. Yes, in case the prices do not improve, the loss should be accepted and the remaining amount should be invested in other shares.

• Fifth Principles: Listen to everyone, but do what you want. In the stock market, you always pay attention to what people say and do and act accordingly. The day you stop blindly following people, the door to your success in the stock market will open. As long as you remain a part of the crowd, you will buy when everyone is buying and when everyone starts selling, you will also sell your shares. Here, the formula for success is that you buy when everyone is selling and sell when everyone is buying.

• Sixth Principles: Do not have emotional attachment with any stock. You should be satisfied with a reasonable return. Many times, you invest in a bank or company’s fixed deposit and get 8 to 10 percent return and are satisfied. In some shares, the investment may double in 1 month and in some in 6-12 months, but it is not necessary that this happens always. Do not get attached to any stock permanently. However, in exceptional cases, good shares can be kept as a legacy for children.

• Seventh principle: Equity shares are the best means for returns. History so far is a witness that among the various investment means in the world, investment in equity has given the highest returns. Another feature of equity is that it also makes the investment of investors zero. Those who invest in equity should invest in it only after accepting this truth. Another aspect of this truth is that in the market, a person who had invested 10 thousand rupees in a stock like Wipro and who maintained this investment for 27 years, today his investment has become more than 200 crore rupees. This is why investing in equity is considered risky. Since the risk is high, the returns are also high.

Read Also:

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6. How Is Technical Analysis Done In Stocks
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8. Funda Of Buyback‘
9. Rights Issue, Share Split And Open Offer
10. Investment Options
11. What Is Portfolio Management
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13. New Investors: Problems and Solutions How To Choose A Stock Broker
14. What Is Stock Market
15. Stock Market Story
16. History Of Finance
17. How Finance Works

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