To all those new to investing on the NSE, this is the best period to learn, and learn well from the mistakes of others. Especially in this BEAR season.
Investing in the stock market involves two seasons; Bull and Bear seasons.
The Bull Season is a season when all stocks seem to appreciate. The prices keep going up north and if at all it goes down, it's usually a temporary measure. In a bull season, everyone is a stock guru. Why? Because naturally stocks tend to do pretty well, and even without any analysis you can still manage to pick winning stocks. Please note that this does not make you a seasoned investor! A seasoned investor would have experienced both bull and bear seasons, and continues to learn and hone his or her investment strategies.
Investment strategies are the means through which you decide the best way to invest based on your knowledge of the market and how it operates. Your strategy will include whether to invest primarily in the Primary or Secondary market, or both. The primary market involves investing in public offers (PO's), Initial Public Offers (IPO's) or through Private Placements (PP's). These methods of investing do not require the use of a stockbroker.
Investing in the Secondary market involves buying stocks of shares listed on the NSE, through registered stockbrokers. Without the services of a stockbroker, you cannot buy stock from companies listed on the exchange, unless they have a Public Offer (PO).
Part of your investment strategy will be to decide when to enter and exit the market in a position of strength. A position of strength is buying a stock as low as possible and selling as high as possible, bearing in mind that you need to buy when others are willing to sell and sell, when others are willing to buy. This is a skill that requires fine tuning, because you cannot time the market, but you can study human behaviour, especially when it comes to investing. There will always be people whose greed gets the better of them, there are those who invest, ignorant of the fact that it requires a some form of knowledge, understanding and skill. There are those whose love of "Bonus Issues" makes then go crazy about buying shares of companies issuing, what they consider good or juicy bonuses. A bonus is when companies decide to give you more shares than you already own at a predetermined ratio (i.e. 2:5, two bonus shares for every five shares you own).
Based on this scrambling for "bonus" shares, other investors take advantage of the price appriciation that ensues. They learn to buy into the stock at the right moment (when there are thoses willing and interested in buying the stock) and exit (sell, before there are no more buyers, interested in the bonus issue) before the closure date. "Bonus shares" are not really bonus! This is the company dividing up the shares you already have into smaller pieces! i.e. dividing your 3 whole shares into smaller pieces of 6! Unsuspecting investors only consider the "fact" that they now own double what they previously owned and think in terms of the stock price. The assumption being that the stock price will either remain the same of even go up, not realising the true implication of a stock split, which is the correct name and not bonus! Related to this issue of "bonus issues", is the fact that companies that give bonus, are in essence diluting the number of outstanding shares, creating more mouths to feed! Creating more mouths to feed, means that come the time the company makes a profit they have a lot more investors to share the profit amongst and this means smaller profit portions (dividends) for all concerned.
The stock market requires that you continually modify your strategy so as to adapt to the investment terrain. Part of your investment strategy would be to either invest for the short, medium or long term, which is in turned determined by your risk appitite and how much time you have available to monitor the daily fluctuations of the market. Which ever method you choose will also be informed or dependent on your investment criteria. Your investment criteria are your reasons for investing, which could be as follows:
* For retirement
* To boost your income
* To finance a dream, wish or desire of yours i.e. buying your dream car or house
Take for example short term trading. I find this exciting, but this is a full time job in itself. You need to monitor your investments on a daily basis and this is time consuming! The risk element is much higher than if you choose to invest in the medium to long term range. I don't have the time required, but I have the risk appetite and my investment goals require that I maximise my investments in the shortest possible time. To this end, I have won thus far, that is untill this year. My losses to date starting January is N630K!!! If you choose to invest for the short term, be prepared for the losses that could equally result from your trades!!!
Take a look at all the recent posts on "Stockmarket Tips" starting 4 weeks ago if not more. The bears are on a rampage!!! Those mostly affected are those doing short term trades, especially if they have used borrowed funds or they have invested money they cannot afford to lose. If you are investing for the long term, you have nothing to worry about, unless that is, the company you invested in turns out to be a good investment turn bad, ala cadbury. Cadbury was/is a solid company, but they are no where near the previous status of being a fundamentally sound bluechip company.
Whatever investment route you take, to need to monitor the market and your investment as regularly as possible. This is to avoid waking up one day to discover your investment is no longer worth anything. WanajO said something recently, the bear market is a period one buys, while the bull market is essentially when you should look at selling. This period he implied is the best time to take out a loan, if you have the liver for it, but chances are in your favour, since you are buying when everyone is selling, and will be selling during the bull market, when everyone else is buying.
I will stop so far, hoping others will continue to share their knowledge and wisdom on the NSE
