One of the biggest challenges of investing in the stock market is learning the difficult art of doing nothing.
After you build a portfolio of good quality stocks, you ‘do not’ have to do anything to earn money or grow your investments.
But human psychology works differently. Earning money without doing anything? Your mind will quickly reject this idea. You need to constantly work to earn, you need to do something to earn – your subconscious mind will tell you.
This creates the constant urge to always do something with your portfolio.
- Selling shares that are not performing in the short term (impatience).
- Buying shares that are constantly running up (greed).
- Always looking out for new companies to invest in.
- Having too many stocks with extremely low allocation in the portfolio.
These are some of the many mistakes that new investors make.
Constantly chopping and changing the portfolio, will eventually lead to average performance as it increases brokerage costs and taxes.
The Stock market is different
Investing in the stock market is different from investing in real estate or gold.
When an investor buys gold in India, he does not look at the market prices everyday. Gold prices can be as volatile as Nifty, but an investor is more comfortable to buy and hold it for a long period of time.
Real estate is pretty much the same, expect that it is not a liquid asset. Whether it is investing in a piece of land or buying an apartment, it’s always purchased for a long period of time.
However, when it comes to the stock market, very few people have patience. Those who are happy with 5% from FD and 9% from Gold, except to double their money quickly in the stock market.
To add to it, there are more than 5000 listed companies. Each company moves at a different pace and sometimes in different directions.
The stock a person buys, begins to fall. The stock he sells, begins to rise.
He invests in a company for long term, but other companies are giving better returns.
This can leave a new investor utterly confused and clueless.
If you are an investor, all you have to do is – Buy a few good companies, and then do nothing.
Keeping your investing strategy simple, can help. Along with learning to avoid human emotions like greed and fear.
If you are new to the stock market, avoid investing more than 5% of your money in a single stock.
Next, look around you. What are the products you use? What are the products your friends use? Are they listed in the stock market?
Some major brands in India, which are also listed in the stock market:
- Hindustan Unilever
- Reliance (Jio)
- Asian Paints
- Avenue Supermarts (Dmart)
- HDFC Bank
- Maruti Suzuki
- Jubilant Foodworks (Dominos)
These are just some of the many big names that are listed on stock exchanges.
Read more about these companies. What are the products they manufacture? Do you or your friends use them, if yes, do you like them?
From here, you can begin investing in a few companies. Buying such companies when there is a market-wide correction, can get you decent prices if you are investing for 5-10 years.
Meanwhile, once you have a good portfolio of stocks – you have to learn the art of doing nothing.
Stock prices will move up and down. In a bull market, the prices of lower quality companies will move faster than some of the names mentioned above.
But in a bear market (falling market), the good companies will fall less and lower quality companies will fall much more. Some can go to zero and never recover.
The biggest benefit of invest in quality companies – they can give you good returns, with much lower risk of losing your capital. What you need to have is, patience.