Investment Tips : Most people who invest in the stock market feel that their luck is very bad. As soon as they buy a stock, the price starts falling. It seems as if the stock market is targeting us and is there to give us a loss! Do you also feel the same? If yes, then this article will open your eyes. You will know why this happens?
Those who invest in the stock market should first understand how the market works. Who are the people who run it? Who invests so much money that the stock market fluctuates by lakhs of crores of rupees every day? The simple answer to this is that the people who run the stock market are not retail investors like you and me. Then who are they? Actually, the stock market includes big investors (foreign institutional investors (FIIs), domestic institutional investors (DIIs), and individuals with big money) as well as retail or small investors.
The biggest difference between these two types of investors is money. A retail investor comes to the stock market with a few thousand to a few lakh rupees, while institutional investors have a money bank of lakhs and crores of rupees. This is called smart money and this smart money actually runs the market.
Is this how the real game is played?
Big investors have access to inside information about companies, more research and better analysis. They have a big team for all this work, which gets a hefty salary. When a stock has fallen, big investors start investing money from there. Slowly the share price starts coming up. After this, second level big investors (who have a few crores of rupees) start investing their money. They also have better analysis.
After these two invest, the stock goes up a lot. Discussions start happening on TV channels and newspapers. This is the time when retail or small investors get to know about that stock. Due to the discussion, the same stock starts attracting small investors as well. This is the time when small investors invest. They think that this stock will now rocket. As retail traders buy the stock, the price starts going up further.
cycle of demand and supply
A trader on Quora has given this detail in response to this question. This financial analyst named Jay Hauer says that by the time the retail trader invests, the price has already gone up. After this, those (big investors) who have bought the stock from the lower level, start seeing good profits. From here they start booking profits. As they take out their profit from the stock, the price of the share starts falling.
They have such a large amount of shares that retail investors cannot absorb their supply and the price keeps falling. The rule of demand and supply also applies here. When the supply (sellers) is more at lower prices, then there are fewer buyers. Only big institutional investors absorb this supply. After that when the market goes up, the demand starts increasing, after absorbing the entire demand, the same big investors start supplying i.e. start selling. This cycle continues like this.
So what should small investors do?
If you are a small investor then some things can save you from this vicious circle. To earn money in the stock market, you have to follow some rules. These rules are as follows-
- Don’t buy shares due to FOMO: FOMO means Fear of Missing Out. When a stock is in news, small investors feel that they should invest money quickly, lest it becomes too late. There is never a delay in the stock market. You should invest money slowly by keeping FOMO out of your mind.
- It is important to have patience: Once you have invested, you should sit with peace of mind. You should forget about it for 2-3 years. If you are affected by the rise and fall of the stock overnight, you will not make money.
- Invest only the money that is in the buffer: You should invest only the money that you have in the buffer in the stock market. Money that you are not going to need in the near future. You should never invest money by taking a loan.
- Sit for big profits: It usually happens that when small investors start seeing a little profit, they sell the shares and exit, whereas when losses start happening, they sit. Small investors should make it a point to sit when profits are running and exit at a small loss.
- Don’t fall for the tips: You should not trust such tips which are available every day and everywhere. If you do not have the knowledge of the stock market, then you should consult a certified investor before investing.
Tags: Business news, Investment tips, Share market, Stock market
FIRST PUBLISHED : February 12, 2024, 14:44 IST