The value investor and philosopher Warren Buffett is arguably the greatest stock investor globally. He whittles down his investment ideas into straight edges that have become rules to be followed by many investors. Nobody can beat the market every time, but such rules help you know when to pull the plug to avoid hefty losses.
Buffet Rule – Never Lose Money – What Does it Mean?
One of the prominent principles from the legend is ‘Never Lose Your Money In The Stock Market’. This principle does not suggest that investors can not ever lose money. But it underlines the importance of capital preservation above all other priorities when investing.
The rule says that stock market investors’ number one priority should be not losing money. In other words, you should have a mindset of saving your capital and focus on reducing losses rather than chasing profits. It will help you to survive long in the stock market.
Capital preservation is inevitable to achieve the goal of wealth creation in the long run. You need to know when and how to cut your losses. Avoid throwing money to balance out your trades after losing money.
Minimised Losses To Follow the Rule
Following a few approaches, a sensible investor can save their capital and refrain from heavy losses. Investors should cultivate some strategies to minimize their losses when making investment decisions. Cutting losses means rescuing yourself from high-loss possibilities. Here are a few of those cutting loss techniques:
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Invest in businesses you understand fully
It is a fact that risk in the stock market also comes when you do not know what you are doing. Investors should always invest their capital in businesses that they understand well.
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Plan your trades
You should know that only a planned trade can go well. You should buy or sell financial securities based on quantitative factors as there should be no place for emotions.
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No Overtrading
Whenever stock traders meet losses, they tempt to trade more, hoping to recover the losses, but it may be the wrong step due to lack of research. It may end up with a slippery slope toward more losses. You should not forget that the stock market is an empire of opportunities for individuals with patience.
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Focus More on Risk Involved than High Return Potential
Stock market investments share profits and risks equally. You need to manage the risks before enjoying returns. If you are an investor with a low-risk profile, you should exit from the position at the set target or current profits, no matter how high the stock is expected. It exposes you to the market risk involved in the trade.
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Keep track of your Trades to Avoid the Same Mistakes that Lead to Losses.
Understand your missteps that pushed your trade in the wrong direction. It may be that you took a position too early or entered too late. It is necessary to analyze your trading mistakes to avoid further losses.
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Hold Your Investments For Long Term
If your investing goals allow, investors should choose a long time frame to get the most of their investments. Long-term investment can reduce the losses involved in the stock market more efficiently and offer greater returns over time.
Thus, open demat account along with your trading account to start your investing journey following these golden rules.
Prioritise capital preservation in all investment decisions. Investing can easily be influenced by emotions, and specific rules can save you from unnecessary emotions of greed or fear. Your portfolios should be based on an investment strategy. Pave out your investing goals with golden rules from experienced investors. It will help you strategize your investing or trading.
How to open Demat Account Online
Opening a demat account is an easy online process with a discount stock broker. You can open a demat account following a 100% digital process.
- Visit the official website of the selected discount broker’s official website.
- Select the subscription-based brokerage plan and apply for a free demat account.
- Access the online form. Input personal details. Upload copies of your PAN card and KYC documents and submit your application.
The broker will activate your demat account after the successful verification of your identity and documents.