In our previous post, we discussed why investing in stock market is a
better option as compared to several other investment options
available. Now, let’s move one step further to understand our investment
priorities, before we invest our hard earned money in the stock market.
There can be varied ways of trading or investing in the stock market.
For now, we will broadly classify them into Long Term Investment and
Short Term Investment or Trading.
Let’s understand the significance of both one by one.
Long Term Investing
Long Term Investing is a strategy that involves investing in the
Stocks for over a period of one year. Though the above is just a
definition as described by the Market Gurus. As a layman, our definition
of Long Term Investment should be keeping our money invested in a
diversified portfolio, over several years (may be decades). It involves a
thorough commitment to keep our portfolio invested in the markets,
regardless of market behaviour.
Now why would I want to go for long term investing? Some really compelling reasons can be:
1. It is an easy investment option for new investors:
All you need to do is pick up some good blue-chip stocks having strong
fundaments and a good and trusted growth story and a great vision for
future. No need of reading daily charts, technical and other stuff.
2. Less time consuming: It is a good option when we
don’t want to invest a lot of time in constantly tracking our stocks.
This also helps up to concentrate on our jobs or businesses rather than
being worried about our investments.
3. Benefit from averaging: When we invest for long
term in stocks, at times the values of stocks come down because of the
falls in the stock market. These falls provide us with opportunities to
buy our stocks at lower rates, thus bringing down the rate average price
of purchase leading to a better ROI
4. Tax Gains: If you keep stocks for a period over
one year before selling them, you stand to gain on the tax front too as
you are exempted to pay Capital Gain Tax of 15% to the government, which
short term traders have to pay.
5. Less Risk: As a long term investor, you are
exposed to far less risk than any short-term investor, as in the long
run chances of capital erosion are highly unlikely.
Oh Wow, So Long term Investment gives good returns, gives no
headaches & saves my capital. So why do I even Consider Short term
Trading? Well, here can be a few points to suggest Short Term Trading is
a brilliant option too:
1. Biggest point in its favour is, the success
stories of people became rich ultra-fast from their humble background
are of traders, not the long term investors. ?
2. Long term investment gives some increment to your
savings, but Short Term Investments or Trades becomes an additional
source of income in itself.
3. When invested for long term, you have to block
your money over a long period of time to get handsome returns. But when
trading, you are always sitting on cash, which you can utilise at your
free will.
4. When invested for long term, your money is never
free, even when the market falls. But trading gives you an option not
to enter the market at all. Thus eliminating the market associated risks
completely.
5. Trading gives you an option to make a moulah even
in falling market, by selling your stocks at higher prices and buying
them again at lower prices. We will take this up in detail again when we
discuss advanced trading techniques in our upcoming posts, so keep
checking this blog regularly. A lot many things are lined up for you.
We are sure, that now, you might be tempted to Short Term Trading and
want to try your hand in it. Excellent!!! Now you’re a party to those
who lose money in the Stock Market.
Shocked???? Confused????
I am sure you are. You might be thinking than why am I confusing you?
No, I am not confusing you. Just telling you that Short Term Trading
can be a boon if you are an experienced trader, but a bane if you are an
amateur. There is a very thin line between intelligent trading and
speculation. Many people fall prey to speculate, which is as good as
putting your money on some XYZ horse in the Race Course. But intelligent
trading in an art and science coupled with endless number of hard work
you put into your research in the stock market. You need to give time
and energy and dedication of course, if you really want to earn good
money.
If you use the tips given to you by someone who claims to be an
expert, you are always likely to lose. And I will never ever advice you
to work on tips. Yes you can use them as an aid for your own study, but
it’s your own conviction and your own research which can earn money for
you.
So as a fresh trader/investor what should be your strategy?
I would suggest, invest initially in some good stocks. And learn
short term trading techniques along with your own thorough research of
the stock market. Slowly enter into trading, but don’t over expose
yourself in trading. Let’s say you have Rs. 100 to invest. Buy stocks
worth Rs. 90 for long term investment. Keep Rs. 10 for your trading.
And even if you convert those Rs. 10 to Rs. 50, don’t ever think you
cannot lose money. That will be the biggest mistake. Out of the Rs. 50,
don’t forget to buy stock worth Rs. 30 for long term investment. Your
bonus will be now you can trade with Rs. 20.
This is the basic rule. If you can follow it, you will probably not
regret. But always remember everything is subject to market risks. Only
You can find your own comfort zone and no one else can.
We at Moneypalm always want you to make the right choice, not
the more lucrative one, as our motto is “Together We Grow”. If you
grow, we grow along with you. We are a family after all.
Have a happy and profitable time investing!!!