Equity Market: Know some basics

Actually there are many things that you need to know about the equity markets, but here is a start:

a. Investors make money: Yes, it is the investors who can make money in the equity markets. Very difficult for traders to make sensible money especially over very long periods of time. However trading is a good profession. Trading is an interesting and rewarding profession, but the amateurs pay the bill for the professionals to make money. So if you cannot make trading your profession, you are in trouble. All these fly by night operators who claim to ‘teach’ you trading are taking you up the garden path. I know many who traveled that path.

b. Even Investors make money only OVER very long periods of time: We all know that markets fluctuate. However over very long periods of time, you can make money. It is easy to see investors earn less than bank deposits over decades. However, on a regular basis if you can invest that too over say a decade, chances are that you will beat the fixed income returns.

c. Returns depend on starting point: for those people who bought at the peak of the Harshad scam or the Ketan Parekh scam or even the 2008 fall…..even if you bought blue chips, they were also over priced! So making money is a clear function of the point at which you started. One and perhaps only way of countering this is by investing regularly, and not interfering in the compounding process.

4. Volatility is a fact, accept it when you run a portfolio.

5. The market does not owe you a living – you have to get it out of the market.

6. Learning about investing is the first step in equity investing.

7. Create a direct equity portfolio, invest in an ETF, and in equity mutual funds – and constantly keep comparing the same. In a few years time you can narrow your portfolio.

8. If an adviser is a very good investor himself, he might expect you to remain calm too. See if you are inclined towards being calm or being agitated. Calmness is very important for long term investing. Vipassana, Siddha Samadhi Yoga – are all useful!

 

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3 Responses to “Equity Market: Know some basics”

  1. Sir, How about buying shares for say 30 yrs and depending on the dividend income to live?

  2. I didn’t understand your 2nd point, can you please help me?

  3. The investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.

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