Before you start exploring the market, you’ll need to know the risks associated and a few basics. In order to figure out the best stocks to invest in, you require lots of patience and discipline, along with a great deal of research and a sound understanding of the stock market.
Below are some golden principles which can help you increase your chances of getting a good return out of your investment if followed in a prudent manner:
1. Avoid being a part of the bandwagon: Typically, a buyer's decision is heavily influenced by those of his acquaintances or relatives. Thus, if most people around you are investing in a particular equity, do not do the same without proper research. This strategy may possibly backfire in the coming future. Having the ‘mob mentality’ can make you lose your hard-earned money in stocks.
2. Expect realistically: Being optimistic is a good practice but having unrealistic assumptions about the stock market can land you in trouble and destroy your financial goals. A lot of stocks sometimes do generate more than 50% returns in bull runs. However, it doesn't remain the same and you should always expect return depending on your current position in stock markets.
3. Do not time the market: One thing that even the most experienced investors don’t do is, trying to time the equity market. The prices in a stock market start falling at a much faster rate than their rising rate, and this is the point when most investors make a mistake of selling their stocks to make maximum possible gains from it. Holding the stocks is a better option in such situations.
4. Disciplined investment approach is the key: The volatility in the markets has the capability to inevitably make the investors lose their money despite a great bull run. However, investors must systematically put their money in shares and hold on to those investments patiently, to generate noticeable returns. Hence, it is important to keep patient and follow a controlled investment approach.
5. Do not make emotional judgements: Many investors lose money in stocks due to their uncontrolled emotions, particularly greed and fear. The lure of gaining quick money in short period of time is irresistible and can lead the investor to buy wrong shares. On the other hand, investors usually panic and sell their shares at unfruitful prices in a bear market.
6. Learn the art of Technical Analysis: Having a general sense about forecasting stocks depending on historical data and analysis of the usual tendency of particular equity can be a great step towards decoding the best stocks to invest in. Investors must study various parameters like trend lines, averages, patterns, and oscillator etc. to boost their financial status and make more confident decisions.
7. Monitor your portfolio rigorously: We live an interconnected global village where any event happening in one part of the world can impact the whole financial market. We need to keep a constant check on these changes around the world and keep assigning the desired changes in our portfolios. And if you cannot review it on your own, you must seek help from a good financial planner.