Everyone writes about how to make money in the stock market. But there was no good article how not to lose money in the stock market when I started off.
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
– Warren Buffett
There are plenty of small investors lose money in the stock market. Why?
Distractions. There is an enormous number of tips, ideas, analysis, recommendations available across the media: televisions, newspaper, news channels, magazine, emails, free newsletter, friends 7 families. The time they understand this is not going to work they are already out of stock market.
Everyone only talks about how to make money in the stock market but I wanted to write on how not to lose money in the stock market.
How Not to Lose Money in Stock Market Makes You a Better Investor
The below mentioned are very simple ways one needs to follow while investing in stock market. If one wants to know how not to lose money in stock market starting out here is very important. In the stock market, there are two methods to analyze a stock market one is through fundamental analysis and another is through technical analysis. We are not going to those specifics in this article since that does not pertain to the title currently.
Majority of emails that I receive from the first time investors are they have lost money listening to tips from various people. Free tips are very easy to lure people by overpromising them.
Those who fall prey to these stock market tipsters are the one who believes that money can be made in the stock market just like that. If you start looking for tips you would only end up with endless resources only to fail in the long term.
Idea: Lookout for research reports from top brokerage houses. Then study report from various stock brokerage house on the same company in the sector you like. In this way are only gaining more knowledge about the stock market and the company which you would like to own the stock.
I have seen advertisements for 99% accuracy for stock market tips which is not realistically possible.
#2 Penny Stocks
Penny stocks are those stock which is trading at price of below Rs.25. Newbie investors would like to own more stock and who doesn’t want to. But they fail to understand that the stock which is all time low or below Rs. 25 not necessarily would give them huge returns.
Stop following the research from various sources which says Stock Below Rs. 50 for this particular year or Stock below Rs. 10 to buy for this Diwali season. Next worst thing to do is doing intraday trading with penny stocks.
#3 Market Phrase
After understanding market phrase makes it easy for one to understand if the stock market is at market peak or market bottom. If you in the stock market a little longer time you can see if the stock market is trending or trading.
#4 Joining Programs
This should be your last choice. Once you start doing your own research you would never need this anymore.
If you are seriously looking to lose money very fast and take high risk only then you should go for such programmes. Nothing can replace your own research because if you stock position makes profit or loss at the end of the day you are always going to learn something.
You can read How the Sure Shot stock market scam works in detail. The stock market sure shot programme usually happens in the penny stocks and they go in a chain. The trader or investor who starts the trail is already out of the system even before the stock market prices start falling down.
#5 Starting Out with Derivatives
Trading can be started out with as little as Rs. 5000 with the current limits that are offered by stockbrokers. A caveat is that these limits are given for intra0day trading which is the riskiest of all the trading and investing activities.
We keep emphasizing all the alpha member to ensure that trading amount in the stock market should not exceed 5% of the total amount kept for investing.
Options & Futures of stocks, commodities & currency fall under this category.
Propensity Effect is when you sell the winner too quickly and hold on to your losers. Hope along with human nature creates propensity effect which is unavoidable.
Veteran investors are also affected by this and this not something new. Warren Buffet, Rakesh Jhunjhunwala agree, appreciate and follow the quote from the book “One Up the Wall Street” by Peter Lynch, ” “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
The line of difference between booking profit and holding on to a winner is very thin.
Myth: It Pays to average down stock.
One concept that many traders and investor believe would give higher return is “Averaging Down”.
This means buying a stock, you expect the stock price to rise but the price of the stock falls, this leads you to buy more stock to bring down your average purchase price. Very often the majority of people think averaging down is a fantastic idea but it is higly risky. The risk attributed to it is more than the expected return itself at times.
Making money in the stock market has always started from first protecting your capital. ” [R]ule No.1: Never lose money. Rule No.2: Never forget rule No.1. ” this quote exactly emphasis on this. How not to lose money in stock market. I have learned this hard way after losing a million rupee and our main aim is that you don’t go through the same experience.
You could make money anytime only if you have the capital to stay invested.
I would be more than happy to clarify your doubts regarding investing. Do let us know in the comment if you like to share any of your points. Share this article with your friends and relatives.
Wish you happy investing.