People love markets for many things but the foremost one would be that it holds the promise and hope of making your dreams come true. Investors from all walks of life are attracted to markets and investments. But it is unfortunate that most people make it big in market. Is it difficult? No, it can’t be that difficult. People in olden days did much better at investments than with complex strategies, economics or software. Some, even made their fortunes on back some simple percepts like "buy low sell high".
This is just an attempt at pointing out some of the aspects that we need to have as investors. This, of course, is not a complete list or even a correct list. These are just some pointers hoping investors can take can some guidance from them.
Top 5 things to do for investors and traders
1. Study the companies
Know the companies thoroughly. You don’t have to read the annual reports backwards but you need to be comfortable in explaining your decisions, if required, with ease. If you are having trouble in explaining your investment decision then perhaps it was a half-baked investment. Please do your homework before you place the order with your broker.
Even a non technical person can look into company from many perspectives to understand more about it. Knowing about the management, history, products, brands, company news and press releases, basic numbers like sales etc in itself builds a good foundation.
You can study further in detail about the competition, financial statements, prospects, risks and management perceptions, vision etc too without much technical or accounting knowledge.
You will get most of the information in the company websites, Google finance or Reuters.
2. Study the Industry
If you are buying a house, the first thing criteria and perhaps the most important is the locality. Similarly no matter where and how the company is placed, the industry it operates in has highest level of impact on its prospects and risks. Buying a good company in a bad sector may be like buying a great house in avalanche prone zone.
Investors need to be aware of the industry atleast to the basic extent. In the boom periods when the industry is recognized already by the market the outlook becomes top-down i.e. trying to find the companies in particular industry. When the markets are in doldrums and bearish mode, the names of good companies with qualities like cash flow, dividends etc are heard in conversations, the basic approach becomes bottom-up i.e. decide on the company and look at its ecosystem. There is not fixed way of doing something, but what ever studies is to be done is to be done sincerely and with care.
3. Peer Group comparisons
When you are deciding on buying some company, consider its peer group. Are you missing a better company among its peers? Or are the peers suffering from some affliction which this company too might be affected with? Just like the industries, the study of Peer group gives you lot more information on how companies operate or cope in various circumstances.
If you have data / resources to study the peer group in other countries then it would be great indicator on the risk and probabilities.
4. Portfolio Management & Money management
Portfolio management and money management are perhaps the single most important activity among all the five. Prima facie it does not appear to be of much importance. But if there is something that will have most direct influence on your portfolio it is how you decide to structure it and how much risks that you are willing to take.
The importance of money management cannot be understated enough. The quantum of allocation across various industries/sectors/ companies will decide how your portfolio behaves in good and bad times. It determines how much return it gives in best or worst estimates.
These two are the toughest tasks to master. And unfortunately there is no 'perfect one size fits all' strategy.
5. Entry and exit strategy
Investments are accompanied by risks. Immaterial of how much study has gone into the stock selection; risks are always inherent in an 'expectation'; as in expectation of the company's performance, or some particular event's happening or some scenario going in favor.
Therefore it is important that investors know when to walk out of the deal. Investors should always enter the deal with clear sight of what is bearable and beyond which they can’t bear the risk of one stock taking down their portfolio.
Exits are fortunately always for bad. Exits should also be made when a definite target or objective achieved or a planned event has run it full course or attributes of similar vein.
It is perhaps the easiest one to conceive but when the time matters, the hardest one to execute.
This is just an attempt at pointing out some of the aspects that we need to have as investors. This, of course, is not a complete list or even a correct list. These are just some pointers hoping investors can take can some guidance from them.
Top 5 things to do for investors and traders
1. Study the companies
Know the companies thoroughly. You don’t have to read the annual reports backwards but you need to be comfortable in explaining your decisions, if required, with ease. If you are having trouble in explaining your investment decision then perhaps it was a half-baked investment. Please do your homework before you place the order with your broker.
Even a non technical person can look into company from many perspectives to understand more about it. Knowing about the management, history, products, brands, company news and press releases, basic numbers like sales etc in itself builds a good foundation.
You can study further in detail about the competition, financial statements, prospects, risks and management perceptions, vision etc too without much technical or accounting knowledge.
You will get most of the information in the company websites, Google finance or Reuters.
2. Study the Industry
If you are buying a house, the first thing criteria and perhaps the most important is the locality. Similarly no matter where and how the company is placed, the industry it operates in has highest level of impact on its prospects and risks. Buying a good company in a bad sector may be like buying a great house in avalanche prone zone.
Investors need to be aware of the industry atleast to the basic extent. In the boom periods when the industry is recognized already by the market the outlook becomes top-down i.e. trying to find the companies in particular industry. When the markets are in doldrums and bearish mode, the names of good companies with qualities like cash flow, dividends etc are heard in conversations, the basic approach becomes bottom-up i.e. decide on the company and look at its ecosystem. There is not fixed way of doing something, but what ever studies is to be done is to be done sincerely and with care.
3. Peer Group comparisons
When you are deciding on buying some company, consider its peer group. Are you missing a better company among its peers? Or are the peers suffering from some affliction which this company too might be affected with? Just like the industries, the study of Peer group gives you lot more information on how companies operate or cope in various circumstances.
If you have data / resources to study the peer group in other countries then it would be great indicator on the risk and probabilities.
4. Portfolio Management & Money management
Portfolio management and money management are perhaps the single most important activity among all the five. Prima facie it does not appear to be of much importance. But if there is something that will have most direct influence on your portfolio it is how you decide to structure it and how much risks that you are willing to take.
The importance of money management cannot be understated enough. The quantum of allocation across various industries/sectors/ companies will decide how your portfolio behaves in good and bad times. It determines how much return it gives in best or worst estimates.
These two are the toughest tasks to master. And unfortunately there is no 'perfect one size fits all' strategy.
5. Entry and exit strategy
Investments are accompanied by risks. Immaterial of how much study has gone into the stock selection; risks are always inherent in an 'expectation'; as in expectation of the company's performance, or some particular event's happening or some scenario going in favor.
Therefore it is important that investors know when to walk out of the deal. Investors should always enter the deal with clear sight of what is bearable and beyond which they can’t bear the risk of one stock taking down their portfolio.
Exits are fortunately always for bad. Exits should also be made when a definite target or objective achieved or a planned event has run it full course or attributes of similar vein.
It is perhaps the easiest one to conceive but when the time matters, the hardest one to execute.
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