Follow the unwritten rules

Team CrawFin/ Harshal Jawale CFP^CM

Equity is probably only asset class in India which gives superior returns post adjusted Inflation and Tax. However making money in stock market is not an easy task. Many people enter stock market with a hope of making quick bucks; free floating tips, news, issues makes them easy and vulnerable targets. While it is important to know about the markets and risks associated with it I feel it is more important to identify yourself.

Every game we play has several written rules yet some unwritten key rules that we only come to know by experience. Stock market is not a game but still has some written and unwritten rules. We need to understand them; by entering into stock market and then follow the rules diligently.

Some unwritten rules

1. Identify what kind of investor you are and then diligently follow the rules
2. Never let your emotions and ego influence a buy/sell decision
3. Be patient wait for right time to enter/exit

Identifying Yourself

Each individual needs to categorize oneself depending upon risk appetite, time horizon, and expected returns. There are 3 broad types you can classify yourself into

  1. Short-term Trader                    2. Investor            3. Momentum Trader    

 

Short-term Trader

• Time – One day to few months
• Risk – High
• Tools Recommended – Technical Analysis
• Requirement – Very liquid, F&O scrip recommended
• Discipline – Strict stop loss should be followed
• Expected Returns – 8-10%/trade

Investor

• Time – One year to few years
• Risk – Low/Medium
• Tools Recommended – Fundamental Analysis
• Requirement – Consistent dividend, Strong management
• Discipline – Requires regular portfolio review
• Expected Returns – 15-16%/year

Momentum Trade

• Time – One week to few weeks
• Risk – Medium/High
• Tools Recommended – News/Current Issues
• Discipline – Close monitoring on the issue
• Expected Returns – Very high momentum on either side

Continuous Improvement in knowledge base

You must also be able to keep track of following to make updated and informed investment decisions

1. Several products/services that are available in the market
2. Economy - Local & Global
3. Political environment – Bills/Policies/Tax etc
4. Tracking activities of your company & sector outlook
5. Current affairs – news/issues

After taking above efforts on continuous basis you will need to put all these into practice to make real money. There is no one fit strategy that suits everyone. You will need to develop one strategy in conjunction with Financial Advisor which will be a best match for your requirements.

Happy Investing !!!

"Wealthy investment needs Healthy Methods"