Investing in Stocks
So you want to invest in the stock market? Educate yourself first. Knowledge is power, the more you know, the better decisions you are likely to make. That's why you should read this article as a whole.
Before you invest you should have at least a basic understanding of what a stock is, what it means to invest, and how to evaluate stocks.
Here is how it starts. Almost every company needs to raise money at some point. It has two choices: 1) borrow the money, or 2) raise it from investors by selling them a piece of the company (a share of stocks). If the company follows the second choice, they will be sharing profits but also losses with the shareholders. That's what makes stocks risky or beneficial.
Before buying a certain stock, examine the past, present, and future. Check the history of the stock, research the events that triggered the stock to go up or down. See how likely those events could happen today or tomorrow. Weigh the likelihood that similar events could happen in the future which might affect the stock.
Investing in Stocks Tips
- Invest by using "extra money", in other words money that if lost, it will not greatly affect your life. Don't invest using money that you and your family need on a daily basis.
- Don't borrow money to invest. You should have the money saved already.
- Think, think and think again before buying a stock.
- Practice by creating a training scenario. Pretend you purchased a stock, and see how it does for a period of time. Evaluate how wise or unwise your decision was, and why?
- Open a stock brokerage account after doing your homework to find the best broker.
- Invest on a dozen stocks with companies known for quality, safety, and ability to generate profit in good or bad times.
- Stay up to date. By staying updated, you're more likely to discover opportunities or be alert to problems with a certain stock.
You should be aware of the following:
- Short term investment: the behavior of the market is based on enthusiasm, fear, rumors and news. There is a lot of potential when everyone is hesitant to buy.
- Long term investment: It is mainly the company's earnings that determine whether a stock's price will go up, down or stay the same.
- Individual stocks are not the market: A good stock may go up even when the market is going down, while a bad stock can go down even when the market is booming. Consider stocks individually.
- A great track record does not guarantee strong performance in the future: Stock prices are based on projections of future earnings. A strong track record is a good indication, but even the best companies can slip.
Stocks to Buy
Choosing the right stock is usually made by looking into different categories such: size, style and sector.
By size: How big the company is. The bigger the company, the more stable and profitable over the long run, but less profitable over a short time compared to a smaller company.
By sector: There are more than 10 sectors and dozens of industries. Finance, health care and technology tend to be the fastest growing sectors.
By style: Catch a successful growth stock early on, before it's too popular, and the ride can be spectacular. Also catch if you buy a value stock (a company with not so go earning lately causing stocks to plummet, but its business is still sound) for a low price, chances are the prices might go back up again, once the company gets its acts together.
Investing in stocks is a risky business. There are risks you have some control over and others that you can only guard against. Try to decrease the risks by reading more about stocks and investments in general.
Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level.
If you have any question about investing in stocks or need an advice please contact us here. You can also read more tips below.
Inspirational Quote: Success is the sum of small efforts, repeated day in and day out. Robert Collier