Disciplined Investment Approach in Stock Market

In order to succeed as an investor in stock markets, you need to gather the right data, think carefully and analyze correctly before taking the plunge. Discipline, as they say, is the key to successful investing.

Equity markets the world over are perpetually moving up and down. And this is where fortunes are either being made or lost. So what is it that differentiates the winners from the losers? Historically speaking, when the concept of value investing took hold, the stock markets became value arbitrators to investors. With the subsequent availability of price histories, models were developed to test market behavior which predominantly incorporated information available into prices. Then again, the concept of investor behavior took hold, involving psychology and the cognitive sciences. Thus market reactions came to be based on investor behavior.

Let’s take the example of Warren Buffet, the King of Investors. Buffet swears by long term investments.  And it is all because of his conviction of knowing himself first as an investor. It goes without saying that every investor gets into the stock market with the intention of making money. Each investor has a different background as also different and specific needs. This may result in their resorting to certain investing methods and vehicles and which they are comfortable with. And this is exactly where the concepts of investing personality and investment objectives have a crucial role to play.

Know Thyself

Analyze your personality first. Are you a raging bull willing to take risks or a slobbering cautious bear? The stock market is ever volatile and you need to test your volatility tolerance limit. Ask yourself if you are willing to spend sleepless nights worrying about your money that is swimming in the stock market.

Also remember that success comes to those who believe in researching investments. It’s only when you burn the midnight oil analyzing financial statements of prospective companies and do the numbers crunching that you get a fair idea of the waters you are about to jump into. It’s a tedious task alright, but pays its dividends too. At the end again, it’s your risk tolerance ability that will determine your success as a stock market investor.

Be an Investor but Don’t Spend a Penny

There’s another way to test your waters without spending a penny. Try using an investment simulator and create your mock portfolio with say, 100,000 rupees for investments in the stock market. This simulated experience will certainly help you determine your habits and preferences without having to spend real money. However, you need to always remember that there are no set rules in investing. Moreover, there are numerous investing strategies and styles and two diametrically opposite approaches may yield unexpected success. This is more  so because of the prevalence of conflicting theories put forward by a plethora of economists, research analysts, academics, individual investors and fund managers on the vagaries of the market.

In sum, most theories contradict each other and each strategy comes with its distinct merits which may benefit a group of investors. Your just need to be knowledgeable enough to correctly analyze your information. It becomes easier then to decide which particular theory fits in with your investing mindset.

Objectives of the Investment

Consider the following factors carefully before parking your money:

• The safety of the invested capital and possibilities of its subsequent appreciation
• Current income
• Your age
• Position/stage in life
• Personal circumstances.

For instance, an elderly widow who is solely dependent on her retirement reserves will be more interested in the preservation of her investments than someone in his 30s with ample time to his advantage and who can be more aggressive with his investment strategies. The power to speculate again depends on the individual’s financial position solely. For example, a millionaire can take risks which a salaried individual can’t.  The basic thumb rule, therefore, is to be more conservative when the time horizon is short and to avoid unnecessary risk. Younger investors, however, have the advantage of making up their losses because they have time on their side and have the liberty of making smaller periodic investments over a longer period of time.