When it comes to online trading or investing, there are many life lessons that you can learn from some of the most established investment gurus. These life lessons can help you become a better trader, a better investor, and can help you create wealth over the long term.
Although there are many investment gurus with a host of enlightening advice to investors such as yourselves, we’ve compiled 5 of the most important ones that can help you go a long way in your stock market journey. Without further ado, let’s take a look at these 5 lessons.
1. Never stop educating yourself
One of Warren Buffet’s quotes was "Risk comes from not knowing what you're doing." This is one of the most important lessons that you should always remember when investing in the stock market.
Keeping an open mind is of paramount importance when it comes to online trading. The concept of the stock market is very vast and although you might think that you know everything about it, it is likely that there’s always something that you’re not aware of.
Therefore, it is very important to keep an open mind and accept that you may not be aware of everything about the stock market. Once you’ve come to this realisation, the next step is to continue to educate yourself.
Read about the stock market dynamics, keep yourself abreast of all the latest happenings, and go through various educational materials. The more you get to know about the stock market and its workings, the lower your risk will ultimately be, and the higher your chances of creating wealth.
2. Invest in businesses that you understand
“Invest in what you know” is one of the famous quotes attributed to Peter Lynch, one of the best investment gurus known to man. Peter Lynch was quite well-known for picking the right stocks almost every single time. And the reason he gave for being able to do that was that he only invested in companies whose businesses he understood.
This is quite a profound lesson that you can and should learn. Many investors these days tend to invest in upcoming IPO based on the company’s brand and its pricing. Investing in a company without properly understanding its business can backfire tremendously.
One thing that investors should always do before even thinking of investing in a company is to see if they understand their business model. If they don’t, the next step should be to try and get to know more about the company’s business. And if that doesn’t work, investors would do well by refraining to invest in the business and looking for opportunities from companies whose model they do understand.
3. Pay more attention to value investing
Benjamin Graham, the author of one of the best-selling books ‘The Intelligent Investor’, strongly believed in value investing. One of his principles was ‘Always Invest with a Margin of Safety’, which basically meant that investors would do well by buying stocks that are undervalued, which is what value investing is all about.
Value investing involves a large due diligence exercise through which investors unearth companies that are trading at a lower price of what they’re actually worth. These companies are known as undervalued companies and they generally tend to possess a significantly high growth potential in the future. That’s not all. With value stocks, the downside, if any, also tends to be lower since they’re already trading at a lower price point than their actual worth.
Fundamental analysis is the best way to unearth value stocks. Some of the key metrics that you would have to investigate are the Price-to-Book Value (P/B), Price-to-Sales ratio, Price-to-Earning (P/E) ratio, and the dividend yield.
4. Remain calm and stay disciplined
Both Peter Lynch and Warren Buffet have advocated for discipline and calmness in investors. The quotes “The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them.” from Peter Lynch and “The most important quality for an investor is temperament, not intellect.” from Warren Buffet reinforce the importance of discipline.
The stock market can be very unpredictable and volatile at times. The key to success for an investor is to ride the volatility without getting affected by it. Investing, unlike online trading, is a game that’s played over the long-term. And so, giving too much importance to volatility and downturns can lead you astray from achieving your financial goals.
The best way to enforce discipline in investing would be by starting an SIP online. It forces you to make regular contributions and continue investing irrespective of the way the market moves. Over the long run, SIPs have been known to provide stellar returns on your investment.
5. Don’t make emotional decisions
Rakesh Jhunjhunwala, one of the premier investment gurus from India, famously said that "Emotional investment is a sure way to make a loss in stock markets." When it comes to both investing and online trading, it is important to make decisions in an objective manner by relying on facts and other vital information.
Emotional decision making is highly dangerous and can lead to irrational investment decisions that can ultimately harm your wealth creation progress. There may be times when the underperformance of the market can push you emotionally to cut down on your losses by selling your holdings prematurely.
Or alternatively, the underperformance may cause you to hold onto a certain stock longer than necessary due to the emotional connection that you share with it. Both of these situations are dangerous and can hurt your wealth creation journey. Therefore, it is important to ensure that every single investment decision that you make is backed by logic and hard facts rather than your emotions and how you feel.
Conclusion
These are some of the many lessons that you can learn from investment gurus. Follow them diligently and watch as you grow into a successful investor. That said, if you’re yet to start your stock market journey, then get in touch with Motilal Oswal immediately. You can open a demat account online for free within just a few minutes.
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