Since I began my personal finance journey in early 2020, I have learnt some really important life lessons that gave me a lot of perspective about life. The stock market journey is a replica of life and investing in it also teaches you quite a bit about life.
So, let's get straight into the 10 lessons that I have learnt Learnt By Investing In The Stock Market.
1. Eventually All Good Things Grow
The stock market may fluctuate a lot during a day, a week, a month or even a few years but when you zoom out a bit, you see that if you have invested in a fundamentally strong stock, eventually it moves in the upward direction.
To apply to live, it may seem like your life is full of struggles but each situation that you go through is learning that would help you handle such situations better in the future.
You will only learn and grow through these struggles and experiences. The downs are therefore a great opportunity to keep adding to your skillsets, self reflects and improve upon yourself.
2. Follow Your Instincts and Not People
Herd mentality is a big no-no in the stock market. If everybody is investing in a hyped stock, it's better to stay away from it. It has been hyped for a reason.
Although, it's common human behaviour to follow the herd because it seems a safer option than standing out of the crowd, following this can get you into a whole lot of trouble in the stock market. Groups of people use this very behaviour to hype up stock and make people buy it.
Naturally, when many people buy the stock, its stock price increases. This is the time when these people sell off the stock and escape. Whereas people who were naive enough to follow them end up in losses and the price of the stock suddenly dwindles.
So, it's always important to choose whom you follow wisely and always be aware of your decisions. Follow your instincts and not people.
3. Patience Is The Key
The stock market teaches you one important lesson, there are no shortcuts to success and keeping patience is the key. For the market to give you considerable returns, you would need to give it enough time and be patient. T
The more patience you exhibit, the better returns you get. Nothing will drastically change overnight or a few days, although there are a few exceptions. But if you give it enough time and stay patient, the market does give you good returns over time.
4. The Power of Compounding
Closely connected to the last point is, the stock market may fluctuate several times and you would itch to leave the company or in the other scenario you may have gotten higher gains than you expected and you would itch to sell it off and enjoy the gains.
Think about it. If you're holding a fundamentally strong stock, why would you want to leave the company with just 2x returns? If it has given you double the returns, wouldn't it give you 10x the returns? If you were to leave with 2x returns, how would you get the 10x returns?
Don't underestimate the power of compounding where small gains can quickly compound over time to give you significant returns and you would not realise how quickly things have escalated. Stick to the investment and allow it to grow over time to see the real effects of compounding. Trust me it's magic!
5. Never Put All Your Eggs in One Basket
This implies not depend on just one sector or a company to get you the profits. But to distribute your investments in various investments so your portfolio remains diversified and balanced in all the weathers.
For example, some sectors such as air conditioners, refrigerators perform better in summers which may not be true during the winters. So, invest in various sectors so that you don't have to bear a significant loss and your portfolio is weatherproof.
6. Be Adaptable
The stock that you stay invested in, may not perform as per your expectations. Some of the fundamentally strong stocks may suddenly go out of business and things may go out of control.
In such situations, it's important to not get emotional and move on. Not everything will work in your favour. Always take that into consideration and change course when the situation demands it.
7. Learn from Your Mistakes
There is nobody who has not made a mistake in their stock market investment journey. Everybody makes one if not more. It's great if you make them when you're a beginner, so you know what to stay away from.
However, when mistakes do happen, it's important to recognise them, learn from them and move on. Mistakes happen with everyone. Don't get too emotional or beat yourself up.
8. The Future is Unpredictable
Just like life is, no one knows what's actually going to happen. All you have is now. Focus on yourself and do your best. Don't live in the past or future, stick to your discipline and keep at it and eventually it will compound and give you the returns. Don't try to time the market and returns, just be disciplined.
9. Boring is Good
Just like the people around you, some stocks would be hot stocks where everybody talks about their high returns in short periods. While there are others that may not be talked about as much. But this does not mean they are not growing.
They are growing steadily at their own pace. They may not give exceptional returns in a short time but if they are strong companies, if you give them enough time, they give you great returns. So, don't go after the shiny new toy in the market but stick to the boring.
10. Indecision is the Biggest Risk
While investing in the stock market, one skill that is of utmost importance is being decisive. When to invest in a company, when to exit or even staying invested when the stock is going through a turbulent phase.
It's one skill that makes your journey worthwhile. You would need to make some harsh decisions but you should also be able to own the decision. Otherwise, you may end up in the hamster wheel of indecisiveness.
Setting financial goals with your investment gives you the direction and purpose to stay invested. However, it's good if you don't have any goals too. If you don't have any set targets, you still have the flexibility to decide what to do with the returns. But what is important is to get started in your investment journey, stay consistent and disciplined.
That's about it guys!
Have you started investing in the stock market? If so, what are the lessons that you have learnt in your investment journey? I'm super curious to know? Do let me know if you resonate with any of these lessons in the comments.
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Until next week,
Hugs!
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