Investing in shares for the Long term is a proven way to create wealth. However, there are some basic rules which an investor needs to strictly follow while investing in the share market.
Let’s take a detailed look at the 5 basic rules which beginners should follow while investing in shares.
Rule No # 1 – Do your homework well before investing in shares
Investing in shares is a combination of both art and science. Like any field of life before making your first move in investing it is imperative to understand what moves the stock market and stock prices and the various terminologies associated with it. In simple words for example when you are learning to drive a car it is very important to understand how the various functions in the car work. Imagine what will happen if you pull the hand brake by mistake while driving at high speed on the highway.
Rule No # 2 – Keep emotions aside when investing in shares
Always keep emotions and investments separate. You’re liking for a particular brand or service should never be the deciding factor while choosing a particular stock for investment. Similarly, after investing in a good stock you should not be tempted to sell the stock after seeing a marginal hike in its price or panic and sell a stock when there is a fall in its price due to an overall market correction.
Rule No # 3 – Never pay heed to stock market tips and market noises while investing in shares
It is very important to ignore market noises when investing. You may come across stock market recommendations from your friends, relatives, colleagues, business news channels and social media groups. But it is important to remember that these sources of stock recommendations are not authentic as they are not based on adequate research. It could also be a trap for luring innocent investors into buying stocks that otherwise have no demand as they lack in fundamentals.
Rule No # 4 – Never try to time the market
It is impossible to catch the highs or the lows of the market. Waiting for a market correction to invest may result in missing out on the rally, while buying stocks when markets are at record highs may mean buying at overvalued prices. Instead of catching the highs or lows, one should focus on investing in fundamentally sound stocks which outperform the market with time and are safe bets because they fall at a lesser pace when the market corrects.
Rule No # 5 – Be patient and give time to your investments while investing in share market
Remember the famous proverb “Rome was not built in a day”. This holds true while investing in the share market too. Great businesses are built over the years. That is why it is very important to remain patiently invested in good quality stocks so that they can grow with time and realize their true potential.