Mr. Sharma wants to invest in the stock market. So he chooses a number of low-priced stocks believing that their price will appreciate over time and that he can sell them at a good profit. Mr. Patel also wants to invest in the stock market. He chooses a high-priced stock and buys a small number of shares. His reasoning is that the high-priced stock will increase in price and then he can sell those shares for a tidy profit. If you want to emulate either of these two people, which one should you emulate? Either one can be emulated based on your risk appetite. With a low-priced stock, the upside is that the stock could double or triple in a single day. The downside is that the stock may even halve in price or even become zero. With the high-priced stock, there is a danger that the stock might have been at its peak and the price could come down, potentially losing you money. You can visit sites like Bankbazaar.com to help you judge the performance of a company better.
What is the correct method?
The first and foremost idea that you should remember while investing in the stock market is that you should invest in a variety of stocks. This is to ensure that you have a portfolio that is made up of different stocks with different risk profiles. Such a portfolio will include both high- and low-priced stocks. It will also include stocks that are guaranteed to perform well but offer a lower return and stocks that are not guaranteed to perform well but will offer a higher return. Basically, all kinds of stocks are included in a diverse stock portfolio.
Understand the risk
Before investing in a stock, you need to understand that all stock investments carry risk. Therefore, you should be clear about how much you are willing to risk. A wise idea is to invest money that you can afford to lose. This way, a loss on the markets will not affect your day-to-day activities for lack of funds. The concept of risk appetite is especially valid in this case. See what your risk appetite is, based on your financial situation and the bills that you have to pay each month before investing in the stock market.
Figure out what you can afford
In order to buy a certain stock that you are sure will perform well, you need to be able to afford to buy the stock. That is, if you want a stock, whether it is trading at Rs.10 or Rs.100 or Rs.1,000 or even Rs.10,000, you need to be able to buy it. And the funds for the purchase should come from money you can afford to lose after setting aside money for your monthly expenditures. If you are not able to afford a high-priced stock with your disposable income, then either go in for lower-priced stocks or postpone your investment for a later time.
Know the concept of volatility
The entire stock market is volatile. That is, there are a number of daily fluctuations in price for the various stocks that are traded on the market. It is important to remember that some stocks can gain or lose in price by a lot in a single day. Some lower-priced stocks have been known to even triple in price in a single day of trading. This does not mean that the stock will be able to sustain those price levels. The market works on a cycle. What is higher priced today will be lower priced tomorrow and so on. Therefore the best guarantee of performance is not past stock history.
Study companies before investing in them
In order to know if a stock is a good bet or not, study the company that you are planning to invest in. If the company is performing well, if it has a unique business model, and if it is the market leader in its industry, then consider investing in that company. This is because the market leaders always have a plan to stay ahead of their competitors. Such stocks are likely to be less volatile than other stocks. By investing in a market leader, you may be able to avoid a single day loss if the market drops. In addition to these things, ensure that you read the company’s reports in order to know their performance over the years. Also, know the company’s leadership in order to know if they are experienced in the industry. This will help you know if the company is being taken in the right direction.
In conclusion, we can say that it is more important to invest in a good stock that has the potential to appreciate in value rather than look for either higher priced or lower priced stocks. The price does not matter. Whether the company’s value will appreciate over time is what matters. Into this, factor in your affordability and your risk appetite and you will be able to figure out a stock that is perfect for you to invest in. In closing, always remember to invest money that you can afford to lose.