STOCK INVESTMENTS AND INVESTMENT PSYCHOLOGY

Prof. S. Thilak, Assistant Professor, SIMS

 

Importance of Investment:

           Financial Freedom means that a person needs to have enough Money in his bank account, so that the person need not work for the money. So, what stops the Financial freedom is, first the corporate hierarchy. During the entry level people have lots of opportunities but after years pass on and they get experience they get lesser and lesser level of opportunities. For e.g., We take a team of ten peoples working in a corporate working together after five years three will be promoted as the Team lead, then the rest of them will work in same position. And after five years out of three only one will be promoted as Manager, what will happen to the rest two employees. So, as we see that in every level the no. of vacancy or position is smaller and smaller there is always risk. A statistic says 86% of people lose their job as their experience grows in corporate hierarchy. Even if the person losses their job they can live happily and sophistically by financial freedom i.e., by Investing. Investment will help the person to be financially Secure in future.

A Better Investment Options

            Savings Account:  In India we can deposit our savings through Bank as Savings Account or fixed deposit or recurring deposits. The bank which the concern person has deposited their money is ready to give 5% of Interest rate and Return is Guarantee. But if we have the Inflation the rate is 7%, we cannot have a secured future.

            Real Estates: it is an investment which we can be done and the returns is also higher than the Inflation rate. The problem is that we need a big ticket of investment and it is not liquidity. The person will be having the high rate of return but it is not Guaranteed and we need more money to Invest.

               Stocks: If a person Invest in stocks with the good knowledge, they can take a return up to 25%. if the Inflation rate is 7%, with value of the 25% return the future of the person Investing in Stocks are more secured. More over this does not need big tickets investment and it is highly liquidity.

 

Investment Psychology

• Have Right Expectation: The person whomsoever has Invested in the Stock-market should have the right expectation they should not be greedy.
• Never go for Free Advisory Services: Most of them will do is Pump and Dump schemes and this happens mostly in small liquid stocks often microcaps. Never get tempted by friends/colleagues. They never tell the about the failures but only success ones.
• Never go for Paid Services: unless they are really good at it.
• Never fall in Broker’s Trap: they will always give small time frame calls and they will not give long term calls because of the Brokerage.
• Avoid Analyst: They will ask to invest in bull market and stay away in bear market it is totally wrong strategy.
• Don’t skip the learning phase: Tips can help you get profit for 1^st, 2^nd or even 3^rd time but not for the next time. So, don’t skip the learning phases and always try to find a new way to grow the money.
• Research before Investing: Do lots of calculation before investing into share there are lots of sectors are available and lots of companies are also available. So, there are lot of opportunities are available but doing research will help the person to earn more.
• Don’t be scared of mistakes: While investing in stock there will be many mis-calculation will happen. So, the person should not be scared of doing mistakes and importantly hey have to admit their mistakes and they have to find way to rectify it. Don’t take your ego, just let it go this the mantra to rectify the mistakes.
• Take advice only from the people who have expertise in the stock investments.
• Never Invest borrowed money as no one can predict the rise and fall of the share value. If a person is investing in stock market with the borrowed money, they have high chance of taking risk and unfortunately in bear phases they will get frustrated to see losses.
• Trading is to create capital and Investment is to make wealth. There is an upper limit and lower limit to trading capital.
• Buy Businesses, not stocks. If the person is interested in buying and selling the stocks based on the share value but not by the company value this will not help for a longer period try to find out the company value, target customers and the growth rate.
• Invest in industry that helps in understanding the business better.
• Don’t stress too much on diversification.
• Expect Volatility.
• Never try timing the Market.
• Never let your emotions rule.
• Develop a plan action.