26 July 2011

Tips to avoid losing money in stocks

Indians are currently most optimistic investors. One thing that comes to the mind of an investor is which stocks to invest in. Shares are considered to be one of the most perilous forms of investment. Because there always lingers a fear of losing money with the descend of market that puts off several investors from investing in stock market. You also know there are two sides to every coin; likewise any investment comes with its own shares of risk.

A fearful investor support their entire system, thoughts and style of investing on a negative thought process. Whereas a successful investor, whether it is stocks, real estate or businesses, always develop strategies to protect from the down-side by concentrating on the reward against the original risk. Make a drift from a fearful investor to a smart investor, and follow these tips given below to save your money.

Tips to avoid losing money in stocks

Stay invested
The up and down phase of the market is very obvious. The stocks never stop to move. You witness both gains and a red day where you suffer loss. When you are sailing through such bad period, don't think of taking away all your money, stay invested because when the markets bounce back, the rise is nearly 9.8 percent per month on an average after it touches the bottom. There are times when the returns will be double of what you have invested during the bounce back. For a developing market like India, be confident and stay invested; you will definitely earn profit when the markets bounce back.

Do not fear the bear Phase
As mentioned above at times the market is bullish. A few dips are inevitable, but the growth story does not stop there. So investors don't fear the bear ride because it is always shorter than the bull phase. Don't fall a prey to fear, get hold of all those fears and stay invested. Don't come under any selling pressure. As the stocks get underrated during the bear phase there is almost 100 percent assurance that during the recovery phase the investor will receive profit.

Don't make decisions in haste
Familiar with the line 'Haste makes waste', yes when dealing with equity market be prepared to face risk. As an investor be patient and don't make decision in haste when faced with pressure. In an investment the bulls and the bears will surely be there. At the end it's the patient and smart investor who is rewarded and not the one who fears facing loss and makes decision in haste.

Invest in diversified stock
A common trend noticed among most of the investors is to deposit their money in similar stocks, after some very successful initial proceedings. It is best to invest in diversified stock. You could invest in different sectors like real estate, infrastructure, Gold, oil and Gas. The benefit you get by investing in diversified stocks is that if any sector slumps you can still receive profit from other sectors. One should balance their portfolio.

Know where you want to invest
The most important thing for an investor is to protect his money. So as investor know which company you are interested in investing very well, know the stake of the promoters, FII exposure, quarterly performance and the strength of the order books too. Just don't invest in a company because you were given tips on investing in that company. Don't make any investment without complete information.

Don't just hold stocks, turn bad stocks into good stocks
Don't hold your stock too long, there is a value when stocks are sold. Long term investment plan is not practical anymore. The best strategy is to sell the stocks that are not earning money, and reinvest elsewhere. Buy low and the sell the same for a higher value. This will help you earn more than enough to compensate the loss.