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So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ For the pagans run after all these things, and your heavenly Father knows that you need them. But seek first his kingdom and his righteousness, and all these things will be given to you as well. Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.

30 Aug 2016


. To understand the concept of stock investing we will see top 5 stocks investing rules.The most basic concept that everyone must keep in mind while investing in stocks is, stock analysis is essential. People buying stocks without proper analysis is a big mistake.
Stock market on its own is known for its characteristic volatility. In recent times we have seen extreme stock market movements (between extremes). Such volatility makes novice investors confused. Stock indices has touched rock bottoms in year 2000 and 2008. Subsequent to year 2000 and 2008, market also peaked.

On the hindsight its very easy to explain the behavior of stocks. Stock market peaks, then it bottoms and again it peaks. This is a cycle that all market indices follow. This is known and is very predictable. But what no body can tell is, when this cycle will be repeated.
Even best of stock investors cannot forecast such patterns. In this situation, specially for novice investors, our top 5 stock investing rules will prove useful.
There is no magic formula when it comes to stock investing. But if we can follow these 5 rules, we can make tonns of money? Well, that is not sure, but one thing is certain that chances of not making loss will greatly increase.
Lets see our Top 5 Stock Investing Rules
1) In Stock Investing, be your own boss
How many times people buy a stock just because its market cap is very high? How many times people buy a stock just because it names is very popular? How many times people buy a stock because you know the name of its charismatic owner?
Lets accept it, most novice investors buy stocks like this. But is this the right approach to invest in stocks? Absolutely not.
Not brand name, no market cap, no individual should influence you to buy a stock. While investing in stocks, one has to be his/her own boss.
Do your own stock analysis and then buy any stock.
2) If you cannot analyze stocks, follow a SIP

There are people who cannot read financial statements. There are people who no nothing about business fundamentals and market price valuations. But these very same people have strong opinions about stocks.
The develop these opinions about stock from their gut-feelings. But unfortunately gut-feelings do not work in stock market.
These people base their decisions on half-cooked information’s. Its not uncommon, most people buy and sell stock like this.
I once asked my friend, why you are buying stocks of INFOSYS? His answer was, I have heard that Narayan Murthy is coming back to manage the operations of Infosys. I know, to many this answer would not look wrong. But here we are only assuming that that a person of Narayan Murthy’s stature can only do good for a company.
May be Narayan Murthy will click for Infosys, but again its only a wild guess. This is not the way winners make money in stock market.
The only way one can become a champion investor in stocks is by learning to read and comprehend financial statements of companies.
If one cannot do this, he/she should stay away from stock investing.
If the urge to invest in stock is too high, follow a SIP route. This will prove extremely rewarding in long run.
3) Identify a fundamentally strong business and keep buying it stocks
The rule of stock investing says, “buy stocks of those business which will continue to do business for next 100 years at least”.
The companies which can survive for so long must be GOOD. To quantify ‘what’s good’ in that business; experts do fundamental analysis of those companies.
Experts read past years financial statements of companies and make a calculated guess. They estimate how poised is the company to do ‘good business’ in future.
Once such company is identified, investor must keep buying its stocks with every major price dips.
So now what are this price dips about?
Yes, we will talk about price dips as well (undervalued stocks), but fist digest this information that ‘one must buy stock of only fundamentally strong stocks’.
4) Buy good stocks and stick to it in thick & thin
There are people who bought good stocks, but still could not make money. This mainly happens because they go panicky.
We know that stock market is volatile. Hence, prices keep moving up and down. But it does not mean that, every downward movement is a dooms-day call.
Buy good stocks and stick with it even when its prices are going south. I know this is not easy, but this is the right way. This is one skill that every potential stock investor must bi-heart.
In such a situation you must answer yourself that why you bought that stock in first place. Price of stocks will remain volatile, but what helps the investors to hold on to the stock is their ‘awareness about the companies fundamentals’.
No matter how low the stock price fall, if the business fundamentals remain strong, the price will bounce back to newer heights.
Warren Buffett takes months to research his stocks, but once he buys them, he holds on to them till eternity. He rarely sells his holdings. If at all he sells, he does it only when stock fundamentals are getting weaker.
Fundamentally strong stocks mints money for its investors.
5) Stock returns higher than 12% per annum is excellent
Novice people enter stock with hope to double money in few days. But in reality, stock market is much slower. At the rate of 12% return p.a, money gets doubled only every six years.
I know you must be already feeling sick in your stocks, but unfortunately this is the reality.
There are people who have made higher returns than 12% per annum, but its rare. People who have invested in 6/7 years horizon in stocks (through SIP) can generate returns in tune of 16% per annum. But again, the extended holding period is key in making such returns.
In India, returns in range of 16% per annum can be considered very good. In Europe, a rate of returns of 8% per annum is considered excellent.
The point is, stock market is no roulette. It cannot churn money more than its inflow.
Stock market can only give as much returns as its underlying business is generating. Generally in India, a company growing at rate of 12% per annum is considered ideal. A company growing at rate of 12%, its stocks cannot give higher returns than 12% in long term.
A person who has mind of his own is more likely to achieve success in stock investing. The chances of success further increases if the person in consideration can also analyze stocks. Such a person when regularly buys stocks of fundamentally strong companies, nearly guarantees his success percentage. In stock investing, if a person can generate returns higher than 12% per annum, he can consider it a success.

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