Several newcomers to the market start investing in stocks with a very defensive approach. They want to quickly make some profit, extract their original investment and reinvest only the profit back into the market. They fear that a sudden market movement may wipe out their original investment. While their fear is somewhat justified, their strategy clearly lacks conviction - a conviction in their ability to invest wisely.
Investors come with a variety of risk-taking capacitites. On one end of the spectrum are speculators, traders and gamblers and on the other are folks content with marginal gains of a savings account. The risk-taking capacity of a person is something innate to their personality and can be increased in very small amounts through practice. It is thereefore highly recommended that the appetite for risk guide the investment style of a person. Risk averse folks who want to benefit from the stock market should consider investing in professionally managed funds.
In many ways investing in the stock market is akin to setting up a entrepreneurial venture. To be successful at investing one must adopt the skills and attitude of an entrepreneur.
1. ground work - just as an entrepreneur always starts a new business with good ground work, investors must invest in stocks only after rigorous analysis.
2. conviction in venture - another trait of a successful businessman that a good investor should follow is conviction in the venture. Only invest in a stock if you have strong belief in the company's growth story. Stick with your stock through hard times (but only as far as your stop loss limit permits).
3. strengthen foundation - a business that weathers all storms, stands on a firm foundation. Successful businesses realise early on the strategies that work and those that do not. Similarly, as manager of your business, you need to constantly groom your portfolio, closing loss making positions soon enough and opening more of those that display greater potential of bringing in gains.
4. contingency plan - risks are inescapable realities for any business. Identifying risks at the outset help businesses prepare a contingency plan for each. List all possible risks that may impact your portfolio and prepare a recovery plan that limits your damage.
Please send your comments or suggestions to 