The best ways to earn money in the stock market

The best ways to earn money in the stock market

There are a ton of different investment options: all types of stocks, bank debt, corp debt, high yield debt, private debt, consumer debt (think Lending Club and Prosper), commercial real estate financing, public real estate, private real estate, oil and gas, franchises, angel investing, venture capital, hedge funds, private equity funds, commodities, gold coins, BitCoins, other people’s private companies, and starting your own company. Each one of these has rabid proponents who believe it is the best way to make money.

Share market is a positive sum game. Overall market capitalization grows, and companies make profit. So if you have a diversified portfolio and you are invested for a long period of time, chances are high that you will make money. Few tips from me to the beginners.

1. Think Rationally: Don’t assume that if you spend one hour a day seeing indices, seeing company results, forecasts, you will become master in investing. If you think that you have invested in a company which is at 52 months low, and you are pretty sure that you will double your money in six months, you are inviting a big trouble for yourself. Things are not as obvious like this in share market. It is extremely extremely complex.
2. Understand the difference between Share market and Gambling : Share market is not a place for gambling. Use it for investment, not for multiplying your money. As a famous quote goes “Bulls make money, Bears make money, Pigs get slaughtered. “ Don’t be greedy .
3. Define a limit : Based on your age and responsibilities, fix a monthly limit beyond which you will never invest in equities.
4. Invest small, Invest Early and Invest Regularly : The final amount A= P(1+r)^t , the most important factor here is “t”. So instead of maximizing P, or hoping “r”to be more, its better to have more time. It is the easiest thing for you to control.
   For instance : if you invest 5000 now, and after 2 months, it becomes 7000 and you withdrew it. And after this you become dormant. In this case, you don’t get the benefit of 40% return, you just get 2000 rupees profit, which is not going to buy you anything big. It will be spent somewhere. Instead of this, invest 5000 per month continuously for 2–3 years. And take the money when you really need it. You will then realize the beauty of “long term investment”. You may get a handsome amount of money, maybe even 5 lakhs or more ( After 5 years ). You can buy your first car with this :)
5. Diversification: Invest in as many sectors as you can. IT, Pharma, Automobile, Oil & Gas . Apart from equities, also invest in Debt instruments like PPF, Fixed deposit, in gold, in land, in Insurance products . In the long run it will benefit you.