Stock Market Dos and Don'ts

Demystifying StocksStock Market Dos & Don’ts

Must Dos while investing in Stock MarketsGet rid of the Junk:Are there shares that you no longer wish to keep? Maybe you have had them for awhile and whilst they are giving some return, you no longer believe in them? Youcould consider selling them and re-investing your money elsewhere. The sameprinciple could be applied to your mutual funds. You could sell the units and withthat money opt for a more profitable investment

Diversify:As the saying goes, Dont put all your eggs in one basket‘; Spread your investmentsover various sectors. Investing in stocks and shares is only one avenue; you could lookat equity funds as well. Consider putting a portion of your money into fixed incomefunds, such as Post Office Deposits, Bonds, National Savings Certificates or the PublicProvident Fund. If you have little or no investments in these, you may want to thinkabout a balanced or debt fund.

Stick to your Strategy:When you start investing, have it clear in your mind, how much of your capital youare prepared to put into equity investments. If you have decided in the beginningto invest only 60% in equity, do not be tempted to exceed this limit. Stick withyour Strategy.

Advice for Intra-day TradersInvest what you can afford to loseChoose highly liquid sharesTrade only in 2-3 scrips at a timeResearch watch list thoroughlyFix entry price and target levelsUse stop losses to contain impact

Don’ts while investing in Stock MarketsDon’t panic:You have to appreciate that the share market will fluctuate, that is the nature of it,and the reason why you invest. If you see the price of your shares dropdramatically, check out the company, and if nothing has changed, hang in there.The same applies to your mutual funds. If the net asset value fluctuates, dont sellin a hurry, watch them, but dont panic.

Don’t make huge investments all at once:Everyone is aware of the fact, that buying shares when the market has reachedits lowest is good practice, and selling them is more profitable when the marketis at its highest. In theory this is great, however, timing the market is notpossible. So don’t make huge investments. Study the market, find a fewcompanies that you believe in and buy a few shares. Keep money aside so thatwhen the market dips you are able to buy a few more. Buy your shares as andwhen the market dips, build your share stock gradually, so as to spread yourcosts. The same applies to your mutual funds, have a systematic plan, invest aspecific amount each month to get your units allocated.

Don’t chase performance:If a stock price is rising dramatically, it does not always mean that the stock is agood buy. Once investors begin to sell, the price will drop considerably. Withyour mutual funds, if you see a good return in the current bull run, it does notmake it a good fund. You must track the performance through the bull and bearmarket and only then are you in a position to decide.

Don’t ignore expenses:If you are buying and selling shares, you are subject to brokerage fees and theSecurities Transaction Tax. You need to be aware of this and budget for them,especially if you are selling for small gains. E.g. If youre selling your shares with onlya gain of a few rupees, your profits will be minimal after the fees and taxes havebeen accounted for.

Be Cautious• Intra-day-trading is a double-edged blade which if not managed with care can harm you significantly. Hence, detailed understanding and time is required for intraday trading.• Unfortunately, the lure of quick money has also sucked in people who should not be indulging in intra-day trading.• Experts say that a day trader should be able to monitor the stock markets from opening bell to the time till the trading session ends. During those six and a half hours, the markets and your stock holdings need your undivided attention.• So, day trading is not for someone who has a busy profession or holds a full-time job elsewhere and cannot monitor the market continuously.

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Stock Market Dos and Don'ts

by Kotak Securities on Jul 27, 2012

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