Stock Investment Decision Making

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Stock investment is a savings game. For conducting every game you need to know and follow prescribed rules and regulations. Any violation means, you are penalized. The penalty is in proportion to the severity of violations of the rules.

Just as navigation is easy through the calm waters of the sea, apart of the extensive knowledge you possess about investing in shares, the prime condition is that you need to deal with the issues related to buying and selling with a calm mind. Let it be perfectly understood that your emotions have no role to play when you deal with the volatility of the exchange. Even in the normal market, they have no role. When you are not in the proper shape of mind, you make the trade decision at the worst possible moments.

Fear and greed combined with emotions is a bad scenario that an investor can create for himself.

Some of the points for consideration before trading in shares are:

1. To start with, do not go with the killer instinct. Look out for modest returns.

2. Adopt the time-honored tactic of long term returns. Invest the same amount of money in regular intervals and buy in small lots. Naturally you will buy more shares when the prices are low and fewer when they are high.

3. Avail the services of a broker. Before engaging him, meet him face to face at his office. Have a preliminary discussion about your financial objectives. Get a copy of the firm’s commission schedule. Determine what type of services you need from the broker. You may need recommendations, research reports and investment advice.

4. Once you zero in on engaging a particular broker, give the correct information about your objectives, personal finances, net worth and your previous investment experience. This will enable the broker to take appropriate decisions for you.

5. Now you come to the pivotal point. Who will control decision-making for your trades? You need to specifically give in writing that the broker is the authority to take decisions, if that arrangement suits you. Once that authority is vested with the broker, he will take decisions without consulting you. Those decisions will be the best for you under the prevailing conditions. Whether you suffer losses or gain profits in a particular trade is not the concern of the broker. The discretion, therefore, needs o be given after very careful consideration when you are fully convinced about the capability of the broker and past records of success.

6. Never invest in a share about which you have no knowledge and avoid guesswork. Know the basic financial terminologies and the fundamentals of investing.

7. You do invest for profits, not to lose money. At the same time, you need to know that share investments are always associated with some degree of risks.

8. The past performance of a company is no guarantee for future success. Do not make hurried investment decisions on the strength of intensity of the salesperson’s appeal. He is doing his business, you please do yours!

9. Be wary about the catchy phrases often used in share trading, like ” inside information” “confidential leak” ” an acquisition is in the offing”, “a dynamic product,” etc. Your money can never double in six months as promised by many!

10. Try your best to limit the transactions. The more the transactions, the more commission you will pay.

11. Do not concentrate on a single product. Let your portfolio take care of different segments of the industry.

12. Broadly speaking, there are four types of investment strategies: Fundamental approach, Psychological approach, Academic approach and Eclectic approach. Each approach requires detailed study. Keep your knowledge up-to-date about these strategies and you may have to change your strategies depending upon the conditions and volatility in the market.

You will evolve as a good investor gradually through your experience and theory knowledge. Both are important. Never lose concentration and deviate from the tracks, while investing. Years of hard labor and profit can be nullified with one wrong trade.

Amit Malhotra