Share market investing is a risky proposition and only people having a good risk appetite should indulge in it. It is not very easy to become rich by investing in the share market as if it was so by this time everyone might had become rich. Anyway there are some points which a shrewd investor has to consider before investing a part of his earnings in the share market. Let us go through those things in details -
1. If the world and the country economics and business conditions remain good and there are no major wars, generally it is seen that the share market index increases slowly upwards.
2. There are clearly 3 types of the companies and the first is which are giving regular profit and distributing it to the share holders and have a firm ground in the business arena. The second is good companies but their profits are not consistent and they can or can not give dividend to their investors. They may any time ten into a loss making company also. The last type is the companies which are trying to do good in the business world but due to tough and cut throat competition and are not ready to fight for their survival. When it cones to buying the shares of the companies people prefer the first type of companies for investment.
3. Share market is not for a short time because sometimes it remains stagnant for a long time and the people become fed up as there is no growth and in that desperation sell their holdings only to repent later. So, one has to consider a investment horizon of at least 10-15 years to reap the real benefits. The benefit accrued in terms of bonus issues, right shares and dividends are significant only in long run.
4. Selection of the companies is a crucial matter and here many people apply the approach of blue chip or 'A' group investment which means that invest only in the top companies. Some of the top companies which are consistent for quite some time are - ACC, ABB, Infosys, Birla, Tata, Reliance, Cipla, Dabur, IOC, Coal India, HPCL, Axis Bank, Adani, Pidilite, SBI etc. One can select some of them in ones portfolio. Here also one thing we have to remember that past performance is not a surety for future performance. So we have to be cautious in selecting them.
5. Do not put all your eggs in one basket. This is a golden rule. Do not buy the shares only of a good company and rather buy some shares of each of so many good companies. The risk will be reduced significantly.
6. Do not put all your earnings in share market. This is another golden rule. Divide your investible amount in Bank FDs, Post Office Schemes, Insurance, Mutual Funds, Gold bonds, Govt bonds, Share market, PPF account etc.
7. Patience is the key to share market investing. There will be ups and downs in the market and sometimes it will be like as if share markets will never return to their earlier glory. But it is not so. These are local perturbations created by the short time players who make the market fluctuate and make money out of it.
8. There are people who invest on daily basis and try to make some money out of the daily fluctuations and arbitrage opportunities. This is a complex thing and is not the cup of tea of ordinary investor. I will suggest one to refrain from it.
9. Do not sell all your shares in times of need. When you require money do not sell all the shares. This is a good kitty for future returns and one has to sell only a minimal part of it and arrange money from other sources like money invested in Banks etc.
Knowledge is power.