Temptation from friends, office colleague or neighbors
"Hey bro, today I made 10,000 from stock market”!! You may find similar kind of statement from your friends or office colleague or neighbors. During bull market, such comments are quite common. The fact is that your won't share the incident when he lost 10,000 from stocks gives us immense pleasure in sharing our achievement the contrary, sharing failure is shameful and hard. “My son came first in his class" - is very easy to share and a matter of pride whereas it is very difficult to share “My son failed Mathematics.” Similarly in the stock market, it is a matte of immense pride to “earn 10,000”. Sharing such statement gives us much more delight than to earn it. On the other hand, nobody wants to share or accept his failure.
So, a statement like “I made 10,000” is just a single part of the story. Don't jump into the stock market just because of such “partial information”. Don't get excited with your friend's success story. Don't follow stock recommendations based on such stories.
Temptation from your broker -
Your broker will offer reduced brokerage for frequent trading or large volume trading and is always ready to offer high margin money for trading. They may try to convince by saying “You have 20,000 in your trading account. Not an issue, you can buy shares worth 50,000 and sell it within 3 days to pocket more profit. Planning for intraday, well you can trade worth 1,00,00% many brokers offer such terms. What they don't mention is “earning for them” not “earning for you.” Apart from these, you may also receive SMS alerts or email alerts as trading tips from your broker. Have you ever seen, your broker offering any investment idea that is for 2-3 years holding period? They can't offer because their broking business will dry up if you buy today and hold them for 2-3 year. On the contrary, wealth can only be created over the long run. In the short run, frequent trading can only increase your chances of losing money and increase broker's earning.
Temptation from so-called analysts -
During bull market (while the market goes up) any Ram, Shyam can consider themselves as an equity analyst. Whenever the market goes up, you will find television, newspapers, websites flooded with stock tips. Almost every analyst will draw a rosy picture and encourage you to invest in stocks. Surprisingly, the same analysts elope during a bear market (when the market goes down). The worst part is that during bear market these analysts will even mention avoiding stock market, fearing that it may fall further. The - reality is that during the bear market, quality stocks are available at a cheap rate, and thus it is one of the best times to invest. Moreover, if you select quality stocks then overall market movement rarely matter. High-quality businesses are always poised to do well in any market situation. Don't get carried away by any analysts.
Temptation from stock tips provider -
Nowadays, it is common to get phone calls, SMS alerts from various stock tips provider. Eye catching advertisements are so popular. I have already proved how any stock tips provider can trap you by offering 4-5 days free trial. Remain alert whenever you notice high return promises. Many trading tips provider claim 50%+ monthly return from their trading strategy. If that would be the case then today every billionaire would be creating their fortune from stock trading. Reality says something different.
Suppose, you started investing during a bull and successfully earned 45% return at the end of All your purchased stocks were performing well i situation, you may start thinking that you have mast subject very well. As the market moves up, so move confidence level, you keep on increasing your invest amount. You are now too aggressive. Suddenly me crashes and there comes a prolonged bear market. It is in bear market that separates intelligent investors from other Don't get lured and invest aggressively if you find you portfolio giving above average return during a bull market The stock market doesn't move linearly. It's quite easy to make money during the bull run but difficult during the bear period. To become a successful investor, you need to learn the art of making money across all market situations.
Only way to earn consistently from stock market -
The only way to earn consistently from the stock market is to invest in the great business and hold them for the appropriate period. Check the details of any billionaire equity investor across the world. You will find one thing common to them. They simply chose high-quality stocks and remained invested over the long run. Warren Buffett, the world's most successful investor, and one of the world's richest persons, created his fortune from 22% annualized return over more than 50 years from equity investing. didn't jump into intraday or Futures and Options. Just this 22% annualized return consistently over 50 years create
a billionaire, and these trading tips providers claim 50%+ monthly return! What do you say?
Forget about intraday; short term trading, Futures & Options. Remember, there is no shortcut to earning quickly. Every quick-money makings tricks are eventually money losing tricks. Investing in high-quality stocks and holding them for the correct period is the only way to create wealth. This statement is easier to say than to execute. Here come the obvious questions -
- What do you mean by “high-quality stocks”?
- How to select high-quality stocks?
- How to separate quality business from others?
- What is the correct holding period?
- When to buy and when to sell a stock?
- How to construct my portfolio?
I am going to cover all these questions in the second part of this book. Before that let's have a look at the “risk” of equity investing. In the next chapter, you will get to know whether stock investing is risky or not and how anyone can minimize the risk.