Stock market is the world of possibilities. So, many people here want to make their fortune. There is a trending occupation in vogue. It is to provide multibagger stock tips. Some over smart individuals become or pretend to be expert themselves. They show their knowledge about stock market. These so called experts claim to suggest tips about good or profitable stocks according to their knowledge. They claim that on the basis of these tips any investor can earn a multibagger return of 400% to 1000% within a span of 3 years. Generally, they claim to suggest such stocks which have delivered a return of at least 100% within one year. By followthis tips retail investors invest their hard earned money and finally suffer a loss. In this column we will discuss about the 4 Steps To Avoid Loss In Stock Market.
4 Steps To Avoid Loss In Stock Market
There is a common proverb quoted about stock market “The easiest way to lose money is to invest in stock market”. There are many instances where retail investors have lost millions of rupees after investing on the basis of these suggestions delivered by those so called experts. Most of the people do not have even a little bit of knowledge about the earnings, fundamental aspects, technical analysis etc. of a stock in which they invest their hard earned money. They just blindly follow the tips offered by some experts or that kind of agencies.
I have seen many investors lost a huge amount of money after investing in Meenakshi Enterprise, Vakrangee, Shilpi Cable, Bombay Rayon, Artech Power etc. on being guided by several experts. Then, obviously these investors have suffered a loss. So, instead of depending on these experts or agencies you should follow 4 steps to avoid loss in stock market and take decisions by yourself.
Robust Earnings Growth & Falling Stock Price
When a company increases its sales and decreases input cost, naturally its profit margin grows leading to an increase in Earnings Per share and good dividend yield. But there are several stocks which have delivered weak earning at the time when bear took control in the market.At that situation these stocks correct themselves up to 100-120% from their peak price. On the other hand, the stocks with better financial results correct only 20-30% from their 52-week high in the bear market. In the bear market, after making proper analysis, you can accumulate as many stocks as you wish via equity SIP at an attractive valuation. Then, when the bull takes control of the market, your investment may go upwards.
When the market turns into bull market and company delivers robust results on year-on-year basis, you can buy stocks with lump sum and sit tight with patience for some period of time. The growing stocks will generate huge return for you. It is advised that don’t make SIP in bull market. You can turn on SIP at bear market.
Deterioration of Earning & Falling Stock Price
Again, when the earning of a company deteriorates, it can correct up to 50%-60% from its peak price in the bear market. When the stocks show a constant fall in the quarterly results, it is the best time to sell the stocks instantly. So, keep a close eye on the company’s quarterly results as well as annual results of the stocks in which you have already invested.
Deteriorating Earnings & Rising Stock Price
There are many companies constantly delivered a weak quarterly or annual result. But owing to bull takes control of the market, they yield 20-30% return in any period. When the bull market is over and bear takes control of the market, these stocks slip down 100%-120% from their peak resulting to a huge loss for the investors. There are many companies such as Meenakshi Enterprise, Vakrangee, Shilpi Cable, Bombay Rayon, Artech Power etc. which were in their 52-week high when bull took control and with the emergence of beer, these stocks corrected up to 400% from their 52-week high.
The bottom line is that nothing can be said with certainty in stock market. So, after reading this article, whenever you receive any kind of suggestion about stocks from any source, first of all check out the fundamentals, profit & Loss Account, Balance sheet of the company and then invest accordingly.
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