Many novice stock investors make blunders early on. Most beginners have little to no idea of their target territory and direction of movement. If you plan to invest in the stock market, make sure you understand your own emotional stability, risk tolerance, and basic goals before you even start contemplating an investment. Many beginners are finished quickly because they invested in stocks that are clearly beyond their financial profile.
Understanding one’s investment profile is the first important lesson every novice investor must learn. With the correct information, a large number of common mistakes can be avoided. Taking into account the current situation, some of the most common types of actions are explained below:
High risk, high profit
If you are a conservative investor, stay away from these stocks! If things go the way you expect, you’ll enjoy healthy margins. If not, you will end up losing large sums of money. Abrupt changes in government policies or economic conditions can have devastating results. Amazon, for example, is moving on a clear path that has been defined for several years. The visionaries who lead such companies pay little attention to stock market movements that last for short intervals. That is why it is known as high-risk, high-return stocks.
Low Risk High Return
Everyone longs to invest in these stocks and not everyone should! These low-risk, high-return stocks typically trade at very high market valuations. You can expect to find such actions every day. Only experienced investors can spot them before the market starts showing clear signals. For example, not many people chose Induslnd Bank in the year 2009 when it was trading well under 35! In most cases, a stock market crash creates a multitude of such opportunities. However, inexperienced investors get carried away by prevailing market sentiment and miss out on the opportunity to invest in low-risk, high-return stocks.
Low risk Moderate return
These stocks are fine for conservative investors. Even if there is a sharp drop, such stocks will still keep portfolios safe.
Low Risk – High Return
In a crazy bear market, a lot of stocks are low risk, high return. Seasoned investors do not wait for the “must buy” signal in such cases.
High Risk Low Return
In a crazy bull market, nine out of ten stocks are high risk and low return. Most investors in the market end up making moves in accordance with the prevailing sentiments in the market.
Moderate risk Moderate return
On a typical day, most stocks are of a moderate risk, moderate return type. It is advisable for a conservative investor to use SIP methods. Investing in the stock market all at once is not very smart.
An investor must have a clear idea of what he is doing. It is not advisable to make investments based on a tip or two from someone. Proper research is always a plus.