We keep hearing the term that the share market has boomed and people, who have invested made a lot of money. You also hear a lot that the share market collapsed and investors lost millions of dollars in the event. It looks like a gambling game, but actually the share market is dependent on a lot of factors, which determines the fate of any stock. A good investor does enough groundwork to ensure that he does make money in the process.
Following are some tips that an investor must keep in mind to ensure that the portfolio he creates gives him the maximum returns. For novice investors, it is again very important to keep a tab on the amount invested as continuous losses can really impact the profitability. Following will definitely give you a heads up on how to start trading shares..
- Set aside a fixed budget: It is imperative for novice investors to set aside a fixed budget. This will ensure that if there are losses, it will be capped to the maximum amount invested. Any big event in the stock market can severely impact the share prices. Hence less informed decisions about investing must ensure an upper limit in the amount invested.
- Design an efficient portfolio: The basic rule is that return is proportional to return. If you take more risk, the chances of getting bigger returns are high. But you should remember that the losses are also higher for a portfolio with higher risk. So, ideally, you should have a good mix of stocks of all types. You should have some stocks, which are risky, and some, which are safe. And also some stocks that have a risk rating of moderate number.
- Have a good blend of shares from different industries: You must try and create a portfolio of stocks containing assets from different industries. Say the BFSI industry is not doing good but the Oil Industry is doing very good, your payoffs will get impacted and you will make some money as compared to the case where you just invested in BFSI. This is like a hedging mechanism where you are being safe by investing in orthogonal industries. But, this will reduce the risky proposition of your portfolio also bringing down the maximum potential returns.
Having ensured all these sanity checks, there are certain other tools/features in any trading infrastructure, which enable you to maximize your returns. For example, the stop loss is a good tool to automatically sell your stocks if the face value goes below a certain minimum value you specified. Also, you could set a value where your shares will get sold if it crosses a certain value. When you are buying a stock, you can specify your ask price and your transaction will be completed if anyone is willing to sell the stocks at your desired price. These mechanisms definitely enable a trader to optimize the transactions thereby increasing the profitability from the overall exercise.