People loose money when they try and time the stock markets.
Its a Common investor problem!. One say's "I bought shares of "XYZ Company" at $100 and immediately after I bought the stock price dropped to $80." I feel very sad. Another comes with a different version "I sold shares of "XYZ Company" at $80 and it went up to $100 same evening" I made an imaginary loss of $20 per share.
Solution for such scenarios:
1.Solution for the first scenario:
You can buy more shares of "XYZ Company" @ $80 and reduce your overall buying cost. This has to be done only if you believe in the fundamentals, management and the future prospects of the company.
To achieve this you need to keep money ready. Whatever money you have and wish to invest, split it into two parts. Then keep half of the cash aside, only invest with other half. So if need to buy more of any stock when the price falls you have cash available.
Also now if you have 100 shares of XYZ Company 100 @ $100 and 100 @ $80. Then the price goes up to $120. Sell only 100 of the shares. Then if the price further shoots up, you have some shares to sell And participate in the rally to make money and incase the price falls you have already booked some profit.
2.Solution for the second scenario 2:
Next You sold the share for XYZ Company and the price went up. The solution to this is never sell all the shares at one time. Sell only half of your shares you own of that company. So if the price goes up later you still have the other 50% to sell and make profit.
i.e If you have bought 200 shares of XYZ Company and you are going to the the shares at $80, sell only 100 shares and retain the balance 100 share so if the prices shoots further to $100 then you have the 100 shares remain to book profit.
The golden Rule is to first do your own analysis of the stock before investing than buy on "tips". Also invest only in companies which declare dividends every year. To be sure that you are not investing in loss making companies.
All Market experts advise to do your stock analysis before investing in the stock market. But nobody tells you how.
Well, in my next article I would write about how to do stock analysis using various tools such as financial ratios and by checking the track records of the companies you plan to invest in.
Jigar is a freelance writer and writes articles on Sensex and the Indian Stock Markets.