So, without wasting any more time. Lets look at these lessens for growing money.
Rule No 1: Both Bulls and Bears Make Money Where Pigs Get Slaughtered.
In investing, investors usually get intoxicated with their gains in a bull market and fail to book profits because of divine greed. Whereas less greedy investors tend to make small profits or able to manage their losses by staying in the game. One of the hardest things about investing is to hold on even in the time of chaos or big drops in markets because of this short term pain often turns into long term gains.
Investors need to be cautious as one may never know when any stock can get crushed because of uncertainty. So, always be alert and need to be careful.
Rule No 2: Don’t buy all in a single shot
Investors should not sell all or buy all in one go. Instead, they should trade in stages so that investors can get the overall best price at a time. Investors need to have the patience for this.
Rule No 3: Buy Damaged Stocks Instead of Damaged Companies
Whenever there is a sell-off situation in the market. It’s best to find out which companies caused it. There is a huge difference in a broken company and a broken stock, one who knows the difference between these two are able to gain handsome returns in a sell-off. When markets suffer, its a very good time for investors to invest and get stocks which took an unfair beating. If looking at the companies that could be the reason for the correction of market conditions, then these are broken companies.
Rule No 4: Diversification of Stocks
It’s only because of diversification, an investor is able to save him/herself from sector risk, which is about 50 per cent of the total risk associated with owning a stock. Investors only need to control the downside of the risk with management, the upside will take care of itself. Control risk is the key to long term gains because of diversifying at all times.
Rule No 5: Do Homework Consistently
It’s being advised to find out all information about a company before investing in it. It would also be foolish to invest in a company you know nothing about. But due to busy schedules, these research and details are procrastinated. So, to solve this issue, one can get a financial manager to do research on investors’ behalf, as its worth saving investors from incurring losses too. Remember, the stock market is a ‘buy and do your homework game’ not just about ‘buy and hold’.
Rule No 6: Not to own many names
Investors are being asked to stick to only a few positions that they know very well and never to go for a new stock without selling another. Good performance is directly linked with no positions owned by the investor. It is being seen that investors with fewer stocks tend to make more money. It can be a limitation but gives better insight to investors resulting in turning into a better performer.
Rule No 7: No Woulda, Coulda and Shoulda’s
Investors need to learn to let go. The worst thing which can be seen in investors is to let a mistake shake their confidence. So, investors need to be proactive and need to forget mistakes made in the past and move on. As when we caught ourselves up in mistakes then we lose our ability to make a sound decision.
(Disclaimer: This article is based on Jim Cramer’s Twenty-Five Rules of Investing, from his book Real Money)
Table of Contents
- 1 Rule No 1: Both Bulls and Bears Make Money Where Pigs Get Slaughtered.
- 2 Rule No 2: Don’t buy all in a single shot
- 3 Rule No 3: Buy Damaged Stocks Instead of Damaged Companies
- 4 Rule No 4: Diversification of Stocks
- 5 Rule No 5: Do Homework Consistently
- 6 Rule No 6: Not to own many names
- 7 Rule No 7: No Woulda, Coulda and Shoulda’s