Churn less to earn more! 3 mantras to create wealth in rising bull market

Updated : April 02, 2021 01:48 PM 

In this decade, equity markets have given us an opportunity to enter and create wealth, unlike other popular avenues like real estate (a big burden on the working class) and gold (it has given moderate to high single-digit returns over many years). However, to make trading work for an investor, there are some things one must know. There are three important skills for making one's money work in the stock markets:

• Knowledge
• Money
• Patience

Simply put (KMP theory gives you a balance as follows):

• Have the right set of knowledge to enter the Equity market.
• Invest your money when the valuation is cheap.
• Have the patience to hold on to your stocks till the story gets over.

Fear and greed are your friends in the equity market, if you know how to use them. If you are a trader in this market you will surely not make money, you may make 10 percent in one to two months from your capital invested if you do intraday and short term trading and this also comes with the risk of burning your capital if stop loss is not set or if you have borrowed to invest in this market. Trading also creates a lot of anxiety and confusion if your strategy goes wrong and for most working individuals trading and office/family work is the perfect combination for a “planned disaster”.

How many times you must have planned not to take a trade but ended up trading more than your allocated capital.

How many times you traded and added stocks which were not planned to be part of your portfolio, only because your brain told you to not book losses.

How many times you SOLD and tried to time the market to buy at lower levels, but it backfired, and you could not carry forward your position.

How many times you traded and took a break only to find that markets corrected suddenly, and all your positions got squared off and you made losses= profit earned in the last few days (sometimes losses = profit earned in many months).

The moral of the story:

Trading is for unsettled people; investment is for people who would like to live a royal lifestyle.

Let me tell you how.

Take an instance of one of the weekdays, when you placed a trade and the stock ran up two percent and you booked your profits, your chest must be swelling in pride that day and if you were lucky you would have bought and sold the same counter (out of experience) to make another two percent, so assume your investment capital was 1 lakh and you made 4000 in just an hour's time.

Later, you switched your focus to more stocks during the day, made some money in some counters, lost in some and ended your day. After some days you check the same stock and are surprised to see that it has jumped up 15 percent or as little as 10 percent from the day you traded in the stock. However, you lost out on the extra six percent profit. Such is the dilemma of a trader and post-trade dissonance gives a regretful feeling and here is why it is recommended you become an investor in a rising bull market. Remember even a falling bull market or markets witnessing policy paralyses may not perform and investors may shift to cash or other avenues but this article is aimed at a typical bull market where investors earn from the growing economy.

A rising bull market gives you wings to perform if you stay invested and not jump from one stock to another just because you got a tip, your friend asked you to buy a new stock, a new IPO bloomed in front of you, herd mentality took a toll on your decision making