Hidden financial facts Most Investors Don’t Know
Saturday, January 6, 2018, 6:00 AM | Leave Comment
When it comes to achieving long-term financial freedom, stay disciplined with personal finances.
It is more important than spending your time trying to beat the market. Don’t confuse luck with skill.
In the finance world, if you know most of the hidden financial facts, you’re intelligent and responsible investment can be simple and uncomplicated. It involves buying a globally diversified portfolio of low management fee index funds, passively managed funds in an appropriate asset allocation.
In past, if you tried to put your money to work for you, but fail. Understand that no one has the expertise to pick stocks, value the market or select the next “hot” fund manager over the long term.
Hence, Before investment consider these facts which may cause you to dump your “market-beating” broker, fundamentally change the way you invest and increase the possibility of reaching your goal of retiring with dignity.
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Watch the charts, Not the News
In the world of investment there are really few surprises. Someone usually knows the important announcements that a company will report in the news in advance.
When news stories are reported on major news channels, in most cases the news has already built into the stock for a long time.
So taking trading decisions based on the news announcements is useless as the major move of the price action has already taken place days ago. It just creates a fun for the investor.
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Keep a strong emotional control
Sentiments play a key role in the stock market. Markets are mostly driven by two emotional factors- fear and greed.
Usually, investors often invest based on these emotions while if you observed the big investors often have a good control over their emotion. They don’t get biased based on the views of market pundits or financial advisors.
“To be a successful business owner and investor, you have to be emotionally neutral to winning and losing. Winning and losing is just part of the game.” — Rich Dad
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Investing like gambling
Gambling doesn’t follow any rules. Some investors invest in securities like they are gambling. They just randomly pick a security and if they feel it’s doing well, they invest in it. This is one of the big mistakes when it comes to investing.
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Overtrading
It is often thought that an investor trades a lot. In reality, the investor does not trade as much. It is also important because by trading a lot, an investor loses his money in fees.
Conducting a few trades within which the investor is able to diversify his risk is the most optimal scenario.
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Being anxious or worrisome
Just because an investment is made, the investor should not keep checking the ticker or the index. This is one of the emotional mistakes that an investor does. It just leads to more anxiety and does not give the result that is required.
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Depending upon the investment manager
Having confidence on the ability of the investment manager is good. But it is not right to always be dependent on the manager for every investment that is made. This may lead to an investment mistake.
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Only investing in high performing securities
Just because it is performing well in the past year doesn’t mean that it will continue performing the same way in the future as well.
Before investing, only checking the performance of securities is not enough. Important to understand the company you are buying the shares has been performing based on its profit/ loss statement, balance sheet, and cash flow statement.
And also to understand how the company will be utilizing the funds it raises.
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Disposing stock when prices falling
Common practice among most of the investors to dispose of their stock when the prices start to fall. This may lead to a lot of loss.
For example, when Satyam shares began to fall, many investors sold the shares they held. Some of them held on to it instead of selling them instead they bought more shares at a lower price.
This is why they cut their losses when Mahindra took over Satyam. On the other hand, the investors who sold their shares ended up with a huge loss.
So it is important to understand how the fundamentals of a company are. Maybe the price fall is only for a short time because of some macroeconomic factor or because of some negative news about the company. That does not mean that company will perform bad in future.
If fundamentals of the company are strong, you should hold on to the stock even though prices might be falling.
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Investing in short-term
In the overall investment traders face liquidity problems more as compared to investors. The time period of an investment differentiates a trader from an investor.
Traders depend on the momentum of the market whereas investors depend on many factors such as market trend, company background and their portfolio. It is always possible to earn more profit in the long term rather than the short term.
Conclusion
There is much more to know in the finance world. In this world, Rich men know some facts that far away from a normal person. As the value of money increasing day by day, so you need investment.
However, it is important to understand the need and purpose of investing money, it different for all. But at this time knows more about all possible hidden financial facts, it’s important to keep it simple. Don’t overthink it, that’s where you get into trouble.
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