The risk is the most emotional subject than the most.
New Investor’s misconception is the main hindrance for getting started with investing. Understanding of risk primarily differs from person to person. Everyone understand risk in their way.
Certain situations, some experiences, rather instances get people to come to an easy conclusion. Most of us are satisfied with those and do not want to get out of our comfort zone.
Are you holding onto something that you need to let go?
The most common question first time investors ask. You would be surprised with some of them.
“Will I ever lose money while investing.”
“Can the value of the stock go down after I purchase.”
“I always invest in fixed deposits, and I am not ready for investing.”
“My friend has lost a lot of money in mutual funds, so it’s risky.”
“My nature is not risking should I Invest.”
“I am a salaried person why should I take the risk to invest.”
The list goes endless, and these are the toughest question to answer since they have presumed risk very differently. Early investors have heard from generations that investing in stock market is risky.
It is risky when you don’t know why you are buying and what you, are buying.
When I ask most of them what is risk according to you I get so many varieties of answers that you would be astounded at your reply at the end of this article.
The basic definition of risk is a situation involving exposure to danger.
Now, handling and managing a gas stove is very risky, but you use the gas stove on a daily basis. Reason being you have learned to operate the gas stove.
You have trained with guidance the right ways, and more importantly, the wrong way of using a gas stove. You understand various precautions to be taken to manage a gas cylinder you are aware of the risk associated with the operations of the instruments.
When we seek guidance, learning, and understanding for such a basic things in life. Why do we keep our pre-assumptions for something so important in life?
What does Risk mean in Stock Market?
“Price is what you pay, and Value is what you get.”
You invest in shares in the stock market because you want to be a part of the company. Price is what you pay in exchange for the share. The value you get is to be a part of the organization.
The risk is when the company ceases to operate, has no assets on the balance sheet, has made a substantial financial loss, there is no future for the business’s operations. If the company tomorrow ends up with no employees or customer, then it’s a risk.
Let me give you a classic example if I were to tell you that a company with no sales of products or services majorly could be valued at few billion US dollars and be sold you would be surprised. Aren’t you! And the company’s product name is Whatsapp.
The risk is not when the price falls 20% or 40%.
Most of the new investors keep seeing the price of the stock all the time. Such a situation sitting in front of the system to see the price of the stock going up and down is very stressful and not productive. You should be looking at the operations of the company, financials of the company, etc.
It has been rightly said that share price is voting machine in the short term and weighing machine in the long term.
In the near future because of demand and supply, the price of the share can go up and down for various reasons. But in the long term, you would be getting the price exactly the value of the company.
To understand risk better always consider the below-mentioned points to have clarity in thoughts. They might look very simple at the outright, but they are the most important points.
Every time before buying any stock I always ask myself these questions before I punch in the order into the system.
# Know What You Are Buying
When I started Investing in the stock market, I would often ask other what they have invested. Or I would look for tips, dark horses, subscribe to the tipster who gives the outlook of becoming rich overnight, etc.
Never would I look what am I buying. What does it do for survival? How does it generate revenues? How much are they growing year on year? etc.
The most foolish thing I ever did. If a hotshot investor buys a share, I will dive into the stock without thinking for myself.
Do enough research before investing your hard earned money. Make sure you know the most important facts of the company. Understand the business and then buy the stock.
# Know Why You Are Buying.
I like the latest technology, gizmo and gadgets like all of us do. But do I buy them, No! I wait to seize the right opportunity. Like I wait for a special offer or wait for the next model to come. That’s when I grab the opportunity.
Ask yourself the question is it worth the price which you are paying for the stock. Here you need some basic knowledge to get to the right price of the stock.
The Irony in the stock market is when everything is for sale people run away.
Value Investing is the core of Investing in Stock Market.
Can there be happiness without sadness? Pleasure without pain? Peace without war?
Why do we expect Investment without Risks?
Always ask the above two question while Investing in Stock Market. Never ever invest in hastily without asking the above questions. The market will always give you plenty of opportunities.
Only when you can answer the above two questions you rest assured of your investments.
A topic as complex as Risk I have tried to keep it very simple.
Review your existing investments. Which risks affect you? Are you comfortable taking these risks?
Also published on Medium.