Matlab ab kya karna hain?
So, you are confused that while you do know the need to invest and also the way i.e. ‘How to invest’ – You are still feel something is missing.
In this article, we will talk about allocation of funds and how you reduce the risk of losing money.
Warren has two rules
1. Never lose your money
2. Don’t forget the rule No 1
Par…Investment is a risky business and loss can happen, then how to enter the stock market.
So, you are correct and while we can’t mitigate the total risk but through proper allocation, we can reduce the level of risk we are taking & this is called a calculated risk.
It’s an important topic because consider a person who earns 10,000 per month and was able to save 5,000 per month. He kept on saving for a year, and that’s when he came to know about the stock market, and he invested his whole saving of 60,000 in the stocks. Some were the good choices, and some went bad.
However, because there was no capital allocation plan – he kept on losing the money in his wrong choices & to rectify his mistakes, he invested more and ended up losing all his gains and also the prior savings.
It’s a basic practice, which has been practiced by our ancestors in the past for their capital allocation.
Simple funda: Jab risk lena hain toh limited paise se loh and then show constraint over it.
Where the stock investment became gambling:
(Lot of people may get angry of this statement, but it’s just my opinion)
There are two ways of investing in stocks i.e. Understanding the companies and thinking about their growth and which is called Fundamental Analysis.
Other is the way in which you try to time the market i.e. You feel for the last four days this stock is falling and now it will start going up and all.
The day trading & Investment
I prefer the long-term investment route, but it’s not an interesting route and sometimes takes years for returns to come however in initial years- people sometimes prefer the day trading route.
While, it’s a fast way to make money, on the flip side – It’s riskier as well.
Therefore, a simple technique is to be rational and keep a bit of constraint on yourself. – But what does that mean?
3 steps of rational Investment:
• Breaking your funds into 70% and 30% buckets
• Being restrictive in your expenses and not breaking the 1st rule.
• Keeping a diary and writing your experiences
Breaking funds:
What it is just a proper capital allocation i.e. if I have to try my hands at day trading then I will keep a limited funds for the same. For example, I save 1000 Rs from my salary after all the expenditure then I will not put more than Rs 300 for the day trading.
If my investment grows than good for me, as now I can trade with more money however if this 300 goes to 0 then the game over. I am not going to day-trade anymore. Else will again put some money aside to do the same.
Note: This trade applies for the long-term investors as well when they are investing in blue-chip, mid cap and small cap i.e. Blue chip is the safest though when you plan to invest in Mid cap and small cap – It’s always better to be clear how much fund is being allocated to these different categories.
Restrain:
Restraint is a critical piece because sometimes, the moment we start making money, we start believing we have cracked the code and should put all the money and that’s when the reality strikes us.
It may happen that you are an expert and by following this strategy your time will increase to become rich however in other you may end up losing a significant share of your savings.
Journal:
Journal is the most important technique, and this is one thing that will definitely help you to become a good investor.
Either weekly, monthly do write your experience of investing.
Few Questions worth answering:
1. Did I use logic and rational thoughts this week while investing or just followed the herd for the investment purpose?
2. Did I learn something new this week in the Investment or trading business?
3. Was I making some mistakes, which now I have realized after this week?
I am sure if you follow these techniques you will become a good investor, and maybe one day people will read your books/Journals to understand the journey of an investor.
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Do reach out to us at prashant.it2009@gmail.com if you have any queries.
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