What is the Best Time to Invest in the Share Market?
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In just 8 months, the Indian share market has witnessed both - a sudden fall and a smart recovery.
Naive investors panicked and sold their share market investments in March 2020 as the nationwide lockdown was announced.
Seasoned investors, on the other hand, increased their share market investments and made more than 50% profit once the markets went up.
While no one can really predict the best time to invest in the share market, you can create a strategy to ‘buy on lows and sell on highs’.
In this article, we will understand:
- Golden rules of share market investment
- What is the Best Time to Buy Shares?
- When is the appropriate time to book profits?
So, Let’s begin!
Golden Rules of Share Market Investment
While there are no shortcuts to achieving success in the share market, we have discovered some golden rules that may increase your chances of earning higher returns from your share market investments.
Majority of share market investment decisions are highly influenced by herd mentality i.e. what others are doing. To avoid herd mentality, do not blindly invest in shares based on what your friend/colleagues/neighbours etc are doing.
Do your own research and only invest in shares that meet your investment objectives.
When making share market investments, you need to study both fundamental and technical factors. In some industries, data is not easily available and you need to put in extra efforts to find and evaluate data.
Similarly, balance sheets can be manipulated by the management. Therefore you should not invest in stocks based on their face value, rather you should do ample research and then invest.
- Have a Practical Investment Approach.
Many investors lose money in the share market due to fear, greed and inability to control their emotions.
- In the bull market, investors try to speculate on a share or create heavy positions in greed to earn more and end up in losses.
- In the bear market, investors panic and sell their shares out of fear and incur huge losses.
By having a practical, non-emotional approach towards your share market investments, you can create wealth in a healthy manner.
- Create a Diversified Portfolio
Diversification across different asset classes and instruments is the key to earning high returns in the stock market.
To do this, you should avoid sector or theme based investments and rather create a diversified portfolio of shares from multiple sectors like FMCG, health, Auto, etc.
- Have Realistic Expectations.
When making share market investments, you need to maintain realistic return expectations. If you expect to make 50% profit in 1 year, then unfortunately share markets might not be for you.
So, have a realistic return expectation and book profits when you see an opportunity.
What is the Best Time to Buy Shares?
Apart from finding a fundamentally strong stock, deciding the best time to buy a stock is equally difficult. The below pointers will help you decide the best time to buy stocks:
"Buy on rumours, sell on news" is a phenomenon that happens the most in the share market. If a company is expected to declare dividends or bonus, then investors buy the shares quickly to take advantage of increased dividends or share prices.The key is to buy only fundamentally strong stocks.
- Uncertainty is an investor’s friend.
Due to uncertainty in the market sentiment, you might get bluechip stocks at bargain prices. Always be on the lookout for fundamentally strong stocks trading cheaply due to market uncertainties.
Research analysts provide price targets and advice which can be of great help, but investors must do their homework before buying a stock.
You can refer to the company's annual report, candlestick charts, keep yourself updated on the latest news etc to decide when to buy a stock.
When is the appropriate time to book profits?
As per a popular saying, an investor should sell shares only on two occasions. One, if you need the money urgently and two when investment goals are achieved.
- Sell shares when the price rises dramatically
It is possible that shares you bought recently, may rise dramatically in a short period of time. This would be a good time to book your profits.
- Sell shares when your investment objective is achieved.
While making share market investment, you must have a target or goal in mind. You can book profits when your goal/target is achieved.
Conclusion:
In the share market, shares move up and down continuously. Therefore deciding the best time to buy shares is very difficult. A smart investor is someone who can make money using both market ups and downs.
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