Make informed decision
Proper research should be done about the company/stock before money is placed in it. Very often, this is not the case with most retail investors. The average investor (or rather gambler) just invest based on gut feeling alone. A company/stock should be analysed from both quantitative and qualitative aspects. This may involve attending the AGM, get to know the management team, have a feel of the product or services apart from analysing the annual reports.
Beware of herd mentality
The typical behaviour of the average person is largely related to the FOMO phenomenon. (Fear or missing out). A seasoned investor would behave otherwise. One would segregate oneself away from the herd; have some quiet time, reflect and analyse without the influence of an unstable emotional environment. Even the great Warren Buffet would take a few days off and stay in his vintage house far away from the hustle and bustle of big cities before he call his shots on a certain position.
Invest within your circle of competency
Never invest in something which you don’t understand. That is the worst risk one could ever take. Preferably invest in a business which is within your circle of competency; something which you can understand and relate to.
It’s not about timing the market; rather entering at an acceptable value
One thing that even Warren Buffett doesn’t do is to try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares. No one can catch the top or the bottom. If they do; beware that it can be a scam or perhaps pure luck that may not be replicable.
Follow a disciplined investment approach
There are many methodologies in the market. Regardless of which approach you may choose to take; the important thing is to stick to the rules of your approach. Of course that is provided that your approach is a proven strategy that has stood the test of time. Nevertheless, even these approaches may evolve over time with changing market conditions as the landscape of business change i.e. from traditional barter trading businesses to online/digital ones for instance.
However, the investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.
Let not your emotions cloud your judgement
Many investors fail to manage the emotional component of investment. Some investors (or rather gamblers) resort to revenge investing. Their minds are clouded by noises around them as influenced by the herd knee jerk reactions. They buy when it’s already high and sell during panic when market is low. In turn, they get burn in the process. Emotional strength and stability is crucial to be a successful investor.
Create a balanced portfolio
Diversification of portfolio across asset classes is important to earn optimal returns on investments with minimum risk. Level of diversification depends on each investor’s risk taking capacity. One way to do it is to have a few fast growing ones and another few with steady passive income from dividends. A portfolio of ten stocks would be fairly healthy but one should also manage them well from time to time.
Have realistic expectations
There’s nothing wrong with hoping for the ‘best’ from your investments, but you could be heading for trouble if your financial goals are based on unrealistic assumptions. For instance, lots of stocks have generated more than 50 per cent returns during the great bull run of recent years. The projection of the performance of the stock should be assessed conservatively.
Invest only your surplus funds
If you want to take risk in a volatile market like this, then see whether you have surplus funds which you can afford to lose. Preferably, one should have enough funds set aside for emergency use in case if there’s any need for medical expenses. Also, one should have minimally 6 months of living expenses set aside in case if the breadwinner of the family loses his/her job. Only after all the aforementioned should one invest with the remaining balance of funds left available.
Monitor from time to time
We are living in a global village. Any important event happening in any part of the world has an impact on our financial markets. Hence we need to monitor the performance of the stocks intermittently and be aware of the challenges the stock face from time to time. One should set apart some time to go through the quarterly reports to keep abreast with current issues so that actions can be taken promptly when and if necessary.