The stock market is an untamed animal, a wild beast. Sometimes, it is a raging bull that lifts and throws all stocks upwards into the sky. Sometimes it is a marauding bear that beats all stocks into the ground with brute force. And if you are entering the stock market, you have to ride this beast. It can be a rough ride or it can be smooth one depending on how you handle yourself. But, hey, you can take your precautions and plan your investments well if you keep these five factors in mind:
1. There is always a limit: Every player on the stock market must not play beyond his means. The bottom line is that if you play beyond your financial capacity, and something goes wrong, you will end up with a loss of face and your family will feel the aftershocks. It's better to control risk appetites and adventurism while playing the stock market ñ after all, it is a market, not a jungle that needs to be explored.
2. There is no room for emotions: Never ever get emotionally attached to any stock. Stocks are an asset class and you must look at them as such. If you don't, and you keep holding a stock no matter what, then you will lose out on many opportunities to make money.
3. Book profits, stop losses: Profit is like a burglar ñ if you don't catch it, it will run away. Loss is like an insurance salesman ñ if you don't shake it off, it will stick to you. Therefore, you must always book profits and cut losses in the stock market ñ all the big guns have done it and they're human beings, just like you. So, why shouldn't you? Get the point?
4. No one can time the market: You have to be God to predict the market movements, which you aren't. So, be happy when you get in, be happy when you get out, don't regret, don't fret and SMILE no matter what you do, provided you do it right.
5. It pays to know: It will pay you well if you understand the stock you are buying into. What are its finances? Is it making profits or losses? Is the market price right? Is the management clean or are they sons of Enron? Does the industry have a bright future? Look, you will make a load of money if you know what you are doing in the stock market. So, get savvy with figures and with the economic and global trends. Analyze all the factors affecting a stock and then act.
Well, these are some basics you have to understand before you enter the stock market. Obviously, you will make mistakes, but that's normal ñ every stock market player does. Just take care to play the market by the book and that will ensure that you will ride on the booms and weather the busts.