Many novice stock market investors make mistakes in the beginning. Most beginners have little or no idea of their target area and direction of movement. If you are planning to invest in the stock market, make sure you understand your own emotional stability, risk tolerance and fundamental goals before you start considering investing. Too many newbies get fired quickly because they invest in stocks that are clearly beyond their financial profile.
Understanding one’s investment profile is the first important lesson that every novice investor must learn. With the right information it is possible to avoid a great number of common pitfalls. Keeping in view the current situation, some of the most common stock types are explained below:
high risk high return
Stay away from these stocks if you are a conservative investor! If things go as per your expectation, you will enjoy good margins. If not, you will lose big money. Sudden changes in government policies or economic conditions can have disastrous consequences. For example Amazon is moving on a clear path that has been defined for many years to come. The visionaries leading such companies pay little attention to stock market movements that occur over short intervals. That’s why it is known as high risk and high return stock.
low risk high return
Everyone wants to invest in these stocks and everyone shouldn’t! These low risk and high return stocks usually trade at really high valuations in the market. You can expect to find such stocks every day. Only experienced investors can see them before the market exhibits obvious signals. For example, not many people chose IndusInd Bank in the year 2009 when it was trading below 35! In most of the cases, stock market crash creates many such opportunities. However, inexperienced investors go by the dominant market sentiment and lose the opportunity to invest in high return stocks with low risk.
low risk moderate return
These stocks are fine for conservative investors. Such stocks will keep the portfolio safe even in case of a sudden fall.
Low Risk – High Return
In a crazy bear market, the vast majority of stocks are of the low risk and high return type. Experienced investors do not wait for ‘must buy’ signals 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 of the investors in the market act according to the prevailing market sentiments.
Moderate Risk Moderate Return
On a normal day, most of the stocks are of medium-risk and medium-return type. For a conservative investor it is advisable to use SIP methods. It is not very wise to invest in the stock market in one go.
An investor should have a clear idea of what he is doing. It is not advisable to invest based on a tip or two from someone. Proper research is always a plus..
