Six Essential Rules When Investing in Stocks

Six Essential Rules When Investing in Stocks

Posted by Aman Verma on Wednesday, 13 January 2016 1

Anyone can invest – all it takes is money. Any amount of it, as well – with the right deal, you can invest your way from a paper clip’s worth of currency to a car, a house, and even a proper income with enough of a generated interest that you could live off of your investments for the rest of your life. 

But that involves luck, brains, and the resilience to take your failings in stride, and stay cool when you strike gold. Here are six rules that you must follow to avoid complete failure in the investing world.

1. Invest and Earn for a Passive Income

If you plan on making yourself wealthier, you have to save. And what you save, you have to invest. Every penny not spent must go into assets that build a passive income – that is to say, real estate and royalties on books or music, and other assets with low taxation and high reward. 

As the India Brand Equity Foundation notes, the Indian real estate market is in a boom, appreciating 19% in value annually between 2010 and 2014. On the other hand, as Gold.org shows, gold demand rose by 8% year-on-year in 2015. 

2. Focus on Risk Assessment and Be Accurate in Your Calculations

Don’t go by your gut – go by the math. Math is your best friend as an investor, and that involves looking at every investment with extreme scrutiny before making a choice. 

3. Don't Chase after Markets, Be Cold in Your Choices

Investing isn’t emotional work, and the rush of a smart investment gone right has no place in the mind of a successful investor. Focus on the facts ahead, or you may ignore a glaring issue simply because a certain market or start-up has captured you in its hype. 

4. Don't Try and Hope to Predict the Future -- Simply Prepare for It

You’re not an oracle, so it’s impossible to expect to see the future like one. Math can give you an advantage in telling the statistical probability of a business’ success, but in the end it’s absolutely key that you keep your risk low. Never gamble. That’s the key to a successful investment – never, ever gamble. Don’t go beyond your means – before you decide to take the risk, and fail, ask yourself if you can recover and get back to investing afterwards. If you can’t, then don’t do it. 

5. As Much as Possible, Do Your Own Research

While investment resources and information exchanges are useful – especially in the age of the Internet, where information pumps faster than any heart pumps blood – it’s even more important that you, as much as possible, keep your research to the facts. Don’t read opinion pieces or investment guides to particular companies for stock guidance, and take it without even a grain of salt. A newspaper like Money Bhaskar will be less biased and more informational instead. If you let yourself be swayed by outside opinion rather than the cold numbers, you open yourself up to losses. 

6. Always Think in Terms of Risk and Reward

That’s what it ultimately comes down to – your return on investment. If the failure of an investment is critical to your future, don’t invest. If the potential for success, however, reduces the eventuality of failure to a considerable extent, then you could consider the investment.

Finally, simply get started! You won’t make any money by waiting around. For more investing tips and news, stay tuned to Money Bhaskar.