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Friday, 6 April 2018

PROCESS OF INVESTING IN STOCK MARKET



Let it be stock market investing or any work in life, it is essential to first understand the overall ‘process’ of doing it. It is also important to keep it simple.

What this process does is, it defines the start and end, also identifies the intermediate steps. Following a process is an essential ingredient of success in life.

What should be the process of investing in stock market? These five steps:


Research: No matter how confident we are feeling about a stock, it cannot be bought without researching. The idea is, even if Warren Buffett asks you to buy a stock, do not buy it without researching it yourself. Once you have researched, and is feeling confident about it, buy it. 


Track Performance: One cannot buy stocks and forget about it. What shall be done is to track ones stock holdings. Why to track? This is done more to time the exit perfectly. If one is not tracking, he/she will not know when it is time to sell. 


Goal Setting: When you will do stock research, you will get a feel of how much a stock is undervalued. Suppose a stock which generally trades at Rs.100, is now trading at Rs.65. Upon research you found that the strength of its business is intact. Hence you could estimate that in next 6 months, the stock price may rise to at least Rs.75. Hence you set a goal of Rs.75 in 6 months (15% up from current price).


Selling: Like it is important to buy ‘right stocks’, it is equally important to sell those stocks at right time. How to know the right time? When a stock reaches its goal (like we saw above), it’s time for it to be sold. Do not become greedy for higher returns. Sell the stock holding as soon as it reached its goal. 


Reinvest: This is probably more important than all the above 4 steps combined. Just because you have sold the stock, it does not mean that you can spend this money. Make sure that this redeemed money goes back to Step one (research). Idea is to reinvest and buy another good undervalued stock. Reinvestment allows one to take advantage of the power of compounding returns.

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