7 Things you should know before you start Investing in Stocks

You have to learn the rules of the game. And then you have to play better than anyone else.

Albert Einsten
Often people jump into the investing game, without knowing basic investment rules or I would like to call it “The Disciplines”. There are some tips you should know before investing your hard-earned money in stocks. If you don’t want to make the same mistakes that I made when I started investing, you better read this blog!

1. Set realistic goals at first.

Set small, realistic, and achievable goals in the beginning. It is very important to know that the stock market won’t magically double up your money. Hence keep your expectations low in the beginning.

2. Start with a small amount.

It is crucial to start with a small amount of money, as at the beginning you might lose some money, so it is better to lose a small amount; think of it as the money spent while learning.
And as you progress and start getting confident, start investing more money, or you can also set some fixed amount aside and invest that particular amount every month.

3. Stop taking advice from poor people.

Altogether stop taking advice from poor people, do your research, read articles and books of only acclaimed authors. Every person has his view on finance and investing, the people who advise for free are generally poor or middle-classed, stop taking advice from them. This might also include your folks and friends.

4. Diversify.

Don’t invest all your money in one stock or one sector, taking the example of car companies, they are cyclic stock – they tend to go high and low according to the sentiments of the market, making it highly volatile; therefore it is necessary to diversify your stocks so that you can take advantage of all market conditions.

5. Know the difference between Investing and Speculation.

According to Benjamin Graham: An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. This can be achieved through fundamental or technical analysis.

6. Don’t invest in penny stocks.

The Definition of Penny stocks is different in different countries. They are mostly those stocks that are traded at a very low price and have low market capitalization. I know it is very desirable to buy stocks at a low price and sell it at a very high price, but think of this first; there is a reason why these stocks are at a price so low.
For India: They can have a price of Rupees 10 and below.
For the USA: They have a price of $5 and below.

7. Don’t invest by lending.

It is considered highly unsuitable to invest the money you don’t have, don’t invest in a stock if someone else is lending you the money. Also don’t invest with your parents’ money, If you don’t have enough money currently, start with paper trading.

Conclusion

For a beginner is very important to know the disciplines of investing rather than the financials. A disciplined person can make a lot of money in the market, more than a CA or CFA, only if he knows the fundamentals of investing. These tips and tricks will help you to make a sound financial decision. Tell me in the comment below, if you have made any of such mistakes in the past.

This Post Has One Comment

  1. Kanav Singhal

    Very informative blog!

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