10 Things You Need To Know To Start Investing In The Malaysian Stock Market
1. Never jump blindly into stock markets
Many a times it happens that while talking to your friends and colleagues, the discussion heads towards the stock market, and also how the stock market helps investors make big money. You might never have invested in the market, but after hearing about all those things you also decide to buy some stocks.
2. Stock market is not a money-making machine
You must have heard the story about many investors who made their fortune through the market. Many believe that the stock market is like a money-making machine, which can turn them into millionaires over a period of time. Well, it is true that a lot of investors have made profits through the stock market. Many people forget that a lot of people have lost their entire wealth, while some have been forced to sell their personal assets to cover the loss in the market.
3. Educate yourself, handle basics firs
Before making your first investment, take the time to learn the basics about the stock market and the individual securities composing the market. There is an old adage: It is not a stock market, but a market of stocks. Some important areas which you should be familiar with before entering the market are:
# Popular Methods of Stock Selection and Timing, such as fundamental and technical analyses
# Trading basics, rules, compliances and terminology as market order types including market orders, limit order, stop market orders, stop limit orders, trailing stop loss orders, and other types commonly used by investors, margin money required if you want to trade in F&O.
4. Invest only your surplus funds
The biggest mistake newbie investors make is to invest money that they can’t actually afford to lose. Investing in the stock market is risky, and that means that you can potentially lose everything. Like any investment, there are inherent risks associated with the stock market. Some are the risks related to the overall market as systematic risk that you can’t avoid by diversifying your portfolio, while some risks are stock-specific that you can avoid. If you want to take risk in the stock market, then only invest your surplus funds which you can afford to lose. Investment is done to generate more money, but do not invest all your emergency funds in the stock market.
5. Avoid Leverage
Leverage simply means use of borrowed money to execute your stock market strategy. In a margin account, banks and brokerage firms can lend you money to buy stocks. It sounds great when the stock market is moving up, but consider the other side when the stock market or your stock goes down. In that case your loss would not only erode your initial investment, but you will also have to pay interest to the broker. Leverage is, thus, a tool, neither good nor bad. However, it is best used after you gain experience and confidence about your decision-making abilities. Therefore limit your risk when you are starting out to ensure you can profit over the long term.
6. Avoid herd mentality
Unlike many investors do, you should avoid the herd mentality that is influenced by the actions of your acquaintances, neighbors or relatives without evaluating the current information and underlying stocks. Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But this strategy is bound to backfire in the long run if you have not chosen the stock by careful analysis. So, if you really don’t understand about the stock, never step in. Before investing in a company, you should know about its business. It’s important to only invest in businesses that are easy for you to understand, especially while you’re just starting out. Never invest in a stock. Invest in a business instead.
7. Diversify, but refrain from over diversification
Never put all your money in one stock. Create a well-diversified portfolio of stocks that can help you reduce the risk and save you from losing money if a few stock do not perform well. Also, avoid over diversification, as increase in the number of stocks up to a certain limit do help in diversifying the risk proportionately, but beyond a certain number of stocks your investment can’t get the proper growth moment.
8. Don’t try to time the market, follow a disciplined investment approach
A majority of investors try to time the market, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process. You can invest over a period small amounts of money to average the market and can get the benefit in the long term. Investors who put in money in right shares systematically over the long term generate outstanding returns.
9. Don’t let emotions impact your investment
Separate your emotion from any particular stock as many investors end losing money in the stock markets due to their inability to control emotions. Get rid of the fear and greed cycle. In a bear market, control your fear and don’t panic and sell shares at rock-bottom prices. Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them.
10. Have realistic expectations
Hoping for the ‘best’ from your investments is not wrong, but you could be heading for trouble if your financial goals are based on unrealistic assumptions. For instance, lots of stocks have generated more than 100 per cent returns during the great bull run of recent years.
Lastly it’s important to monitor your investment and review it periodically as any important event happening in any part of the world does have an impact on our financial markets. Also, any news or financial event related to a particular stock or industry impacts that stock.
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