The Oxford dictionary defines ‘principles’ as ‘a belief accepted as a reason for acting or thinking in a particular way’.
For example, the principle of honesty can drive you to lead an honest and truthful life.
When it comes to investing, however, principles take on a more financial dimension. They become investment principles that, if followed, can lead to successful investing.
Discipline and long-term planning are key elements of investment. Whether you’re a developed portfolio manager or a normal investor, some vital investment principles apply to everyone.
So, what principles should you follow when stock investing for maximum profits? Well, it depends on the investor. After all, every investor is different, right?
That being said, some common principles are widely followed by successful stock investors. Here’s a peek at them –
- Research before you invest
When you are investing your hard-earned money in a stock, research the stock thoroughly. Check its past trends and prospects before investing.
- Don’t borrow
Always invest what you can save. Borrowing to multiply the money on the stock market is a mistake. If the market tumbles, you would have a huge debt to repay.
- Be patient
Rome was not built in a day, was it? Be patient with stock investing. The market swings up and down quite frequently. If your stock has suffered a loss, it might rebound later.
- Think with your head, not with your heart
Stock investing should be governed by your head. Don’t let emotions influence your investments. Make your decisions based on facts rather than whims.
- There is nothing called a ‘hot tip’
How many of us have fallen victim to a supposed ‘hot tip’? If the tip were really hot, the tipster would never have shared it with you in the first place. Fact-check every tip. Don’t act on impulses or believe in a quick-rich scheme.
Also, don’t follow the herd mentality. Do take advice from a trusted broker or your friends and family, but do your research before investing. Focus on the bigger picture. Be open-minded. Look for undervalued stocks at discounted prices, they can become hot assets if they continue growing.
Early investments in promising new stocks can yield good results. Also, avoid financial market instruments that you don’t know about.These are some of the basic driving principles of stock trading. Inculcate them into your investment profile and give yourself the pedestal to excel in stock investing.
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