Playing with Bulls & Bears
All investors see ‘Big Money’ lying in the stock market and, therefore, investment in shares has always been a subject of fascination and thrill, glamour and attraction for investors the world over! Amidst the turbulent ups and downs of the stock market, it is only the prudent share investor who can steadily hold the fort, relying on his informed study, judicious analysis, diversified investment strategy and mature decision making. Investment in shares offers the double advantage of earning regular dividend and securing capital appreciation over a time. It is thus an ideal way to beat the inflation and if rightly handled, it can turn out to be one of the finest avenues of investment.
Share Investment ~ An Art and a Science
It is said that investing in the stock market is both an art and a science. It is an art in the sense that every investor must possess the skill of right decision making; it is a science from the point of view that decisions can be based on an organised study and reasoned analysis.
DO’S AND DON’TS FOR PRUDENT SHARE INVESTMENT
Here are a few do’s and don’ts that a prudent share investor would be well advised to keep in consideration:
- Be well informed – Never leap into the dark while investing in shares. Your decision to invest in a particular script must be based on sound information and critical analysis of the company in particular, the industry in general and the market sentiment overall. With the rising awareness amongst share investors, there are a number of newspapers and periodicals which carry useful information about the subject. But be careful not to be carried away by luring advertisements, buttered up reviews or random tips.
- Balance your investment portfolio – The only one but big drawback of investing in shares is the capital risk. The strategy to minimize this risk is by spreading it over. Thus, always ensure a diversified investment portfolio by investing in different companies and different industries. At the same time, be judicious enough to enlarge your portfolio within manageable limits and do not create a situation beyond your cope and control. Balance your investment portfolio.
- Patience pays – An investor with patience rarely repents. It is the short-sighted speculator craving for short term gains who gets most of the bitter disappointments. If your investment decision is well reasoned, you are bound to make handsome gains over the long run. Do not panic over short term reverses. Patience more than pays in most of the cases.
- Ensure liquidity – Invest in shares which are actively traded, thus ensuring liquidity when needed. Don’t invest in unlisted shares or shares of companies which have very poor liquidity. Avoid keeping odd lots since they have a limited market, a discounted price and low liquidity.
- Keep pace with changing trends – It is important to keep pace with the changing trends in the Stock Market. For example, an investor would be well advised to comply with the new regulations of Dematerialisation of shares, since non-dematted shares would fetch him 10% to 15% lower realisation than the regular market value. Similarly, it would be much safer and more reliable to buy shares through the Demat Channel as compared to paper trading.
- Reap your profits at the right time – There is no point in taking pride over mere paper profits. If your investment has appreciated well enough, be practical to reap your profits at the right time. Be content with the gains you actually make and do not be upset over possible gains you might have made if you had sold earlier or later than you actually did.
- Consider the tax implications – Do not lose sight of the tax implications while planning your strategies in the stock market.