Stock Market - Are you a carefree investor?

Being carefree in stock market? No, This article is not about index investing or some diversification concept. Yes, Its about stock picking carefree.

Carefree means "Free from anxiety" and you can be free from anxiety by being ahead of the game in investing as well. The whole idea of investing has to be looked from a different angle and has to be processed as to where you stand financially. My earlier article goes through an overview to assess your situation as to where you stand.

Your behavior in Stock Market matters -

Being carefree in investing would come from a set of prerequisite step that you should have achieved before you begin investing. You personal financial situation will determine if you can be carefree investor. Purchasing and selling a stock these days have become very easy and its like being in a casino with some chips. Stock market is in your fingertips and there are hardly any restrictions to stop investors from making foolish bets to get rich quick.

I think investing is stock market is good for returns if done right as you are buying a piece of capitalism. I am sure you might be eager to jump in and put money to work. But here is the catch if you are not financially ready, your behavior will be skewed. Controlling your behavior is the most important aspect in enhancing your returns from the Stock market. If you are not in a carefree state of mind or financially stable, you are bound to make mistakes. The more you avoid making behavioral mistakes the more better investor you would become.

Are you ready to be Carefree Stock Market Investor?

So here are the items that should be in place before you get in investing to be a carefree investor:

1. You should have no debts -

   1. No car loans

   2. No personal loans

   3. No credit card loans

   4. No major expense in the near future

   5. preferably no home loans

2. You should have 6 months of your savings in a liquid account.

3. You should a have a stable recurring income and the ability to grow more.

Well, I am sure you must be thinking of investing in stocks and making a quick return to pay your debts sooner. There is nothing wrong with the idea but the only problem is your ability to hold on to a stock will be tested when it falls 20% or 30%, or even worse 50% or low. And if you have debts to pay and your capital is going down its very difficult to be able to stomach the correction. If fear takes over you eventually might end up selling for a loss to avoid more losses. Your impatience will result in a loss. As warren says :The stock market is a device for transferring money from the impatient to the patient. And you must be prepared to avoid situations where you forced to sell.

You will notice a huge change in the way you behave if you have your finances in order. The costly behavioral mistakes can be avoided. And in fact you might be in a position where you will be able to make use of opportunity where you find quality companies at cheap valuations.

A wonderful example:

After a great quater of Amazon, the stock price shot up and someone in the hallway told the largest investor of Amazon (Mr Jeff Bezos) -- "Congratulations". He replied - This result has nothing to do with what we did this quater and its the result of the investment we made 3 years back. I mean look at the mindset of a true genius, he isn't looking at the stock price but rather is carefree to invest and reinvest in the growth of the business and over time is confident it will pay off - In fact he is 3 years ahead. You should be free from near term pressure in order to develop such a mindset. Hence we should strive to be in a position which can help us minimize our behavioral mistakes and execute our strategies carefree.

Conclusion:

Having no debt and good savings will make you powerful as your income being invested for greater returns in future and not near term expenses. It will help you stomach any volatility with ease. You would fall under being carefree as you are not owning businesses for short term but for long term.