The stock market is quite possibly the best avenue to earn additional income – provided that one approaches it with the proper knowledge and the right decisions. There are thousands of companies and multiple ways of investing to choose from, and when the economy does well, everyone wants in, leading to an influx of new investors and traders.
What's more, India's depositories saw investor accounts double from 2.12 crore in March 2020 to 4.64 crore in September 2021. In September, investor wealth rose by Rs. four lakh crores in two days, following a rise in the BSE Sensex. While this might sound like good news, it isn't. This rise leads to an alarming consequence of investors losing most of their capital in their initial investments.
Suppose you are one of those two crore people who read the news about the rise in stock market indices in 2021 and decided to invest as well. How do you ensure that you don't lose money as soon as the surge is gone? When it comes to earning from the stock market, the strategy makes all the difference.
Let's discuss some basics to keep in mind when new investors strategize for the stock market.
Setting the right goals:
It's ambitious to step into the market to benefit from its growth and overconfident to think it will happen for everyone.
The stock market offers alternatives with varying degrees of risk. To earn stably and profitably, it is essential that we first identify why we want to invest, over the how.
Once you decide the goals you are investing for, you will find it much easier to make decisions in the market.
Another thing to remember here is this - a proper investing goal can be building a corpus or a retirement fund. Even saving up for a vacation is an excellent investing goal. However, one cannot expect to earn very well if their goal is to benefit from the short-lived rises in the market.
Here is where seasoned investors strategize and win over the new ones - they know exactly where to look for their profits.
A better way to earn from the short-term growth in the market would be to focus your energy on trading over investing. However, trading requires skills and immense knowledge, due to which new investors completely ignore it and jump straight to "becoming an investor."
Get the proper knowledge:
Another trait that separates good investors from bad ones is that their basis of investing doesn't come from the news.
New investors decide to jump into the market when indices rise, but they don't recall this - each index consists of companies. Each company's value majorly depends on its performance.
To earn from the market, seasoned investors strategize to invest only in those companies which provide a long-term positive outlook. Here is where fundamental analysis steps in.
As the name goes, fundamental analysis involves checking the company's fundamentals - is the company earning profits? Will the company be able to expand and gain more in the future? If you check these factors before making any investment, you're more likely to earn more profits than any new investor.
Keeping emotions in check:
There is a very common jargon in the stock market for this - market sentiment. The attitude of investors towards a stock can drive any price to a new low or high. It can also seep into individual investors' minds, instilling fear in them when the market fluctuates.
What separates the good investors from the bad ones is this - their strategies always account for their emotions.
Fear, greed, and impatience are the three greatest destroyers of wealth in the stock market. The strategizing investor keeps their emotions in constant check and prevents impulsive decisions, lest any indecision destroys their wealth.
You mustn't be distracted by news flashes, rumors, or fears if you are a new investor. Once you have invested, stick to the facts and your position until you sense a genuine opportunity to sell and earn profits.
Transitioning from stocks to derivatives:
An investor without a strategy is like a loose cannon - with no direction and goals, you are bound to incur losses, which is the truest for those who transition from stocks to derivatives too soon.
Derivatives are the riskiest and the costliest investments; however, with the rise of easy-to-use trading platforms, many investors end up "trying out" derivatives and losing big. A derivative is a whole new ballgame - from the capital needed for any investment to the strategies required for execution, participating in derivatives trading needs immense knowledge and expertise.
As an investor with a strategy, you should not venture out to the riskiest alternatives until you have the money and the expertise to back yourself up.
Investing is the best possible venture to earn money, but only with the right strategy; as long as we have the proper knowledge, the right goals, and reasonable control of our emotions, any of us can earn and get the best of the stock market for us.
About The Writer
Simaran Sinha
Pursuing PGDM at IMT Hyderabad
An avid reader with an interest in business research, personal finance, and investing writes about the mistakes the retail investors are making in the stock market.
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