This blog is to encourage more and more people to invest in the stock markets. India has 8% retail participation in market investments as against 20-33% in South Korea and China. Presently only 2.6% of India’s total savings come to capital market, and 85% of total trading is from only 5 cities. This section of the blog (in addition to my first blog) caters to the general fears that prevent these people from entering into the market. It is true that there is no surety to the returns on our investments, but with the right thinking and logic, I am sure making money in the stock markets would not be that difficult.
Let us have a different approach this time. Anyone who likes to invest in stock markets must have heard about Warren Buffet. He is one of the greatest icons in the investment world. Over the years, I have tried to learn from his ideologies which have helped me big time. Before moving any further in my blog, I would like to re-stress on some very crucial points (some very famous quotations of Warren Buffet) that we need to keep in mind while investing in the equity markets.
1) We should never invest in a business we cannot understand: When we buy common stock, we should approach the transaction as if we were buying into a private business. As a common investor, we should have some idea about what the business is all about and what are the internal and external factors that might affect the top-line and the bottom-line of that company. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right. Once we have bought the shares of any company, we should hold to it with the same tenacity that an owner would exhibit if he had owned all of that business.
2) Unless we can watch our stock holding decline by 50% without becoming panic stricken, we should not be in the stock market: Stock market is a place which, unlike banks, provides no guarantee to our investments. As an investor, we should invest only that money, which if we lose, it would not affect our daily lives much. We need to be free from all the fears and excitement. Fear to lose can be a great hurdle in our path of making profits.
3) Wide diversification is only required when investors do not know what they are doing: We already discussed this in detail in my previous section “Investing Dilemma for small investors”.
4) Much success can be attributed to inactivity: Most investors cannot resist the temptation to constantly buy and sell. As already explained in my previous blog “Investing Dilemma for small investors”, the ability to say no is a tremendous advantage for an investor. We should buy stocks based on some data and reasoning. There is no need of trading continuously and daily. Daily trading increases the scope for making wrong decisions. Patience is one of the most crucial profit making tools in the world of investing.
