Investing is often seen as a pathway to financial freedom, yet many investors struggle to achieve success. Investing helps you achieve your financial goals and build your generation’s wealth.
India has witnessed massive traction in the stock markets, and the participation of people in stock markets has risen multifold compared to the last 5 years.
People, to make instant money, started trading and investing in equities. SEBI released a study on July 25th in which it mentioned that as many as 70 percent, or 7 out of 10, individual intraday traders in the equity cash segment incurred net losses in fiscal 2022–23.
The study showed that 1 in 3 individuals who trade in the equity cash segment trades intraday. The number of individuals participating in intraday trading in the equity cash segment surged by 300 percent in FY23 from FY19.
In January 2023, SEBI said that as many as 89 percent of the individual traders—9 out of 10 individual traders—in the equity F&O segment incurred losses, with an average loss of Rs 1.1 lakh during FY22.
It might be investing or trading; people are losing money in both ways.
But why are people losing money?
- Emotional Decision-Making: Emotions are one of the important reasons why people lose money. Emotions often drive investors to make decisions, which would lead them to make instant decisions.
The stock market is a place where there is always an opportunity. If people find any chance to make money, investors will make an emotional decision. Fear and greed can lead to buying high and selling low, which is a recipe for failure. Mindset is an important tool to win the game of investing for an investor or trader.
- Lack of research: Any experienced guy in the stock market says research is an important aspect of good investments. But beginners consider those statements a bluff.
Beginners, especially, invest in stocks just by looking at the price of the stock. By looking at the price, they decide the valuation. That is the biggest blunder any person can make in the stock market. Most people don’t conduct any research and invest blindly just by listening to the people and influencers and by looking at the price. Penny stocks are attractive for their price.
The secret tip to financial nirvana is to start doing research. But what do we mean by research? Start reading an annual report before investing in the company. Let’s say you are interested in a company. Read the annual report of that company. The annual report is the primary source of information about the company. You will understand the business activities, products, and finances of the company. These play an important role in the performance of the stock.
If you are confused about “How to Analyze Stocks Using Annual Reports,” there is an extremely beneficial course launched by Nirvana Savart. This course will help you read annual reports. So doing research is an important aspect of a successful investing journey.
- Lack of diversification: Investing heavily in a single asset or sector can lead to significant fluctuations in your portfolio’s value. If that asset or sector performs poorly, your entire portfolio can suffer.
For example, if you invest solely in technology stocks and the tech sector experiences a downturn, your portfolio’s value may drop significantly. By focusing on a narrow range of investments, you might miss out on opportunities in other asset classes or sectors that are performing well. Diversification allows you to capture gains from various sectors and asset classes, enhancing overall returns.
- Demand vs. Fundamentals: Demand refers to the level of interest and buying activity in a particular stock, often driven by market trends, news, or hype. High demand can drive up a stock’s price, creating short-term gains. However, without strong fundamentals, these gains may be unsustainable.
Fundamentals include a company’s financial health, profitability, revenue growth, debt levels, and overall business model. Strong fundamentals indicate a company’s ability to generate profits, sustain growth, and stand against economic downturns, leading to long-term stability and returns.
High demand can inflate stock prices beyond their intrinsic value. When the hype fades, these stocks can experience sharp declines. Stocks driven by speculation can create bubbles that eventually burst, leading to substantial losses for investors. So, don’t just invest blindly by looking at the demand the stock holds; also focus on the fundamentals that back the stock.
Strategies for success:
- Discipline: Discipline is a cornerstone of successful investing. It involves adhering to a well-thought-out strategy, avoiding impulsive decisions, and maintaining focus on long-term goals despite market volatility. Discipline helps you stick to your plan, reducing the impact of emotions on your investment choices.
A disciplined approach ensures you follow a consistent investment strategy rather than chasing trends or trying to time the market. This consistency helps in achieving long-term financial goals and protects you from losses.
- Regularly review your portfolio: Regular review of your investments is essential to ensure they align with your financial objectives, risk tolerance, and market conditions. This exercise helps you make informed decisions and adjust your plans as needed. Your financial goals can change over time due to life events like marriage, children, and retirement. Regular reviews ensure your portfolio keeps up with these changing goals.
- Seek Professional Investment Advice: Seeking professional investment advice can provide valuable insights, personalized strategies, and peace of mind. Advice should not be taken from everyone; there are some requirements for the adviser.
Sebi-registered investment advisors (RIA) should only give advice. So, if you can’t make your own investment decisions, choose the best investment advisor.
Savart is a SEBI-registered investment advisor. The purpose of this content is to educate, not advise or recommend any particular security. Please remember that investments are subject to market risks. Please conduct thorough due diligence or seek professional guidance before making any investment. Do not believe in any speculations.