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You have gone and
purchased the stock on the basis of the hot tip given to you by your
broker/friend. However before doing that, here are some things you
should know about the stocks.
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You are a part-owner of the business: When you are buying
stocks of a company A, you are actually contributing to the share capital
of the company. It means whenever the company makes a profit, you too
participate in the company's profits. And when the company suffers a loss,
you must also put up with the losses.
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Share price can be very volatile in the short term: With the
growing attraction of making short-term money, people tend to indulge in
day trading. This induces a high degree of volatility in the stock price
in the short term. It is better to ignore this volatility and instead
focus on the company fundamentals. Invest in quality companies. This will
not only protect you against losses but you will earn good returns in the
long run.
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Stocks are long-term investment: Buying a stock is always for a
long term. You should invest those funds that you will not need for
another 5-10 years. Always buy when the markets are falling. This will
help you get good stocks at bargain prices. Don't buy when the markets are
going up. You may end up paying more for a stock.
•
Plan your asset allocation wisely: Just because stocks give
higher returns doesn't mean you should put all your money in stocks. The
high returns are due to the volatility inherent in stock market. It is
better to allocate a part of your portfolio for debt. So in case, you need
money urgently, you can always redeem the debt to use the money.
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Stay away
from 'hot tips': It is common sense guideline, but
unfortunately many people don't follow it. Don't fall for the tips given
by your friend or broker. Tips are just lot of hot air with no
justification. Instead carry out your own independent research before
investing. Also don't copy the investment style of your family and
friends.
Everybody is different and
can take different levels of risk. Find out your risk-appetite
and invest accordingly.
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