What separates great stock investors from the rest of the pack is their willingness to learn and adapt in response to changing circumstances.
That being said, some individuals are more successful than others when it comes to investing in stocks.
Those with a natural aptitude for understanding financial statements, analyzing risk, and spotting undervalued companies generally have a much greater chance of succeeding than someone who just throws darts at the wall.
Being a successful stock investor is more about getting your act together and small things right. What are they? Let’s find out.
Do a Foolproof Homework
Successful stock investors don’t invest in isolation. Their investments are backed by logic and numbers. Before buying any stock, they conduct a microscopic analysis of the company, its promoters, financial health, future growth prospects, etc. This homework, more often than not, helps pick a winner.
Due diligence coupled with robust homework allows you to identify gems, add them to your portfolio and build wealth over the long term.
Patience, Patience and Patience
That stock markets are a shortcut to success is nothing but a fallacy. They are not. Investing in markets is akin to playing test cricket that tests your patience. Stock markets are inherently volatile, which stems from various factors.
Most of them are beyond the investors’ control. However, you need to exercise patience and keep calm.
A knee-jerk reaction to short-term volatility often results in losses. When markets crashed in March 2020 to record lows following the declaration of Covid-19 as a pandemic, most investors pressed the panic button and took the exit route.
In the process, they converted their notional losses into actual ones. Markets, however, soon recovered lost grounds and scaled record highs. Those who were patient got rewarded in the subsequent rally that followed.
The current market volatility has made several investors jittery. However, it’s vital to be patient, shut out external noise, and focus on larger goals.
Diversification is one of the core tenets of investing. It balances your portfolio and prevents the gains from eroding due to volatility.
Successful stock investors don’t put all eggs in one basket, they spread their investments across stocks and sectors. Remember, market events affect different sectors differently.
Diversifying helps spread the risk and, more importantly, enables you to gain from the rally in different sectors. It offers better risk-adjusted returns in the long term and ensures you achieve your goals with minimum fuss.
Successful stock investors embrace volatility instead of avoiding it. They use volatility as an opportunity to add quality stocks to their portfolio and augment gains.
When markets turn turtle, valuations of quality stocks also take a hit. It presents the perfect opportunity to lap them. Remember, fundamentally strong stocks will emerge winners in the long run, come what may.
Use volatility as an opportunity to add stocks to your portfolio that would otherwise be expensive.
Investing in stocks generally isn’t something that will give you quick and easy results. While plenty of things can make you money quickly, investing in stocks isn’t typically one of them.
Successful investors know this and are willing to delay investing until the right time. Some people jump into the stock market with great enthusiasm but without a careful and thorough plan.
They may get spooked out of the market when things are a bit rocky and miss out on future growth. Instead, be patient and wait for the right opportunity.
(The author is President & Head, Personal Wealth, Edelweiss Wealth Management)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)