Trak.in is a popular Indian Business, Technology, Mobile & Startup blog featuring trending News, views and analytical take on Technology, Business, Finance, Telecom, Mobile, startups & Social Media Space

How (NOT) to make money from Stock Markets

14

Stock Market is undoubtedly the best investment vehicle around. The high return albeit a little risky route for making your hard earned money for you. But, the way they behave is erratic so to say the least. You will find so many people bad mouthing the markets with one liners such as:

  • “It is a gambling machine where you make coins and lose rupees”
  • “It is the playground of big(filthy rich) people”
  • “Markets are more unpredictable than girls”

Stock Market making money

I am sure there are more. But, is there any truth in the allegations? Yes, there is a slight unpredictably in how the market functions and manipulations do happen with the so called big sharks playing their dirty cards.

However, the Stock Markets are not the ones to be blamed.

For the sake of simplicity, lets compare the Stock Market with a SUV. They are fast, uber cool and give the driver a rush of adrenaline. But, will it give the same pleasure to someone who does not know how to handle the powerful engine that a SUV has or does not have the zeal to test its true potential on rough terrain? The answer is a big NO.
The reason is simple, “It is a misfit”.

Hard to digest, but that’s what all the people are who bad mouth the markets. A clear misfit.

Without further ado, here are some of the ways you can (not) make money in the stock market. I should clarify at the onset that my idea of a stock market investment is a medium to long term strategy which focuses on increasing capital and not fast gains.

Stock Markets are (NOT) a Get Rich Quick Scheme

This is one thing that lures early investors to the Stock Market. A friend / relative makes a quick buck in the Stock Markets and he / she becomes the holy angel telling everybody about the latest Get Rich Quick Scheme – “The Stock Markets”.

If you have a friend/relative like that and you can get influenced by their views, you are definitely (not) going to make money from the Stock Market.

I should (not) follow the best equity advisors on TV/Internet

If you thought you scraped through the first one unharmed, this one is surely the way to have your investments turned into sand. I have nothing against the so called equity experts but a blind faith in their opinions is the sure-fire way to burn your investments to pure ash. The so called equity experts have their own rationale for their advice and that need not align with your profile. Moreover, there are always some personal motivations running deep which influence their picks.

I could almost do another post on this point alone. But the idea is, “Following Equity Experts blindly does not work in Stock Markets”.

I (do not) need to set any Investment Goals

This is the big daddy of Equity Investment debacle in general. A tendency that there is hardly enough investment to set goals is a disaster waiting in the wings. If you thought Investment Goals were for people with lot of money invested, think again. How can you expect to make money in the Stock Market if you do not know how much you want to make. I never put down any investment goals and as a result, I never knew when to place a SELL call on my holdings.

Have clear and reasonable goals documented somewhere and decide the Target BUY price, Target SELL price and so on. It will atleast help you avoid those huge fluctuations in the market when there is too much speculation.

The Stock I am holding has come down to half their price, but they will rise again*

This is one simple reason to have your wealth eroded via the Stock Markets with a ‘*’. Let’s consider that your buying decision was well researched and the company fundamentals still look strong. The idea here is that some stocks have a lot more than fundamental play riding on them. They are momentum stocks and cyclical in nature. So, it is always suggested to Cut your losses and Keep Cash Handy.

Cash in hand will give you an opportunity to re-enter at lower levels and make profits when the markets are going good. Believe me, there is nothing like seeing Green in the portfolio.

* If you have bought in a stock like L&T at high prices, the above may not hold.Some stocks are worth passing generations and short term losses should not bog you down.

I should (not) buy in bulk to ensure maximum gains

This is one ideology that is both true and rubbish at the same time. True, since it saves you a lot of money on the Transaction Costs and moreover, the gains based on per share basis make it a good strategy to buy huge chunks as and when possible. But, do we keep a little buffer cash to invest more should the shares go down for short term. If you don’t then it is calling for trouble. Always buy shares in a reasonable and suitable lot based on the cash position. Even if the share in your portfolio is a potential multi bagger it can go downhill for sometime. Keep some cash handy to increase positions in the share by buying at low prices.

Come to think of it, I can go on writing a book on ‘How (NOT) to make money from Stock Market’. But, as of now these were some things I thought are the biggest mistakes that we (or mostly amateur investors) make while investing in Stock Markets.

Would love to hear from readers on How (NOT) to make money from Stock Markets :)

Disclaimer:: The views expressed here are my own and should not considered as an Investment advice.

PS: If you have noticed, my bio at the end reads “Stock Market Stalker”. For those of you who wondered why I never write about Stock markets barring a bit in the Finance Friday Digest, the title and the post should answer it.

[This post is written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]

  1. nifty says

    Hey, very nice site. I came across this on Google, and I am stoked that I did. I will definitely be coming back here more often. Wish I could add to the conversation and bring a bit more to the table,but am just taking in as much info as I can at the moment.

    Thank You for trading tips

  2. Natasha Macwan says

    I have just checked this blog and I have found it to be very useful and informative. This blog will certainly help its visitors.Indian share market has been volatile for quite some time now. But now it has started regaining a little ground. Which has helped in rebuiding the confidence of foreign investors in the indian share market.The market is currently enjoying a good rally which has seen most stocks gain from competitive advantage and it would be advisable for all stock market enthusiasts to seize this opportunity and plan their investments in a safer yet conducive stock market. http://www.iasr.in/

  3. Natasha Macwan says

    I have just checked this blog and I have found it to be very useful and informative. This blog will certainly help its visitors.Indian share market has been volatile for quite some time now. But now it has started regaining a little ground. Which has helped in rebuiding the confidence of foreign investors in the indian share market.The market is currently enjoying a good rally which has seen most stocks gain from competitive advantage and it would be advisable for all stock market enthusiasts to seize this opportunity and plan their investments in a safer yet conducive stock market. http://www.iasr.in/

  4. Natasha Macwan says

    I have just checked this blog and I have found it to be very useful and informative. This blog will certainly help its visitors.Indian share market has been volatile for quite some time now. But now it has started regaining a little ground. Which has helped in rebuiding the confidence of foreign investors in the indian share market.The market is currently enjoying a good rally which has seen most stocks gain from competitive advantage and it would be advisable for all stock market enthusiasts to seize this opportunity and plan their investments in a safer yet conducive stock market. http://www.iasr.in/

  5. share tips says

    any one can make in the stock market if followed a good plan ….

  6. Rahul Vaidya says

    I think that’s not the complete truth that one can not make in the stock market. One loses money in market because he don’t know how to invest it into the same. If good strategy is followed and you make a proper plan to invest you can make a big money from the market.

  7. Ankit says

    @Ahsley

    thats a great anaglogy.Infact, forget a boeing, even a cycle is difficult to tame without the right knowledge and guidance.And moreover, the so called market experts cloud the vision making it so blurry that the investor is stuck in a catch-22.

    Yes, panic is another mistake that new investors make.But, i would blame it on their buying call itself.If they are not sure why they bought the stock at the first place, they wont hesitate to sell at the first sings of red.

    BTW, do u have any connection with the Hinduja Group.I tried opening the link, but its not working

  8. Ashley Alfred says

    If you are about to begin investing in stocks, understanding the financial markets may be as confusing as the cockpit on a 747 airplane. All of the financial, speculative and market data that is available can leave you feeling overwhelmed, but without knowledge that you were seeking. There are still many people not familiar with some basic aspects of this arena. Many investors trade stocks based on hot tips from friends, phone calls from a broker, or recommendations from a TV analyst. They buy stocks when the market is hot. When the market turns cold, they panic and sell shares for a big loss. Typically, this is the horror story we hear about investing in the stock market.

  9. Ankit says

    @Gopi Sir

    Thanks a lot.Comin from u ,the praise means a lot to me:)
    The Not’s i mentioned are the basic and most frequent ones.So, if any1 enters the market on either of the premise, the experience is not going to be rosy for sure.

    And yes, buying and selling based on the recent gain/fall is a big disaster.But, the investor is not be blamed here.There is a serious shortage of good educational resources which can actually educate the Mango Junta on the nitty gritties of intrinsic value anaylsis.

    Thanks for sharing the post, u have jewels hidden in ur blog:D Ur ability to fuse humour and sense is amazing.Wonder if i can learn the art/science of it.

    BTW, i could go on and write and book on ‘Fire the Investment Experts(Tipsters)’.t whole fraternity plays with the naive and ill-informed retail investor.But then, given my inclination towards equity anaylsis and the likes of Udayan Mukherji(one of the sane market expert), i am keeping the book on hold:)

  10. Gopinath Mavinkurve says

    Ankit, Nice “How not to” post. Can tell you for sure bcoz i have made all these mistakes already and learnt from them. Another typical mistake people make is believing that the company that fell most in the crash is the best to buy or the ones that did not are the best to sell. Niether are right. Do read my humor post on the “predictament” of investment experts here:
    http://whatnonsanz.blogspot.com/2009/05/experts-predictament.html

  11. Ankit says

    @tip guy

    I thought this would be raised.Given the limitations on the length, i did not include the trading perspective angle at all.
    Moreover, ‘Trading’ per se needs more technical knowledge then is needed for Investing.Most of the Mango Junta does not get it, and hence i made an attempt to provide a laundry list of t basic common sense mistakes that the investor makes.
    But, then i already did a post of How to lose money trading on my own blog:D So, i am very much covered when it comes to losing money via equities:)

  12. TIP Guy says

    Ankit,

    how about differentiating between making money by “trading” and by “investing”? Is that important?

    Best Wishes,

  13. Ankit says

    @Sriram LOL.I never mentioned that i knew how to make money from Internet..But then,if you read between the lines.There is a ‘How to’ written somewhere inside this very post..

    Removing the brackets will constitute a very good starting list on How u can make money.
    More than that, if there is someone who can tell u ‘how to make money’ , it might as well be a ponzi scheme or those million dollar scam emails that u get.
    Yes, fundaes can be explained and taught, but more than that it is all individualistic based on risk profile,investment goals etc.

    I will try my best to share some of the better things i know in the coming posts.

  14. Sriram Vadlamani says

    Since you mentioned Ankit, When can we expect a how-to?

Leave A Reply

Your email address will not be published.

who's online