Stock markets – risky; isn’t it?

Stock markets – risky; isn’t it? 

  You’ve probably lost lot of money in it and may be you have lot of friends who have also lost a couple of lakhs in it – right? But, think again -How did you lose money? You were afraid of venturing in it on your own; hence handed it over to “experts” or you took advice (a.k.a “tips”) from your broker, neighbor…Etc… Without learning the basics.

 The dangers of investing recklessly..

Investors should be aware of risks that accompany when you take uninformed decisions with your hard earned money. Share prices can rise and fall rapidly and it can even wipe off your capital in no time, directly affecting your wealth targets and indirectly-even your family and health. Most of the risks involved with stock investing stem from poor research on the part of the investor. Share trading advice from your friend or next door neighbor are unlikely to be properly researched, therefore if you blindly act on such tips you have only yourself to blame.

Value the shares and buy it at the right price.

You need to buy a stock at the right price. By paying close attention to the price you pay for a stock, you minimize your risk, which helps maximize your total returns. If you find great companies, value them carefully, and purchase them only at a discount to a reasonable valuation estimate, you’ll be fairly well insulated against the vicissitudes of market emotion.

Buying a stock at the wrong price leaves a very bitter aftertaste, so much so that one may vow never to enter the stock market ever again. If you look at the past data, you’ll see that the stock market has given many opportunities to buy wonderful shares at throw-away prices; it has also given opportunities to sell your holdings at unbelievably high prices.

Why valuation is the Key.

Knowingly or unknowingly, you’ve valued everything you bought. Your house, your car.. You bought it after considering whether it’s really worth at that price. Dint you put in your best efforts to see that you get it at the lowest price possible? Then why not investments?

Intelligent investment needs a lot of effort. If you want to invest in stocks, the first thing to look out for is its valuation (and not whether the Sensex is moving up or down!). Stock valuation is the tool for picking out stocks that will bring you good returns. Valuation of a stock means the price or `actual’ value it holds.

Owning stocks of a company  grants you claim on everything that the company owns. So, assessing the value of the company, the profit it is generating and how beneficial it can prove to you, is a worthwhile enterprise. Valuation can prove to be especially beneficial for middle class investors, as they have limited resources to overcome losses incurred in the stock market.

Hence, valuation can be considered the key factor in buying stocks. Just as one assesses the value of anything one buys on the basis of a specified standard, stocks too need to be valued to determine whether the investment will bring you returns or not..