Stock Market Investing – An Introduction
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Although I don’t say I am a professional stock market investor, I do spend quite a lot of time observing the market and researching the highs and lows of various companies. I’ve never really been into index funds or mutual funds as I would rather spend time studying individual companies. My line of work gives me a lot of time to satisfy my stock market obsession, so I understand that not everyone can spend the hours of needed research that is required to invest in individual stocks.
My obsession has allowed me to formulate my own set of principles, which are also universal investing tips that can be applied to all styles of investors. Ready? Ok, here we go! : )
There Are No Sure Things
As captivating as it may sound, don’t risk your hard-earned money on it. Extemporaneous buys are no different to gambling, so if you can afford to lose your money, purchasing just because a close friend says they’ve made tons of money from a certain company is no reason to run out and grab it. If the sure thing is actually a sure thing, it will continue to be a sure thing after a couple of weeks of extensive research.
Learn Before You Earn
The stock is actually a business, not just a symbol that goes up and down every day. You wouldn’t purchase a company without comprehensive research into what they sell, what services they provide, what are their earnings, and many other questions about the business. Warren Buffet, billionaire investor, philanthropist, and businessperson, never bought a company he didn’t understand. He made it a habit to avoid technology stocks as he knew nothing about the businesses behind it, which allowed him to miss both the tech bubble boom and bust.
Too Much, Too Little, Too Late
If a stock receives a lot of press attention and everyone from your local mailman to your dry cleaner buys into it, there’s a pretty good chance that the stock is highly inflated. What you should do instead is compare the company data to similar stocks in the same industry. If they don’t compare, move on with care. There’s a good chance the company is a solid stock in a long term, upward trend or it could also mean that a bunch of sheep are reacting to all the hype. The main point is to calculate which stock is the superior that deserves the premium price and which is the inferior that will drop in half.
Learn From Your Mistakes
Nobody wants to admit when they’re wrong, but even the best make mistakes. Praying for your stock to grow, while it keeps losing value, quarter after quarter, year after year, is a sad state of affairs. There’s always a minority of companies that will always underachieve. Burned those bridges and put your money into something that actually has some hope of making a profit.
Seek Professional Advice
Even if you have a lot of downtime to study the market and investing in stocks, it’s much more advisable to seek professional help before any extravagant financial decisions. There are also several liabilities and tax implications of individual investors that make it wiser to invest in other assets or pay off debt. Only if you’re absolutely sure that stock market investing is the right thing for you, it’s still advisable to seek professional advice.
With the amount of financial data on the Internet right now, and several online brokers being so easy to use, there has been a monumental growth in individual investors entering the market for the very first time. Remember, never feel that you have to buy stock right away. Being impatient will more likely hurt you than reward you. Know the stock, know the business, and know the industry before thinking about logging into your brokerage account.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffet
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