Riding on the bull market run prompted by investors’ sentiments has helped many to garner easy returns. What many fail to realize is that entering a trade is easy though it may not be financially viable to sustain it always. In most cases, there is the intent but the lack of much-needed financial education that mars the chances of benefiting from stock market movement. In most cases, stock investors rely on speculation instead of well-considered research based on rigorous assessment and careful analysis. The stock market works by a set of rules, though they are not paid heed to by most people, especially, the new investors.
Do’s of Stock Market Investing
It is not enough to revel in the stock market earnings. Learn how to analyze the fundamentals of the companies listed in the market. Undo any tendency to rely on unwarranted guesswork before buying or selling shares. Making conjectures about the next possible share market movement while parking your earnings in it will only spell doom. You can get lucky once or twice, but not always. The first step is to start learning the market. Enroll in a degree course or program to learn stocks’ fundamentals including cash flow, return on assets, profitability, quality of capital management, and more to gauge the soundness of the companies you are investing in.
Experience matters, so it is okay if you are not earning from your first day or week in the market. Better if you hire the services of experienced brokerage firms that avail the correct information regarding the right sectors and stocks along with advice regarding options, exchange-traded funds, sovereign bonds, and more.
Do not put all your earnings and savings in one go. Start by investing small amounts in the stock market. Beginners must start by investing the smallest possible amount and then gradually increase the investment as they gain more knowledge and confidence.
You must not underestimate the significance of investing early in life. You get the benefit of staying invested for a prolonged period as you earn both dividends and income from capital growth. Moreover, you get more time to recover from your losses during the early years of your investment journey.
Many investors complain, “I invested in this stock based on tips, but know anything about the company’s business.” The market wobbles, the share prices go down a bit and investors tremble. This is due to a lack of proper planning and improper research about the fundamentals of the companies they had invested in. Check the company’s business details, financial statements, ratios, management, and more before deciding whether its shares are worth your money and time.
The stock market belongs to all, yet it favours none in particular. The risks involved in stock investments are myriad with no option of guaranteed returns. The prolonged bearish nature of the market turns many investors restless and pessimistic, thus, explaining the need for them to invest money that lies in surplus instead of putting down their savings in the market.
It is rarely possible to buy a stock at its bare minimum price and sell it at its highest selling point. Timing the market is not possible, which means that you cannot be sure if the stock you are paying for today would be available at what price the next day or during your next buying session. This explains why you must not buy or sell at one go. Averaging the same by buying or selling stocks in lots will open you to lower buying and higher selling prices while availing more money for investments.
Have an investment goal and plan in mind before stepping into the market. Decide your stocks depending on whether you wish to accumulate a huge corpus within the next 10 years or want to create a retirement fund. Some stocks are evergreen, so you can buy them in small lots during dips to create a valued legacy. Besides, with regular dividends and sporadic returns on the shares, the motivation is high, thus, setting the much-needed pace for the growth of your investments. Setting a financial goal will encourage you to review your planning and decide on a sound and prolonged capital strategy accordingly.
Diversifying across sectors and stocks will reduce the risk inherent to fluctuations in stock market movement. The loss from one or two stocks is largely balanced by gains in other stocks. Out of a portfolio of 10 stocks chosen carefully, chances are that two of those stocks may take a beating owing to unforeseen market situations. However, this will not affect the portfolio much if it is diversified properly across sectors, stocks, and themes.
More than capital appreciation, the focus must be on capital preservation. More than meticulous planning, you must exercise discipline while investing in stocks.
Don’ts of Stock Market Investing
The expectations from the stock market are huge. More so as many investors are of the notion that high investments beget more gains. This explains why many people commit the blunder of investing a huge amount into a single trade or spend too much on buying a particular stock. The rule of thumb says, “Never invest more than one percent of the total capital into a single trade.”
Many people dream of earning huge profits from the stock market without realizing how trading and investments necessitate discipline and being heedful of volatility. Not realizing possible outcomes or stock market movement in the future, many investors attempt averaging down the investments made. This causes them to hold to their stocks for an extended period. The inability to book profits whenever possible has caused many investors to lose capital and book unwanted losses. There is a need to have a financial goal in mind so that you may make proper calculations to hedge yourself from maximum losses.
As irrational as it may sound, handling the volatility of the stock market is a skill that can be gained through learning, experience, and persistence. You must treat the stock market just like any other business instead of wagering your money as in a gamble. The expectations must be realistic, so you must have proper strategies in place like deciding what to buy and when. Affinity to a particular stock must not translate to unwarranted loyalty, which means that you must be ready to get rid of stock when required.