Stocks are considered to be a high-risk investment.
Naturally, because by investing in equity, you are open to the risk of losing your entire capital.
But what if I tell you that
a) most people do not understand the "true nature" of the risk involved, and
b) more importantly, you can quite easily eliminate even this "inherent" risk in stocks.
Interested? So let's get cracking...
Step 1
What will happen if you crash your car into a wall, driving at 5 km/hr? Well... you may end-up with a few bruises and cuts.
But, what if your speed was 20 km/hr? Apart from the cuts, you may have a few broken bones too. But you will probably survive.
And if you crash at 60 km/hr? I guess you may not live to tell the tale.
As you will appreciate, the risk is not in the "car" you are driving, but in the "speed" at which you are going.
What will happen if you buy an Infosys stock for Rs.100? Well... you will surely make huge profits.
But, what if you purchased it at the current market price of Rs.2200? You may either make some money or lose some money.
And if you buy it at Rs.5000? I guess you can forget your investment. Its gone down the drain.
As you will appreciate, the risk is not in the "share" you are buying, but in the "price" at which you make the purchase.
[Needless to mention, you have to have a good car (good share). Bad car (bad share) will not protect you even at low speeds (low prices). I had already explained this concept last week in my blog 'When buying stocks this blunder is the biggest of them all.']
Step 2
Ok, you have a "good" car and are cruising along at "safe" speeds.
But, you fail to stop at the red light! Bang!! A truck, coming from the right, hits you and blows you away, forever.
Now, where did the risk come from?
It came from the fact that you didn't follow the basic traffic rules.
Ok, you buy a "good" share and at a "huge discounted price" compared to its Value.
But, you make a huge lump sum investment for a few months! Bang!! A sudden downturn in the stock market sends your share crashing and you face massive losses.
Now, where did the risk come from?
It came from the fact that you didn't follow the basic rules of investing in shares.
[For example,
- you should have a diversified portfolio,
- the investment should be spread out over a period of time,
- no borrowed money should go into stocks, and
- your investment time horizon should be at least 5 to 7 years].
Concluding, I repeat
a) the risk is not in the stock, but in the price you pay
b) the risk is not in the stock, but in the rules that you don't follow.
So now you know where the actual risk in shares lie and how you can eliminate it, so as to lay a strong and stable foundation towards earning stupendous profits. In this regards, you would surely want to know 'What Warren Buffett asks before buying stocks'.
Best of luck...
Naturally, because by investing in equity, you are open to the risk of losing your entire capital.
But what if I tell you that
a) most people do not understand the "true nature" of the risk involved, and
b) more importantly, you can quite easily eliminate even this "inherent" risk in stocks.
Interested? So let's get cracking...
Step 1
What will happen if you crash your car into a wall, driving at 5 km/hr? Well... you may end-up with a few bruises and cuts.
But, what if your speed was 20 km/hr? Apart from the cuts, you may have a few broken bones too. But you will probably survive.
And if you crash at 60 km/hr? I guess you may not live to tell the tale.
As you will appreciate, the risk is not in the "car" you are driving, but in the "speed" at which you are going.
What will happen if you buy an Infosys stock for Rs.100? Well... you will surely make huge profits.
But, what if you purchased it at the current market price of Rs.2200? You may either make some money or lose some money.
And if you buy it at Rs.5000? I guess you can forget your investment. Its gone down the drain.
As you will appreciate, the risk is not in the "share" you are buying, but in the "price" at which you make the purchase.
[Needless to mention, you have to have a good car (good share). Bad car (bad share) will not protect you even at low speeds (low prices). I had already explained this concept last week in my blog 'When buying stocks this blunder is the biggest of them all.']
Step 2
Ok, you have a "good" car and are cruising along at "safe" speeds.
But, you fail to stop at the red light! Bang!! A truck, coming from the right, hits you and blows you away, forever.
Now, where did the risk come from?
It came from the fact that you didn't follow the basic traffic rules.
Ok, you buy a "good" share and at a "huge discounted price" compared to its Value.
But, you make a huge lump sum investment for a few months! Bang!! A sudden downturn in the stock market sends your share crashing and you face massive losses.
Now, where did the risk come from?
It came from the fact that you didn't follow the basic rules of investing in shares.
[For example,
- you should have a diversified portfolio,
- the investment should be spread out over a period of time,
- no borrowed money should go into stocks, and
- your investment time horizon should be at least 5 to 7 years].
Concluding, I repeat
a) the risk is not in the stock, but in the price you pay
b) the risk is not in the stock, but in the rules that you don't follow.
So now you know where the actual risk in shares lie and how you can eliminate it, so as to lay a strong and stable foundation towards earning stupendous profits. In this regards, you would surely want to know 'What Warren Buffett asks before buying stocks'.
Best of luck...
