Returns without Knowledge = Very dangerous in the stock market.
Even if you are getting good returns. Even if you have made a lot of money in the last 1-2 years. It is still dangerous.
If there is one thing people need to understand very clearly – the market will not let people without knowledge earn money in the long run and if it does, it will take it away someday.
Returns without Knowledge
When a newcomer enters the stock market – the focus is only on one thing – making a lot of money, quickly.
If you entered the market in the last 15-18 months, you would be thinking – making money is easy.
All you had to do – buy a stock and watch it rise. Most stocks have doubled or tripled in the last one year.
Ask yourself this question – is it your skill that is making you money or were you lucky enough to enter the market when every stock has been rising?
In your first 2 years in the stock market, returns without knowledge can be extremely dangerous.
Ask people who entered the market in 2016-17 – made a lot of money, but ended up losing everything in 2018-19.
Common Mistakes a Newcomer makes in a Bull Market:
- Buying stock based on recommendations on social media (Telegram, Whatsapp, Twitter).
- Buying lower quality small and mid-cap stocks which have been rising a lot.
- Looking for quick 10-20% returns, before selling a stock.
- Not learning about a company before buying its stock.
These are common mistakes which 9 out of 10 newcomers make in a bull market – and this ends up costing them when the market undergoes a correction.
When lower quality companies crash, they crash quickly. In some cases, stocks which rise and fall in circuits, will not even give a chance to sell.
The end result: The new investor who entered the market with a short-term mindset of making quick money – ends up becoming a long-term investor because most investments are now in losses.
Knowledge without Returns
Big returns or Big knowledge? Always choose to become a knowledgeable investor.
If you have knowledge – the market can give you the kind of money you would have never imagined in your life.
But the stock market is a capital market. You need ‘capital’ here to earn more capital. If you get thrown out of the market due to poor investing decisions, earning that capital back will take years if not decades.
Always remember – Earning money in the stock market takes years, it is a slow process of compounding. However, everything can be lost overnight.
The focus in the first 2-3 years should be on gaining knowledge.
Start small. Only invest money which you can afford to lose. Do not borrow money from family or friends.
If you are new and making money, do not think it is your talent which is earning you money. It could be luck, which could turn anytime.
Wait. Spend 3-5 years in the market. During this time, you will not only learn a lot – but also experience the market cycles.
After this initial 5-year phase, the field is all yours. You will know exactly what to do and what not to do. Once you get to this stage, you can make the kind of money you would’ve never ever imagined!