10 Golden Rules of investing in Stock Market | Kotak Securities (2024)

Buying and selling stocks in the share market (share market) is such a simple activity that almost anyone can do it. But it is not everyone’s cup of to turn a profit. Turning a profit requires patience, discipline and research.

Buffett’s two rules of investing are simple to understand at the outset but the profound depth of its meaning is realized after many years of investing and trading. Till you reach that stage, the behaviour of markets would have left you confused about how to avoid losing money. In this article, we break it down for you through 10 golden rules.

Though there is no sure-shot formula to success, these rules will ensure that you have a high probability of booking profits in the long run.

1. Don’t follow the crowd

Remember school and college days when you would go for specific tuition classes just because your seniors had recommended it and all your friends were going there. This is a strategy that can backfire big time when it comes to investing in stocks. Do not buy a stock just because a lot of “influencers” are doing so. As Buffett put it: “try to be fearful when others are greedy and greedy only when others are fearful”. Therefore it is important to conduct your own research. Conducting both fundamental and technical analysis along with scuttlebutt are critical before choosing to invest in stocks.

2. Take informed decision

Whether you decide to invest, sell or hold - always make sure that you know why you are taking the decision. Conduct proper research to ensure that your decisions are reasonable. Your investment decisions must be data-driven and not sentiment- or reputation-driven. Ensure that you are able to make a log of all your decisions which can be written down in a diary or saved in an Excel file. Revisiting these notes throughout your investing journey would help you evolve into a better investor.

3. Invest only in business that you understand

Remember that you are not investing in a stock, but in the business that stands behind it. When you choose to invest in a company, you must know how they make money, what their strengths are and what are the risks that they face. If you don’t - let go of the opportunity. Buffett had an opportunity to invest in Google before they came out with an IPO , and he let it pass. He had a good reason: he did not understand how the search engine would make money. Did the decision cost him profits he could have made? Yes! But remember that this strategy has also saved him from a far greater loss over the decades. This rule applies to all your investment decisions - for example, if you don’t understand how bitcoins work, stay away from them.

4. Don’t try to time the market

You should have a good idea on what the right valuation and price level for a stock is. But you should never try to time when the market will value it correctly. No one can do that - it is impossible to predict when a shares hit the absolute bottom or top. No one has managed to do this successfully over multiple market cycles.

5. Be disciplined

Once you have developed an investment strategy and identified companies worth investing in, stick to it. Once you have decided on a target price and a stop-loss - stick to it. Once you have decided on how much to invest, and at what pace - follow the plan religiously. When it is your money on the line, the market volatility will set your emotions racing, it will be difficult to stick to your plan in the heat of the moment - but trust the decisions you had made with a calm mind. As the saying goes - get out of the kitchen if you can’t stand the heat.

6. Tame your emotions

“If you cannot control your emotions, you cannot control your money.” You would hear the stories of very successful investors, and you will hear of the bear ruining someone else. This will set your heart racing and make you worry about your own investments. When you are watching the share market live (share market live), you will experience a rush. Don’t take any decision when you are emotionally disturbed. Let the emotional turmoil pass and then judge based on data you have.

7. Diversify your portfolio

Among the most important ways of keeping the overall risk under control is diversification. Diversify both in terms of assets and instruments. Remember the adage: don’t put all your eggs in a single basket.

8. Be objective

While you can hope for the best, all your decisions have to be based on an objective evaluation of the investment opportunities presented to you. All your plans should be based on realistic expectations of returns, and not the best case scenario

9. Invest only the surplus

Remember that the markets can be ruthless and take away every paisa you invest in it. So, you should only invest what you can afford to lose. Make sure you have sufficient low-risk investments before taking on anything with considerable risk.

10. Track your investments

We are living in times where disruptions to financial markets travel across the globe at great speed. Monitor the markets and analyse the impact on your portfolio regularly. What was once considered “safe” may not be safe anymore and you may need to rebalance your portfolio.

Play by these golden rules, and you are sure to beat inflation handsomely. See you at the markets!

Also Read:

Should Senior Citizens Invest in the stock market?

Here are steps to file income tax returns online

Why some stocks are more influential?

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10 Golden Rules of investing in Stock Market | Kotak Securities (2024)


What are the 10 golden rules of stock market? ›

Some essential rules of stock investment you should know are: understand the market, diversify investments, make small investments initially, invest for the long haul, avoid timing the market, do not follow the herd mentality, ask for expert help when needed, keep a check on rumours, and do not invest borrowed money.

What is the 10 rule in investing? ›

It suggests that 10% of your portfolio should be allocated to high-risk, high-reward investments, 5% to medium-risk investments, and 3% to low-risk investments. By following this rule, you can spread your investment risk across different asset classes and investment types, such as stocks, bonds, real estate, and cash.

What are the golden rules of investing? ›

The golden rules of investing
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  • Set your investment expectations. ...
  • Understand your investment. ...
  • Diversify. ...
  • Take a long-term view. ...
  • Keep on top of your investments.

What is Warren Buffett's golden rule? ›

"Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."- Warren Buffet.

What is the 10 am rule in stocks? ›

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

What is the 10 stock ownership rule? ›

(B) 10-Percent shareholder The term “10-percent shareholder” means— (i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii) in the case of an obligation issued by a ...

How does the 10 rule work? ›

Lesson Summary. The 10% Rule means that when energy is passed in an ecosystem from one trophic level to the next, only ten percent of the energy will be passed on. An energy pyramid shows the feeding levels of organisms in an ecosystem and gives a visual representation of energy loss at each level.

What is Warren Buffett's 90/10 rule? ›

Warren Buffet's 2013 letter explains the 90/10 rule—put 90% of assets in S&P 500 index funds and the other 10% in short-term government bonds.

What is the 10X investment rule? ›

At its core, the 10X rule mandates that one should set targets that are 10 times what they initially thought achievable and then expend 10 times the effort to reach those targets. Origins: Stemming from the business world, its applicability has transcended sectors, with real estate being a primary beneficiary.

What is the number 1 rule investing? ›

Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.

What is the golden rule of stock? ›

2.1 First Golden Rule: 'Buy what's worth owning forever'

This rule tells you that when you are selecting which stock to buy, you should think as if you will co-own the company forever.

What are Warren Buffett's 5 rules of investing? ›

Here's Buffett's take on the five basic rules of investing.
  • Never lose money. ...
  • Never invest in businesses you cannot understand. ...
  • Our favorite holding period is forever. ...
  • Never invest with borrowed money. ...
  • Be fearful when others are greedy.
Jan 11, 2023

What is the Warren Buffett 70/30 rule? ›

A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.

How to stay poor by Warren Buffett? ›

Warren Buffett: 12 Things Poor People Squander Money On
  1. Neglecting Personal Development. ...
  2. Relying On Credit Cards. ...
  3. Frequenting Bars and Pubs. ...
  4. Chasing the Latest Technology. ...
  5. Overspending on Clothes. ...
  6. Buying New Cars. ...
  7. Unused Gym Memberships. ...
  8. Unnecessary Subscription Services.
Apr 22, 2024

What are Warren Buffett's 10 rules? ›

Warren Buffett's ten rules for success and how we can apply them to our lives
  • Reinvest Your Profits. ...
  • Be Willing to Be Different. ...
  • Never Suck Your Thumb. ...
  • Spell Out the Deal Before You Start. ...
  • Watch Small Expenses. ...
  • Limit What You Borrow. ...
  • Be Persistent. ...
  • Know When to Quit.
Dec 28, 2023

What is No 1 rule of trading? ›

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.

What is the 90% rule in stocks? ›

Key Takeaways

The 90/10 strategy calls for allocating 90% of your investment capital to low-cost S&P 500 index funds and the remaining 10% to short-term government bonds. Warren Buffett described the strategy in a 2013 letter to his company's shareholders.

What is the 20 rule in stocks? ›

In other words, the Rule of 20 suggests that markets may be fairly valued when the sum of the P/E ratio and the inflation rate equals 20. The stock market is deemed to be undervalued when the sum is below 20 and overvalued when the sum is above 20.


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