While growing up in the family of “Failed but Ever-optimistic Stock Traders”, I often heard my father and grandfather repeating one statement – “Out of 10 people, who invest in the stock market, only one earns the profit and that one person takes away the entire investments of other 9 people.”
But I often wonder that despite stock market being such a tough preposition, people flocked to it with an impression that they will come out with rich dividends every time. Arguably, it is the mirage of easy and quick money that attract people towards this mode of investment, despite falling miserably many a times in the past.
Well, I am not pessimistic abut stock markets or favor what my father or grandfather say, but just want to say that “Investing money in stock market is as major decision as it with investing your money in any other business. So, one must have a realistic plan in its mind on how to earn money from the stock market before entering into it”.
Let’s start with an example. One fine day two investors – Anil Bhai and Mukesh Bhai decided to invest 1 lakh Rs in the stock market.
Anil Bhai, like most of the investors, is excited and raring to invest his money in stock market, with a hope to get good returns in quick time. He observed that “Doolittle Technologies” has gained almost 40% in last 5 days. The stock is currently at Rs 21.
He feels tempted to enter this stock at current levels since it’s a cheap stock and belongs to the booming IT sector. He also watched analysts on TV predicting Doolittle to reach Rs. 50 in next 1 month because the company is hoping to get the banking project from Europe’s largest bank. He feels satisfied and purchases 2000 shares of Doolittle at Rs. 25.
Ahh!! All set to watch this stock going double in next 1 month. Sadly though, the news about proposed investment came out false and stock after touching 30 went down to Rs. 15. In other words, back to the initial levels.
Bechaare! Anil Bhai is now trapped in Doolittle Technologies, and like any other investor, has no other option than to wait for a good day when it will touch 21 and he will be able to come out of this failed investment.
Well, if we analyze his investment closely, here are few points that come out:
1) No underlying criteria - Anil Bhai investment was based on two criteria – it is a cheap stock and it belongs to IT sector. Both these criteria had no underlying value since a cheap stock doesn’t guarantee profits and not every IT company gives returns like Infosys or TCS.
2) Purely Speculative - Anil Bhai investment was pure on speculation basis since the “Doolittle Technologies was hoping to get the banking project” and did not confirm that it actually “got the project”.
3) No Logic, Only Emotions - Anil Bhai did not look at company’s financial performance in the past and in the end, the decision was purely an emotional one rather than the logical one.
4) No Risk Projection - And the most important is that he never had any risk projection. In other words, he never took an alternative view that what will be his stance, in case, the investment start generating losses. Ideally, he should have taken the approach of “Stop Loss” that ensures his position got squared-off if it fall to the assigned level. Thus, by using this approach, he could have limited his loss and able to come out of this clutch.
Now, let’s look at Mukesh Bhai. He is also an eager investor, though he has made some wrong investments in the past like Anil Bhai. But the only difference is that he is willing to learn from its past mistakes and is determined that he won’t repeat them again.
This time, instead of floating with the market sentiments, he decides to analyze few things before putting his hard-earned money in any stock. He is not looking at exponential gains, rather looking to get somewhat better than what he can get from fixed returns. So, instead of looking at cheap stocks or current favorite sector, he analyzed the stock on the basis of some logical parameters:
1) Financial Performance – Mukesh Bhai observed that companies with good financial platform are more likely to go up since they are more capable to override any inevitable situation and also in a better position to grow in future.
2) Future Plans – Mukesh Bhai is willing to invest his money in those companies that are likely to grow in future. In other words, companies that contain a realistic vision to become leader in their segment or if they are leaders, willing to sustain that position.
3) Sectorial View – Like Anil Bhai, Mukesh Bhai also believes in taking a call on the sector to which the company belongs to. But his opinion is a bit different. Instead of using Sector as the benchmark criteria, Mukesh Bhai considers sectorial analysis to take a deeper look at the company future prospects. In other words, sector does play an important role but cannot guarantee company’s profit by any means.
4) Past Returns – Sometimes, a good company doesn’t give good returns to investors in the stock market. It could be due to reluctant management, which doesn’t believe in sharing profits with investors or any other reason. Therefore, Mukesh Bhai decided to look at the past returns that the particular stock has given to its investors.
5) Realistic Expectations – Well, nobody will mind if his /her investments generate huge profits. But in this unpredictable stock market, Mukesh Bhai wants to be realistic with his expectation. Once deciding the stock that he wants to purchase, he also pens down the price range (on the upside) at which he will come out of the investment. Thus, by taking this approach, he is able to withhold his emotions and let logic rules over unrealistic expectations.
6) Risk Projection – Mukesh Bhai is aware about the deep losses that he suffered in the past. Thus, to limit the losses in case of any trend reversal, Mukesh Bhai has also pen down the Stop Loss Price. If the market price of his stock goes down the Stop Loss Price, he will square-off the position and come out with limited losses. Indiabulls Online Trading System enables you to place a Stop Loss order in the Capital as well as F&O Market.
Now, if I ask you who has better prospects to earn from the stock market – Anil Bhai or Mukesh Bhai, you will most probably say ‘Mukesh Bhai’ because he applied logics rather than emotions while investing money in stock market.
Well, I hope you do not make mistakes as my father, grandfather or Anil Bhai did by using their emotions rather than the logic. Be aware and realistic from your investment because it is no Magic but a pure Logic that can fetch you great returns!!!
Wish you all a very Happy Investing!!
But I often wonder that despite stock market being such a tough preposition, people flocked to it with an impression that they will come out with rich dividends every time. Arguably, it is the mirage of easy and quick money that attract people towards this mode of investment, despite falling miserably many a times in the past.
Well, I am not pessimistic abut stock markets or favor what my father or grandfather say, but just want to say that “Investing money in stock market is as major decision as it with investing your money in any other business. So, one must have a realistic plan in its mind on how to earn money from the stock market before entering into it”.
Let’s start with an example. One fine day two investors – Anil Bhai and Mukesh Bhai decided to invest 1 lakh Rs in the stock market.
Anil Bhai, like most of the investors, is excited and raring to invest his money in stock market, with a hope to get good returns in quick time. He observed that “Doolittle Technologies” has gained almost 40% in last 5 days. The stock is currently at Rs 21.
He feels tempted to enter this stock at current levels since it’s a cheap stock and belongs to the booming IT sector. He also watched analysts on TV predicting Doolittle to reach Rs. 50 in next 1 month because the company is hoping to get the banking project from Europe’s largest bank. He feels satisfied and purchases 2000 shares of Doolittle at Rs. 25.
Ahh!! All set to watch this stock going double in next 1 month. Sadly though, the news about proposed investment came out false and stock after touching 30 went down to Rs. 15. In other words, back to the initial levels.
Bechaare! Anil Bhai is now trapped in Doolittle Technologies, and like any other investor, has no other option than to wait for a good day when it will touch 21 and he will be able to come out of this failed investment.
Well, if we analyze his investment closely, here are few points that come out:
1) No underlying criteria - Anil Bhai investment was based on two criteria – it is a cheap stock and it belongs to IT sector. Both these criteria had no underlying value since a cheap stock doesn’t guarantee profits and not every IT company gives returns like Infosys or TCS.
2) Purely Speculative - Anil Bhai investment was pure on speculation basis since the “Doolittle Technologies was hoping to get the banking project” and did not confirm that it actually “got the project”.
3) No Logic, Only Emotions - Anil Bhai did not look at company’s financial performance in the past and in the end, the decision was purely an emotional one rather than the logical one.
4) No Risk Projection - And the most important is that he never had any risk projection. In other words, he never took an alternative view that what will be his stance, in case, the investment start generating losses. Ideally, he should have taken the approach of “Stop Loss” that ensures his position got squared-off if it fall to the assigned level. Thus, by using this approach, he could have limited his loss and able to come out of this clutch.
Now, let’s look at Mukesh Bhai. He is also an eager investor, though he has made some wrong investments in the past like Anil Bhai. But the only difference is that he is willing to learn from its past mistakes and is determined that he won’t repeat them again.
This time, instead of floating with the market sentiments, he decides to analyze few things before putting his hard-earned money in any stock. He is not looking at exponential gains, rather looking to get somewhat better than what he can get from fixed returns. So, instead of looking at cheap stocks or current favorite sector, he analyzed the stock on the basis of some logical parameters:
1) Financial Performance – Mukesh Bhai observed that companies with good financial platform are more likely to go up since they are more capable to override any inevitable situation and also in a better position to grow in future.
2) Future Plans – Mukesh Bhai is willing to invest his money in those companies that are likely to grow in future. In other words, companies that contain a realistic vision to become leader in their segment or if they are leaders, willing to sustain that position.
3) Sectorial View – Like Anil Bhai, Mukesh Bhai also believes in taking a call on the sector to which the company belongs to. But his opinion is a bit different. Instead of using Sector as the benchmark criteria, Mukesh Bhai considers sectorial analysis to take a deeper look at the company future prospects. In other words, sector does play an important role but cannot guarantee company’s profit by any means.
4) Past Returns – Sometimes, a good company doesn’t give good returns to investors in the stock market. It could be due to reluctant management, which doesn’t believe in sharing profits with investors or any other reason. Therefore, Mukesh Bhai decided to look at the past returns that the particular stock has given to its investors.
5) Realistic Expectations – Well, nobody will mind if his /her investments generate huge profits. But in this unpredictable stock market, Mukesh Bhai wants to be realistic with his expectation. Once deciding the stock that he wants to purchase, he also pens down the price range (on the upside) at which he will come out of the investment. Thus, by taking this approach, he is able to withhold his emotions and let logic rules over unrealistic expectations.
6) Risk Projection – Mukesh Bhai is aware about the deep losses that he suffered in the past. Thus, to limit the losses in case of any trend reversal, Mukesh Bhai has also pen down the Stop Loss Price. If the market price of his stock goes down the Stop Loss Price, he will square-off the position and come out with limited losses. Indiabulls Online Trading System enables you to place a Stop Loss order in the Capital as well as F&O Market.
Now, if I ask you who has better prospects to earn from the stock market – Anil Bhai or Mukesh Bhai, you will most probably say ‘Mukesh Bhai’ because he applied logics rather than emotions while investing money in stock market.
Well, I hope you do not make mistakes as my father, grandfather or Anil Bhai did by using their emotions rather than the logic. Be aware and realistic from your investment because it is no Magic but a pure Logic that can fetch you great returns!!!
Wish you all a very Happy Investing!!
