To be a successful investor, is the ultimate aim for every newbie investor. It takes lots of practice and experience to become a successful trader or investor.There are ten golden rules to follow to become a great investor and make money consistently in stock market.
Who is a successful investor?
A successful investor is one who
1. Learns from his mistakes.
To survive in the field of trading or investing we should be willing to learn from our mistakes.This field is highly competitive, there is no win win situation in trading, either you will win or lose, there is no middle ground. Consider this situation, I bought a stock for Rs.100, the stock rose to 110,I sold it for 110.Now this can be called a winning trade, because I made Rs.10 minus the brokerage.The one who bought the stock from me can be a winner or loser,depending on the amount for which he sells the stock.If he sells it for 120,he is a winner if he sells for 105,he is a loser.Ultimately someone has to suffer,because in the end someone who bought the stock at a very high price may have to sell it at a loss.So the gain of one person maybe a loss for another one.So learn,so that you become a winner,consistently.
2. Has the patience to wait for the right opportunity.
Waiting for the right price can be tiresome.Most people who buy on recommendations,buy stocks at the wrong price and ultimately lose a lot of money.You can buy a stock,which is in an uptrend,at corrections so that your buying price may not become too high.You can also buy stocks which breakout from their consolidation phase.Whatever indicator you chose,you have to buy low to make consistent profits.
3. Maintains his composure, even if he wins or loses.
The emotional component in investing is a troublemaker. Some people become frustrated on losing trades,some others become overjoyed and splash their money.Remember one thing “This too will pass”. If you lose a trade, don’t worry, next trade can be successful.All you have to remember is not to lose too much of your investment on one trade.Those who become overjoyed and spend too much money should remember “This too will pass”,you may go bankrupt on your next trade.
4. Manages his money by using calculated risk taking
Money management and risk management are the two most important factors in trading.You have to put stoploss orders for every trade,so that you lose only a small part of your investment, even if the trade goes against your expectation.You should have an exit point in your mind,whenever you enter a trade.You can exit at your target, or partially exit and hold the rest for profits.It all depends on your style of investing.
5. Is willing to take a calculated risk
Stock market itself is a risk, as more people have lost money by trading than those who have earned money from it.So the point that, you have decided to trade a stock means, you are a risk taker.But fortune favors only those who take calculated risks, those who are reckless in their trades, eventually will exhaust their principal investment and join the losers.
6. Reads a lot and stays updated
To be a successful investor, you have to update your knowledge every day.A stock may become a based on a quarterly result update,which you failed to read.So constantly following the trend of the market and the stock in which you have invested will keep you out of trouble.
7. Diversifies his portfolio
Remember the proverb, “Never put all your eggs in one basket”. If you pick all the stocks from one sector, you may lose a lot of money when the sector takes a hit.But if you invest in different sectors,your loss will be limited.You can also select different financial instruments like stocks,mutual funds,debt funds,gold,ulips etc to diversify your risk.
8.Keeps a contingency fund
You may never know when you will need cash at hand.So you should never invest all of your money into stocks.You should be able to pay your rent,mortgages ,educational loans, children’s fee etc. with the money in your hand.If an emergency arises, you must be able to handle it without liquidating your portfolio.This is very important,as stockmarkets are known to be volatile at times.
9.Keeps surplus cash at hand
You may never know when an opportunity to make a lot of money from a trade arises.If you have no money in your hand to invest at that time,you will lose the opportunity.So maintaining some surplus cash reserve is very important, to make good returns.
10.For whom,Money is a means,not an end
Wise investors view money as a means,not an end in itself.So they can view each trade without putting emotions into it.If you become greedy and pledge your estate,wife’s ornaments etc. to trade,then you are a person who finds money as an end.Money is useful only if you have the peace of mind to enjoy the benefits it brings.So maintaining a good family and personal relationships while continuing investing,and putting everything into right balance will make you rich.
If you follow these 10 cardinal rules while making investing decisions, you will be making consistent returns from the stock market.