Investing basics in the stock market

Investing Basics in the Stock
Market
- Sudarshan Kadariya*,New York
In lasttwo decades,the advancementin science
and in technology brought us various things
that our grandparents would never imagine a
century ago. Many the then impossible things
are now possible andavailable at ourfigure tips
and accessible everywhere in the global world
at a real time. It has opened up the new way of
thinkinganddoingbusiness. Onthe otherhand,
such innovationshave brought some new level
challengesandthreatsin doingbusinesssuchas
changingdefinition of factory workers with the
introduction of robots and robotics, Division of
labor and automated assembly line has
replaced mostof the reoccurringnature of jobs,
the machine learning has given a new threat to
replace the administrative and data analytics
jobs, algorithm, automated computer-based
tradingisreplacingsome financial jobs,etc.and
further threats such as various kinds of cyber
threats, geopolitical crisis, the changing nature
and magnitude of financial crisis, unstable
inflationary pressure in the economy, and, so
on. The market economy is advancing day by
day and it’s not going to let us live along in
isolation since everything in our daily life have
been changing with innovations including
investing in the stock market.
For the financial community, those changes are
rapid, very important, and it is powerful
because it involves money in each activity.
There is no option available for us other than
exposing ourselves with those new
developments. The only way to realize success
is to learn new skills and to face new
opportunitiesand challenges. Currently, we are
here talking about internet based trading (in
Nepal) andourreadiness tochange isimportant
to make the novel applications favorable in
investing.
In the Nepali Context, the online trading is
goingto be the nextrevolutionanditwill affect
the trading performance of thousands of
investors both beginners as well as who has
already been in the market since a longtime.
The long time investors have their own strong
preset internal decision-making system that
requires updates since the speed of flow of
information is going to change very soon along
with the changes the existing financial
infrastructures.Online trading will be different
than the existing mechanism; there will be
more opportunitiesif we would prepare enough
inadvance. Equally,there will be anew level of
risks. But, the good preparation on handling
such risksbyeducatingourselves,learningfrom
the experienced investors from the developed
stock markets, and continuing discussions
amongthe financial communitiesinthe updates
and upgrades will help.
The past performance will not always predict
the future performances,whatthe markethave
done today isn't a reliable way to predict
tomorrow, no one in the world can reliably
predictthe stockmarket, predicting the market
is like predicting the future, and no one can
predict the future correctly, etc. are some of
the quotes that we have to familiar
conceptually. But, the financial professionals
can make theireducatedguessesbasedontheir
study on stock market behavior and sets of
skills/expertizetheygainedfrom the market. In
sum, we should not blindly believe in others’
predictionswhenitcomestothe market. There
are multiple situations in the market when all
the market information is positive for a
particular stock with sound fundamental

strength but the price does not move as
expected.There isnoguarantee thatgoodnews
alwaystake the stock price to the newlevel and
the bad news would always dip the prices
down. The pricing mechanism always follows
the demand and supply rule, the traditional
school, no matter what sentiments hit the
market. The market, in general, follows the
herdsor exhibits the collective behavior of the
thousands of investors and their trading habits
particularly when an individual investor can
place his/her own trading orders by replacing
existing roles of stock brokers with the
introduction of online tradinginNepal. Anyone,
who would like to enter into the stock market,
should understand these stock market
characteristics and at the same time should be
familiar with the following investment basics:
1. Investing involves risk:
Investingisdealingwiththe uncertainty; we do
not know whether the return will be positive.
There will not be any investment strategy that
guarantees you to pay off interest rate on your
loan as well as the level of risk that you are
taking. There is no guaranteed that you will
make moneyfrominvesting.You could make or
lose money with your timing of trading
decisions.It is essential to sit down and look at
your financial situation before making any
investmentdecisions.Findoutyour investment
goalsand the level of risk tolerance. How much
you can lose with less effect in your financial
situation and how long would you be holding
your investment once you purchase. Some
professionals say that you shouldn't invest
money if you'll need in the next five years
because if the market goes down, you won't
have enough time to recover those funds. But,
if you understand the facts about saving and
investing, you could able to gain financial
successinthe longrunand enjoythe benefitsof
managing your own money.
2. Expertise in investment:
Every beginner thinks that you require the
expertisewhile investingincludingmyself when
I picked my first investment but that incorrect.
The investing knowledge you will achieve
graduallywith your constant trades since there
are millions of situations in the market so that
nobody understands all context in the market.
You don't have to go at it alone, you could take
a time to learn how the market works, how the
various elements of the market influence the
stock performances.Now,there are numbersof
financial markettraininginstitutionsavailablein
the market to train you on investing basics.
Moreover, investing is more about gaining
knowledge and skills by practice rather than
reading theories alone. Obviously, the study
helpsyouto strengthenyourfundamental skills
and expand your existing boundaries of
knowledge. Continuing study on investing
basics, investmentstrategies,and investingtips,
etc. would take you to the next level of
expertise.
3. Starting investing early:
If you are the 20s, it’s the best time to start
investing and if you are 30 and above, it is
essential tostart investing to grow your money
with compound interest. Growing money is
important to cover the inflation and use for
retirement, children education, and family
support and in other financial needs. The
biggestassetinthe marketisTIME! If you invest
early you will have more time to compound
your investment. Also, if your portfolio is
performing lesser than expected or if you are
losing money in the market, you need the

patience to keep your investment unchanged
for relatively a long period of time to recover
and to grow. "It’s too late to start investing" is
not an excuse tokeepyourmoneyideal and it’s
better to start investing even if it is relatively
late.
4. Investment objectives before to start:
Why are you investing for? What is (are) the
written specific objective(s) of your
investments?Knowinginvestment objectives is
veryimportantto the investors.Yourgoals help
youto guide yourinvestmentdecisions. It gives
you a framework of investing. It also helps you
to figure out how to start investing with your
hard earnedmoneyand how long to leave it on
the market aiming to grow. If you set up the
destination,youwill reachthere sooner or later
but if you failed to set the goals, you would be
diverted and never reach the level that your
mind thought off. Many investors not only
failedininvestingbutmostof themfailedtoset
up their investment goals.
5. Building an investing strategy:
Do you have sufficient time to analyze the
available investment opportunities in the
market?How to develop a suitable investment
strategy?Howto implementthem? Etc. are the
types of questions in your mind. To solve the
similar questions, you may need a financial
mentor, advisor, or, you can do it on your own.
If you belong to the other professions than
finance; you may need more time to learn,
understand, and to develop a right, a suitable
strategy which is essential in investing. More
importantly, you also have to set up your
investmenthorizoni.e. you should have a clear
idea on how long you are going to keep your
money in the market? In general, if you are
investingforthe longterm,you wouldbe taking
a high risk of uncertainty and if you are
investing for short term, you would have less
time to compound. Thus, the suitable time
framing is important in investing.
6. Maintain a portfolio:
The portfolio is an integrated whole of your
individualinvestmentsandthe diversificationof
your portfolioisa simple and useful concept of
investing i.e. putting your money in different
investment alternatives. The most popular
quote in diversification is "Don't put all of your
eggsin one basket" isself-explanatory.Youmay
compose to invest in cash, bonds, shares, or,
you can put your money into mutual funds.
7. Controlling emotions:
Fear, greed, sentiments, overreactions,
nervousness, values, psychology, etc. are very
important to understand before taking
investments decisions. All these behavioral
factors constantly move along with your
investments. Most of the time, these
intangibles govern you and your investment
performances. Keeping these emotions side
while making investment decisions is not
possible for most of the investors but to
become a rational investor,youhave to practice
to separate themoutfrominvestingparticularly
fear and greed sentiments. One of the best
things you can do is to leave your investments
alone. Short-term rises and falls are inevitable
in the market. As a financial practitioner, you
have to practice controlling your emotions and
have to do “Sadhana” for perfection like as by
many other professionals – singers, athletes,
artists, etc.
8. Adjustments and portfolio updates:
As stated, you should keep your investment
until your investment horizon. Some of the

elements of your portfolio might perform well
similarly some will not. Genuinely, you could
reapthe benefitsof ripeninvestment by selling
them and adjust the position of a bad
performer at the same time you can add some
potential movers in your portfolio. Certainly, if
there are big changes occurred in the market
then you can adjust your portfolio accordingly
or you can also reevaluate your investment
horizon to make them situational.
Bottom line:
As discussedabove,some of the basicelements
of the stock market that we should understand
before involving into the market. Understand
the risk, start investing early, developing the
sound financial goals, investing strategy, a
formation of a portfolio, controlling emotions,
and portfolio adjustments and updates are
some of the basicelementsof investing. Itisthe
fact that nobody gets the benefits of success
without his/her significant efforts and without
experiencing failures. Even the richest persons
in the world do have dozens of examples of
major failures in their career. Success and
failure are just two sides of a coin. Most
importantly, starting to invest is a first
milestone in the investment path then the
resultsof the investmentasstatedearlier could
be profit, loss or the breakeven. On the other
hand, inflation is a silent killer and the
investment is very crucial to combat those
inflationary effects on wealth. At least to
maintain the purchasing power of money that
we have today against the current close to
double digits inflation situation, we require a
sound investment strategy on top of a strong
financial foundation, otherwise, the worth of
Rs. 1000 todaywill notworthRs. 1000 nextyear
and it will further deteriorate in subsequent
years. As a result, we will be losing money by
keeping it into the bank saving account with
lower than the inflation bank interest rate.
Therefore, we should understand the
importance of investingandwe shouldenhance
our skills of investing in the changing scenario.
(*the author is a Gold medalist in M. Phil in
Management with specialization in Finance in
2012, Tribhuvan University.Now, he is working
for a consulting firm in New York. The opinion
presented in the article is personal. You can
reach to the author at su.kadariya@gmail.com)

Investing basics in the stock market

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