Buying stocks has been a nightmare for many investors in the last one year. The world stock markets crashed and came down to almost one-third of the January 2008 levels. Almost every investor's equity portfolio went negative during the last one year.
The philosophy of equity investments is the valuation of stocks depends on the expected profitability of companies and risk levels. This expectation is a factor of investor sentiments and confidence, and that is why there have been huge swings in sentiments and expectations historically.
Analysts believe you should invest in stocks
with a long-term horizon (at least 2-3 years). In the recent past, stocks crashed largely due to poor sentiments and then picked up after the crashes. For example, take the case of the slowdown in 2001 or crash seen in May 2004. Investors who held on to their positions or invested in stocks during these times have earned good returns in the markets.
Here are some tips for investors:
Understand risk profile
First of all, it is important to understand your risk profile . The risk profile of an investor depends on his age, disposable income, dependent members, other investments or assets, earning security and visibility.
Identify stocks
The next step is to identify stocks that have fundamental value at current prices. Investing in a stock at the right price differentiates between a bad investment, good investment and a great investment. Investors should invest with a long-term outlook in fundamentally-good stocks.
CHECKOUT: Stock Market in 2009 - Stocks to Buy
Patience is the key in volatile market conditions. It is possible that the scrip you buy may further fall but you should not panic. Currently, the markets are going through a bearish phase. Investors should be even more careful while investing in a bearish phase. It is advisable to accumulate stocks by investing in small lots. In bearish market phase, even fundamentallygood stocks correct heavily at times. Therefore, it is very important to have patience and not panic.
Invest risk capital only
Ideally, investors should invest their own risk money in the stock markets. It is not advisable to invest all your savings in the stock markets. Diversify into other investment instruments as well.
Maintain liquidity
Investors should have enough liquidity in hand after investing in the stock markets. A cash position is the key to success in a bearish market phase. Investors should never take a loan to invest in the stock markets.
Go for blue-chip companies
Investors with a low risk appetite should invest in blue chip (front runner) companies only. Investors with a high risk appetite should invest in large-cap as well as quality mid-cap companies with a good trading volume. Never invest in penny stocks with no fundamentals.
Research
The stock market requires constant study and research. Finding good stocks at the right prices is not a one-time exercise. Active investors in the stock markets should always monitor their stocks and other stocks with potential too.
Source: Economictimes.com
