Retail investors face two major problems today. One is lack of financial literacy and the other is shortage of cash.
Due to financial illiteracy they are unable to understand what is happening in the market? Why are the reasons and the factors that affect the market? If an investor has the sense to understand and judge at this juncture, they don’t have adequate cash reserve to make use of opportunities. While dealing with equities retail and small investors must keep the following points in mind: -
a) There are numerous business channels that have their experts’ panel. They give trading ideas with typical terminology like “CREATE POSITIONS” with frequently using words “VERY SHORT”, “SHORT” and “LONG”. You might not understand these words and their meanings.
(b) You need to invest at regular intervals. You can purchase stocks in smaller quantities such as 20, 30, 40 and so on. It will make you understand how your decision is performing in market, which can give you a good judgement.
(d) Suppose you had purchased stocks of some company thinking it is wise investment and your decision turns wrong and stock corrects by 5-10%. Don’t immediately run to average your price. Let it fall. After sometime it will take upward turn, this is the time to purchase more stocks and average the price.
(e) You many not understand the reason behind the diminishing value of your portfolio. You may not be understanding this financial jungle. But after sometimes prices move upward and so will the portfolio value. Don’t immediately run to take profits. As you didn’t understand why prices were falling, you will not understand why prices are moving upwards. Wait for some more time to have good profits.
(f) It is not necessary that you make profits from every investment. Sometimes retail investors pour their hard earned money in companies, which are never heard off. These companies take care off only of promoters not investors. So, average your prices and take away whatever small profits you are making.
(g) You should deal with Mid and Small Cap companies with utmost care. Lots of recommendations are given on these stocks especially in the boom market. These recommendations go wrong sooner or later. Prices of these companies’ stocks head northward and southward with the same speed. The best example is when Mid and Small Cap companies’ stocks witnessed 30-50% correction whereas Sensex had corrected only 10% in April 2013.
(h) Stock market works around the principle of “Patience Check Meter”. So have Patience and let corrections happen in market. This is a great opportunity to pickup stocks.
Guest Blogger's Name: Nitin Gupta
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