Influential psychologist B.F. Skinner had written that “Education is what survives when what has been learnt has been forgotten”.
We may not recall the details of all the lessons that were taught in school. Yet, there are certain aspects of our education which we don’t ever forget. This includes guidance imparted by certain teachers regarding critical life experiences that are often recollected and cherished. These teachers always emphasized on following certain rules which would not only help us out while we were students but would also make a difference when we grew up.
For traders and investors, stock market is nothing short of a teacher. Most traders and investors may not recall their everyday journey, but they would certainly remember key instances when they gained insights from the stock market’s behaviour.
Earlier, we had written about being your own guru in the world of investing as well as about Guru Purnima. Today, since it is September 5, this article will discuss the important lessons stock markets teach us:
1. Be disciplined – Do you remember when teachers and the principal harped about being disciplined? Invariably, the students who were discipline while preparing for academics and extracurriculars performed better than the others. If there is an arena where discipline is paramount, it is that of being in the stock markets.
One may argue that greed and hope end up destroying many investing and trading careers. That’s because investors and traders may not book profits when the target is achieved and there aren’t any further fundamentals to support the existing price. Greed causes investors to stick to notional profits. While trading, the hope of seeing one’s hypothesis being proven right results in ignoring stop loss. That sometimes pushes one’s investment all the way down.
However, by obsessively following rules such as selling off as soon as either the target price or stop loss have been achieved, a trader ends up gaining actual profits.
2. Do your homework and keep learning – The ones who would regularly complete their homework would also be better prepared for exams. Traders and investors must research in detail about the companies they wish to trade or invest in. For example, during a downturn, the stock market is ruthless when it comes to punishing debt-laden companies. If one has purchased shares of such companies on the basis of tips, then one has to be prepared to suffer losses.
Now-a-days, lack of resources for getting credible information cannot be an excuse. For instance, the Knowledge Bank offered by Kotak Securities has a section called Meaningful Minutes which can be used for educating oneself. Fundamental and Technical calls are given by the Research Team Kotak Securities which can augment your investing and trading journey.
3. An opportunity will always be around the corner – If you missed a spot in the school cricket team or weren't selected for the annual drama competition, the world would seem to be crashing down. Yet, a friendly teacher would tell you that you can always try again. Similarly, the stock market always gives you second chances. You need not grieve over losing the opportunity to score a multibagger. There will always be opportunities to purchase prospective double-digit return shares.
4. Spread out your risks – Even the best students aren’t good in all the subjects. Therefore, examinations were all about scoring well in subjects that one was good at and managing average scores in subjects which weren’t one’s forte. Similarly, the stock market teaches you to not concentrate on only a few stocks and instead diversify your holdings. That’s because buying different stocks generally helps reduce the risk factor as you can always rely on other stocks if one company stock tanks.
5. This too shall pass – Remember being on top of the world when you would get good grades? Or wish that the earth would open up and swallow you while being reprimanded by the class teacher in front of your entire class? Academic life had its ups and downs. However, an avuncular professor would always remind you that both good and bad times don’t last forever. Similarly markets have their phases of exuberance and gloom. Smart traders and serious investors take both these phases with a pinch of salt. One always keeps cash anticipating bad times and books profits when markets are over heated.
It is easier said than done to implement these learnings when one is actually confronted with the need to do so. For a successful outcome, the onus is also on the trader or investor to put, what the stock market has taught, into practice consistently.
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