Investing in stock markets is all about knowing where to invest, when to invest, for how long to invest and when to sell.
But as simple as it sounds, these questions require a lot of effort, skill and time to be answered correctly and more importantly profitably. After all, when you are investing in stock markets, you want to earn profits and create wealth. Isn’t it?
If you want to know how to invest in stocks profitably, it would greatly help to know some time-tested fundamentals of stock markets:
1st – Never Ignore Fundamentals
Stock market is best suited for long term investors.
But failing to realize that, thousands of investors want to make quick profits and get rich overnight. And in trying to do that, they end up overlooking fundamentals that actually matter. Like how good is the business (operationally and financially), how is it being run, is management capable and trustworthy, future prospects of business, etc.
A stock might be quoting higher than its intrinsic value. But sooner or later, stock price will align itself to the actual value of the business. Hence, once should never ignore the fundamentals.
2nd- Its Impossible to Predict Market movements in Short Term
Irrespective of what experts tell you, there is no way to correctly predict movement of stocks in the short term.
There are just too many factors and variables that impact prices in near term. But in long term, the business fundamentals take over and stock prices adjust to reflect actual business realities.
So don’t worry about the daily share price fluctuations or what markets will be doing over the next week, month or even a year. You don’t check the value of your real estate properties daily. So why do it with your stocks?
Instead, direct all your efforts towards finding stocks of fundamentally sound businesses quoting at reasonable valuations.That is all that matters when it comes to successful investing.
3rd- Learn to go Against the Crowd
Think about it. If everyone in market did the same thing, then do you think all of them will make money?
The answer is NO and there is enough proof for that.
Investors buy stocks that everyone else is buying assuming that since everybody is buying, the stock must be a good one and worth buying. Result is that since stocks are neither properly researched nor bought at the right price, investors end up making losses.
Smart investors know that they can make money in markets only when they buy something that is out of favor (i.e. against the crowd), but which has a good chance of recovering. This is how to invest in stocks successfully.
4th- Focus only on Long Term
If all the claims about money doubling overnight (in short term trading) were true, everyone would have been rich. But that is not the case.
Most successful investors have made use of this fundamental truth – in equity investing, chances of succeeding are higher with long term mindset rather than short term one.
Equity as an asset class can easily give average returns of 12-15% on annual basis. But this is when you remain invested for sufficient periods of time.