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  • 7 Blunders That Investors Make In Stock Market

    Deepak Sharma 9 Jan 2021

    3 Skills to Make Investing for Beginners Child's Play


    7 Blunders That Investors Make In Stock Market 

     

    Nobody's perfect. We are all going to have our days of wins and losses. 

    Investing in the stock market can be a tricky game, and if you’re not careful, you might end up making some mistakes that could cost you a lot of money.

    From outside, investing in the stock market may seem like a stress-free side hustle. First-time investors are too eager to jump right into the investment game, and often not commit to learning from the mistakes of others. 

    However, first-time investors often find that the truth is far from this myth and jump into the market without proper strategy. Investing takes time, effort and a lot of patience. In fact, in some cases, the investor may continue to make the exact same mistakes over a period of time, when they do not learn from their previous errors.

    It pays to remember that the assets linked to the financial markets may shift in value. So, your best bet is to make the most of these investments is to perform careful research with fact and figures and make informed decisions based on facts as opposed to instinct or emotions.

    To be a stock market investor, it is utmost important for a person to be level-headed and logical. They should know how to juggle between their rational thoughts as well as gut instincts. Only a level headed investor can think and make wise decisions on the go. 

    The good news is that most of these mistakes can be avoided by careful analysis and awareness. We will take a look at the ‘7 Biggest Blunders’ that investors make in the stock market.

          

    1.Investing like Gambling

     

    Casino Gambling vs Investments - Wall-Street.com 

      


    An old Japanese proverb says that, "you will eventually lose every rupee with which you gamble." 


    You should never put yourself into the high-pressure situation where you are gambling money on the line which you need for other reasons. When you invest with money that you can afford to risk, you will make much more relaxed unbiased trading decisions.

    Any sum left over after the discretionary expenses of the investor and savings is what is to be used in investment. Eventually, you will have much more success with your trades, which will neither be driven by negative emotions nor fear.

     

    2.Lack of Planning

     

    Planning and strategizing helps the investor to decide and select in what type of securities he must invest in, how long he should invest and how much he should invest in order to get the expected return that he desires.

    The downside to not having a proper plan in place is that you have no end goal and you are aimless, as a result, your investment pattern can be quite arbitrary. This may result in greater losses if you’re not careful.

     

    3.Buying Stocks that Appear Cheap

     

    This is a very common mistake, and those who commit it do so by comparing the current share price with the 52 week high of the stock value. 

    Your lookout should be to invest in companies which will experience sustained growth in the future. Only considering the fact that a company's share price came about to 30% higher last year will not help it earn more money this year. 

    Avoid buying stocks that simply look like a bargain. It is important always to have a critical eye and be picky while choosing such stocks, since a low share price might be a false buy signal. 

    Do your homework and analyse a stock's viewpoint or direction before you invest in it. In many instances, there is a strong fundamental aspect for a price decline.

     

    4.Getting Greedy 

     

    Investors who get greedy have a tendency to get “slaughtered.”


     

    There’s an old saying on Wall Street that goes like this:

    “Bulls make money, bears make money, and pigs/amateurs get slaughtered.”


    It means that both bullish and bearish investors/traders will make money in markets over time, but greedy investors (“pigs”) will lose money.

    In the name of diversification, once the shares starts performing well some investors put all their eggs in one single basket. They have very less amount invested in other securities. This may cause some serious problem if the investor is wrong. Therefore, it is not good to be greedy.

     

    5.Holding Losers for Too Long & Selling Winners Too Soon

     


    Every time you trade you should ask yourself, “Is this the best possible stock I can allocate my money to?”

     The best possible decision from above fact should drive most of your buy/sell/hold decisions. 


    Some investors have a tendency to sell their winning stocks too quickly so they can confirm with profit and hold their losing stocks for too long so that they can avoid a loss.

    One common example of this blunder, is an investor who would rather hold onto a losing stock until it gains +20% back to where he bought it than take the loss and allot the money to a stock that gains +30% over the same time period. 

    Of course, investors don’t analyse more on this situation, but clearly, we can see now that, the 30% gain is much better, if you visualize properly instead of avoiding the pain of “locking in a loss.”

     

    6.When Buying a Stock, Overlooking the "Big Picture"

     

    For a long-term investor one of the most important - but often overlooked - things to do is qualitative analysis, or "to look at the big picture." An investor can earn more profit in the long term rather than a short timeframe.

    Assessing a company from an approximate standpoint is as important as looking at the sales and earnings. Also, ensure that you have at least some investments in your portfolio that you plan to hold for 5 to 10 years, at the very least. This could maximize your returns greatly.

     

    Write out your short-term goals and long-term goals, and design a perfect plan for your future. Pick an investment strategy that includes signals and guides for the long run.

     

    7 .Taking Stock Tips from Financial Media

     

    It’s good to stay up-to-date on the markets, economy, and your investments. Just don’t pay too much attention to the daily excitement of the “talking heads” on TV.


    Financial media is often designed to stir up the adrenaline and emotional parts of your brain to invest in impulse decisions rather than help you make better investing decisions.


    Buying on tips from the media is a speculative gamble and makes an investor greedy. If one really catches your attention, the first thing to do is consider the source. Stick to your basics and do your own homework so that you know what you are buying and why you are taking positions.

    Next time you're tempted to buy based on a hot news from media, wait/don't do so until you've got all the facts and figures and are comfortable with the company and risk. If possible, take unbiased opinion from informed investor

    The Bottom Line

    As a child, you didn’t learn to ride your bike without taking a few falls. You didn’t learn a bicycle without falling at least a few dozen times. One can become professional only by learning from his mistakes. Practice and take a next step with careful strategy and money management. Hence, you can't make things better for yourself without practice and knowledge. In the case of the stock market, one needs to join Stock Market Course In Delhi and acknowledge yourself with the different stock market strategies. 

    If you are looking to make a jumbo win by betting and risking your money on your gut feelings, try the casino.

    Every investor makes mistakes. Everyone has to learn at some point. What matters most is that you must be ready and eager to learn new things and always improve how you invest. Most successful traders are constantly studying their techniques, looking for an additional edge that may help them make more-informed decisions.

    Take pride in your investment decisions and in the long run, your portfolio will grow to reflect the integrity of your actions.

    If you have the money to invest and you are able to avoid these blunders, you could make your investments pay off; and getting a handsome return on your investments could take you closer to your financial goals.

    Please understand that mistakes are part of the process and learning to reduce them could help you develop a more disciplined consistent approach to trading.

    Armed with all the above mentioned knowledge and guidelines, you’re now all set to begin investing. All the best  !!

     

    John C. Bogle Quotes (56 wallpapers) - Quotefancy

     

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  • How Stock Market Indices and Circuit Breakers Work in Stock Market ?

    Umesh Sharma 4 Dec 2020

    What Are The Stock Market Indices?

    Market indices bring together a select group of company stocks and regularly measure them to show the performance of the overall market or a certain segment of the market.

    There are thousands of companies listed on stock markets, making it almost impossible to monitor each company. This is why stock market indices are created.

    In short, an index helps investors understand the health of the stock market, enables them to study the market sentiment and makes it easy to compare the performance of an individual stock.

     

     

    Sensex and Nifty are the two most important stock market Indices in India. They are the benchmark indices meaning, the important ones, and a standard point of reference for the entire stock market of India.

    For example, the BSE Sensex is an index consisting of 30 stocks. Similarly, the BSE 500 is an index consisting of 500 stocks.

    KEY TAKEAWAYS

    • The Sensex refers to India's benchmark stock index, which was created in 1986 and represents 30 of the largest and most well-capitalized stocks on the BSE.
    • Sensex has been on a growth curve since India opened up its economy in 1991. Most of its growth has occurred in the 21st century.

    Types of Stock Market Indices

    What are the Benchmark Indices?

    S&P BSE Sensex, a collection of 30 best-performing stocks, and Nifty 50, a collection of 50 best-performing stocks are indicators of BSE and NSE respectively. They are considered benchmark indices because they are the most concise, use the best practices to regulate the companies they pick, and hence are the best points of reference for how the markets are doing in general.

    NIFTY Indices

    NSE Indices Limited (formerly known as India Index Services & Products Limited), or NSE Indices, owns and manages a portfolio of 67 indices under the NIFTY brand as of September 30, 2016, including NIFTY 50. NIFTY indices are used as benchmarks for products traded on NSE.

    NIFTY indices served as the benchmark index for 38 ETFs listed in India and 12 ETFs listed abroad as of September 30, 2016. Derivatives benchmarked to NIFTY indices were also available for trading on four international stock exchanges as of November 30, 2016 (The Singapore Exchange, the Chicago Mercantile Exchange, the Taiwan Futures Exchange and the Osaka Securities Exchange).

    S&P BSE SENSEX INDEX

    Sensex, otherwise known as the S&P BSE Sensex index, is the benchmark index of India's BSE, formerly known as the Bombay Stock Exchange.) The Sensex is comprised of 30 of the largest and most actively traded stocks on the BSE, providing a gauge of India's economy.

    Created in 1986, the Sensex is the oldest stock index in India. The index's composition is reviewed in June and December each year. Analysts and investors use it to observe the cycles of India's economy and the development and decline of particular industries.

    Fun Fact:  BSE adds S&P as a prefix before all the indices because, in the year 2013, BSE and S&P Down Jones Indices, a global resource for all index related information announced a strategic partnership “to calculate, disseminate, and license the widely followed suite of BSE indices,” BSE had said in a statement. It is just a co-branding technique.

     To learn how to use an index for benchmarking portfolio performance join NIWS Best Stock Market Institute in Delhi

     

    Conclusion

    What are Stock Market Indices By Kotak Securities®

     

    Market-Cap Based Indicies

    Market cap is the market value of any public traded company. There are few indices that purely select companies only on the basis of market capitalization.

    Indices like NSE small cap 50 and S&P BSE small-cap are indices that are a collection of only those companies that have a lower/smaller market capitalization in accordance with rules by SEBI. There are also other indices like NSE midcap 100, S&P BSE midcap, and likewise.

    Sectoral Indicies

    NSE and BSE also have some indicators that are a gauge of companies falling under one particular sector. Indices like NSE Pharma and S&P BSE Healthcare are indicators of their respective exchanges for the pharmaceutical sector.

    It is not necessary that both the exchanges will have corresponding indices for all the sectors but this is generally the case.

    Another example could be Nifty PSU Bank and S&P BSE PSU Indices are indicators of all the listed public sector banks.

    Other Indicies

    There are also some other indices like S&P BSE 100, S&P BSE 500, and NSE 100 among others which are slightly bigger indices and have a much bigger number of stocks listed on them.

    How Do Indices Select Stocks?

    Till now we understood, what are stock market indices and their examples but do we know how a stock market index in India selects stocks.

    How do indices arrive at a value?

    When an entire index, for e.g. a Sensex or a Nifty goes up or down, it means that stocks comprising those indices have performed better or worse. This does not mean that if a company, say Reliance Industries Ltd. (RIL) which is listed in both, the Nifty and Sensex, goes up by say 5% during a trading session, the index will not correspondingly go up by 5% because there are other stocks in the index as well which may have gone up or down and influenced the movement of the index.

    How will the weights be assigned depends on the stock selection strategy put in place? On any given day, not all sectors in the economy are doing well. An index’s total value cannot be a simple addition of all m-cap values because not all stocks carry the same weightage in the index

    There are primarily two factors by which stocks are picked:

    1 Market-Capitalization

    Companies with the largest market cap are picked and grouped together in an index when the M-cap is the premise of the stock selection strategy.

    Companies with the largest m-cap have a bigger weightage on the index’s value while stocks with a small m-cap do not influence the index as much. Indian indices mostly use free-float market capitalization for assigning weights to their stocks.

    2 Price

    There are also some indices in the world that use price to give weightage to stocks in an index.

    An example of this would be Japan’s Nikkei 225. Companies with a higher stock price have a higher weightage and impact the index more than the lower valued stocks.

    Note:

    Difference Between Free Float M-Cap From Full M-Cap

    M-cap is the total value of the company measured in the outstanding shares it has issued. Free float m-cap, which the indices use to weigh stocks, excludes shares held by promoters.

    For example, Reliance Industries Ltd. (RIL) has the highest free float m-cap as on April 20 closing data so it has the highest weightage among other stocks that form Sensex. So a movement in RIL, positive or negative, will have a higher impact than a positive or negative movement in other stocks.

    Why Do We Need Indices?

    The basic premise of having indices is to make trading easy for investors.

    Imagine a stock market where you do not have such categories, where all the stocks listed on the exchanges are available for purchase, you do not know which stock has a higher m-cap, or lower value and which are the ‘better’ stocks. This is where the importance of stock market indices is realized.

    They make it easy for you to trade by grouping them and making their visibility stronger.

    Need for Stock Market Indices By Kotak Securities®

     

    Here are a few reasons why having indices is an essential component of stock market investments:

    Grouping / Sorting

    Let’s consider Sensex as an example. S&P BSE Sensex is a collection of 30 stocks, S&P BSE 100 is a collection of 100 stocks and S&P BSE 500 is a collection of 500 stocks. These indices help you to see the top stocks by way of m-cap in one place.

    For example, in current times where a pandemic has gripped the entire world and stock markets are down, you may be curious about how the health sector is doing. In the absence of indices, you would have to individually hunt for all pharmaceutical companies, collate them together and do your own math.

    However, grouped indices like Nifty Pharma and S&P BSE Healthcare do that job for you.

    Assessing Stock And Market Performance

    Indices have a plethora of information on stocks. Price history, volume changes, peer to peer comparison, sector performance, volatility, and a sense of where the market is moving. If a collection of the 30 or 50 best companies is showing an uptrend or a downtrend it speaks volumes about how the stock market is doing in general.

    Reflects Investor Sentiment

    If we refer to the table above, we can see that in the calendar year 2020, the Nifty 50 has dropped 26.59% and Sensex by 26.07% in the last 4.5 months. This speaks a lot about investor sentiment.

    Coronavirus has shaken investor confidence and global economies. With job loss, industry shutdowns and the lockdown imposed, people have lower confidence in the markets and do not consider them as safe havens anymore. Currently, the market is indicating a negative investor sentiment.

    Index

    YTD performance (year to date) *

    Nifty 50

    -26.59%

    S&P BSE Sensex

    -26.07%

    *As of April 20 closing session

    How Is Index Value Calculated?

    An index’s value depends on whether it is a price-weighted index or a market-cap-weighted.

    Below is an example of the BSE Sensex to understand how an index is calculated.

    How is Index Value Calculated By Kotak Securities®

     

    Conclusion

    Stock market indices are the bread and butter of the investment milieu. It is not just an added advantage but a necessity.

    Having indices reduces your load and makes at least the first step in stock market investment easy. This is not the end. You do need to do the rest of the work for yourself when it comes to investing.

    Investment portfolios cannot be one-size-fits-all and need to be tailor-made for every investor.