Many novice stock market investors make mistakes early on. Most beginners have little or no idea of their target territory and direction of movement. If you’re considering investing in the stock market, make sure you understand your own emotional stability, risk tolerance, and basic goals before you even start considering an investment. Many newbies quickly liquidated because they invest in stocks that clearly exceed their financial profile.
Understanding your investment profile is the first important lesson every novice investor should learn. With the right information, many common pitfalls can be avoided. Given the current situation, some of the most common types of inventory are explained below:
High risk high return
If you are a cautious investor, stay away from these stocks! If things go as planned, you will enjoy healthy margins. Otherwise, you will end up losing large sums of money. Abrupt changes in government policies or economic conditions can lead to devastating results. Amazon, for example, has been advancing on a path that has been well traced and defined for several years. The visionaries who run such companies pay little attention to stock market movements that last for short intervals. That’s why we talk about high-risk, high-return stocks.
Low risk High return
Everyone aspires to invest in these stocks and not everyone should! These low-risk, high-return stocks typically trade at very high market valuations. You can expect to find such stocks every day. Only experienced investors can spot them before the market starts showing clear signs. For example, few people picked Induslnd Bank in 2009 when it was trading well below 35! In most cases, a stock market crash creates a multitude of such opportunities. However, inexperienced investors rely on prevailing market sentiment and lose the opportunity to invest in low-risk, high-return stocks.
Low risk Moderate return
These stocks are suitable for conservative investors. Even in the event of a brutal crash, these stocks will continue to protect portfolios.
Low risk – high return
In a crazy bear market, a large number of stocks are of the low-risk, high-reward type. Seasoned investors do not wait for the “must buy” signal in such cases.
High risk Low return
In a crazy bull market, nine out of ten stocks are the high-risk, low-return type. Most investors in the market end up acting based on prevailing market sentiment.
Moderate risk Moderate return
On a typical day, the majority of stocks are of the moderate risk, moderate reward type. A prudent investor is advised to use SIP methods. Investing in the stock market all at once is not very wise.
An investor must have a clear idea of what he is doing. Making investments based on a tip or two from someone is not advisable. Good research is always a plus.