We all know that investing in securities is the path to building long-term wealth and becoming affluent. However, it is important to remember that not all stocks give equal returns. While mid and small caps do have the potential to generate exponential returns, large caps do offer stability to your portfolio. But this doesn’t mean that only certain type of shares should be brought an equal weight age has to be given to all the types of stocks to make your portfolio as stable as the pillar of Qutub minar.
So it is very necessary that you should leverage the high growth offered by mid- and small-caps while enjoying the constant returns offered by the large caps.
Don’t get attached to your stocks: It means that you shouldn’t have any emotional attachment with any of your stocks. Similarly, if you are getting a huge profit, setting a proper stop loss will protect your profits when the stock markets start going down.
Learn from your mistakes: Always let your ego aside in the market. We lose money in the market due to our mistakes. Find out where you went wrong and ensure you don't repeat it.
Avoid being greedy: It is easy to put money in a bad stock with low intrinsic value just because it is going up. You might be in a hurry to make some quick money for a down payment for your home loan or the down-payment for a new car hitting the roads. However, be cunny and remember this price rise is due to market volatility rather than any genuine change in the company's financial balance sheet. Also, understand that to reap the best returns you need to stay invested in a good stock for a long term.
Leverage only after doing risk analysis: Many people borrow heavily from others in order to maximize their profits. Though this may work in certain instances, it can also cause massive losses if the market cycle moves in another direction. This can lead to financial as well as mental stress, and can lead to destruction of family lives as well as suicides in certain instances.
Don't listen to the public opinion: On which way the stock markets will move. In such instances, it is better to be a passive onlooker instead of participating in the market action.
Read like a nerd: There are a myriad of good books on investing available on the subject. Always keep on updating your knowledge. Also follow thoughts and opinions given by respected investors like Warren Buffet, Rakesh Jhunjhunwala, etc. It will expand your knowledge and help you tackle any market situation comfortably.
Don’t place all your eggs in every basket (invest only in certain stocks): Ensure your holding comprises not more than 20 stocks. Also ensure these stocks are from companies operating in different sectors to protect your portfolio from losing its value.
Don't be Jack of all and master of none: If you are comfortable with the buy and hold strategy, use the same one for all your stocks. Otherwise you might be confused with which strategy actually helps you make money.
Remain calm like an ocean, whatever the market condition: If the markets are crashing don't get out of the market, but wait for the market to go up. Also don't continue to invest in the stock simply because it is going up.
Invest only as per your risk aptitude instead of the returns they generate: If you are not comfortable with the high volatility of the small- and mid-caps, don't invest in them.