We often hear people say fancy quotes and phrases while talking about investing. Here is a list of those popular phrases and what they mean exactly:
1. Date your stocks, don’t marry them:
This is a popular term when it comes to stock market investing. This means when you buy a stock, you cannot commit to them forever. There will be a time when you need to sell it and detach yourself from it. This tip holds true for hot stocks particularly.
Whats a hot stock?
A newly issued stock that rapidly rises in price due to high demand. Google’s stock was a hot stock when it was first available to the public, due to the success of the company and its potential for future growth.
2. Don’t put all your eggs in one basket:
When it comes to investment decisions or any other decisions, it is wise not to put all efforts and resources in one place. You should diversify them. This means when you invest, spread your investments in different places. For e.g. Do not put all money in the stock markets. Invest some in FDs, some in real estate, some in bonds, some in gold etc. Tomorrow if your stock market investments fail then your other investments say in gold might be doing good. Secondly, even within an industry, you must diversify. For e.g. buy shares of different sectors like shares in the real estate sector, banking sector, agriculture sector etc. So if the banking sector is down then your other sectors might save you from losses.
3. Buy it, hold it, forget it:
It means you need to buy shares of a good company and keep them for a long time to make profits. Experts believe a buy-and-hold strategy is possible if one identifies companies that are fundamentally strong and have the potential for steady growth. Look for a good business, the presence of great management, and buy when valuations are reasonable. And, remember, you might find such good ideas only once a year or even once in two years. Read more about it here: Buy it, hold it, forget it?
This is warren buffet’s strategy and is slightly paradoxical to ‘date your stocks don’t marry them’. So the idea is to find a perfect balance between these two strategies.
4. We buy when the market falls:
This means buying shares when the markets are at a low i.e. prices of shares are low. However, you cannot just buy any shares when the markets are low, you must check the company basics before buying shares. For e.g., If the airline market is performing badly due to political reasons then shares of airline companies will drop in prices. But that doesn’t mean you can buy shares of any airline company. For instance, if you would buy shares of Kingfisher airlines at such a time, it would be risky because this company wasn’t performing well individually as well.
5. I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful:
Warren Buffet quoted this and it means that you must be prepared to invest when markets are down and get out when they are high.
6. The fund took a haircut:
When the borrower of a bond defaults on its payments then the value of a mutual fund that has invested in that bond reduces. This reduction is called a haircut. It is expressed as a percentage. For example, if a mutual fund holding a particular government bond – is worth €1 million but is given a haircut of 20%, it means it is treated as though it has a value of only €0.8 million.
If you know any such phrases in finance and don’t understand them, comment and let us know.