By Santhosh Kumar V
Stock trading is one of the means by which investors all over the world have made huge fortunes. However, given the volatile nature of the market one could lose their life savings in a market downturn. Therefore, one needs some handy skills with which they can manoeuvre the dynamics of the stock market.
Follow the market
Information is one of the key pillars for successful investing. To this end, one will need to follow news reports by major financial news sites like Yahoo Finance and Google Finance, Reuters, Bloomberg and the Wall Street Journal amongst others.
Monitoring the market entails scrapping for any relevant information on market fundamentals. In this regard, third-party analysis, financial commentary by pundits on live TV and pulling quotes will greatly help. In addition to the financial news sites and commentary on TV, newspapers also contain crucial information that can help towards understanding the market. Newspapers and magazines such as The Economist, and the Financial Times help to understand global business trends which can easily spill over to local markets.
Invest in business you understand
Once you invest in a companys stock you become a stakeholder in the company. This means that everything that happens to the company affects your investment. Therefore, it is prudent to focus on the business rather than the stock when deciding what to buy. Sometimes, a stock might look valuable but the business is running aground as stock prices can be overvalued or undervalued.
Therefore, understanding a business is essential towards understanding the fair value of a stock. This way, an investor will not be practising blind investment.
Follow a disciplined investment approach
Investing, like any other activity requires some discipline. For instance, one should learn to prevent impulsive buying and selling which might lead to loss of capital. Additionally, investors should also diversify their portfolios to protect against sudden shocks in certain stocks.
Know the best time to buy and sell/value investing
Making off the stock market could be impossible if one moved with the crowd. It is obvious that during a bear market, many investors will want to sell their stock for fear of losing their capital. However, such times are the best for buying.
Source: Ace EquityAs illustrated in the table above, buying in a bear market or periods of correction is quite profitable. For instance, if one bought shares of Tasty Bite Eatables Ltd. in 2008, one would gain a profit of 55,467.52% by 2018. This is also referred to as value investing where one buys shares and holds on to them for the best time to sell.
Santhosh Kumar V is the founder, CEO and research analyst at Streetgains.