The stock market has always been an attractive proposal for anyone looking to invest some of their savings with the goal of turning a profit over time, or even over night. And while you can certainly benefit a lot from investing in the stock market, and even make a fortune in short amounts of time, you can also lose big amounts of money if you don’t know what you’re doing. In this article we’ll look to explain some of the basics of investing in the stock market and hopefully help you understand some of the better practices to follow, while avoiding common mistakes.
So what are some of the good practices you should be applying to make sure your stock market investments are a success? Read on to find out!
Company Background Research
Investing in a company without having any knowledge of their background is suicide. This is what will make or break your investment from the get go. Regardless if you choose to go after bigger more established companies that look like a safer choice, or new companies trying to become the next big thing, you need to understand where they’re coming from. How has their stock evolved in the last few months and years(where applicable). Do they pay dividends? How are their industry trends looking? Is their competition doing well, or doing poorly? These and more variables need to be researched to have a full understanding of that company’s profile.
Company Financial Health
Now that you have a good understanding of a company’s background and their history it’s time to look at their financial health. Are they making steady profits? Do they have any debt? What new products and/or services are they launching, and how are their current products and services selling on the market. Are their stock going on a slight upward trend or downward trend? All of these are things you should be looking into and writing down.
Timing Is Important
Don’t buy stocks when a popular company’s stock has plummeted for some reason you might find odd. This is a common mistakes beginners make, thinking that company is bound to bounce back and you’ll make some easy money buying stock at a discount. There is a reason others are selling their stock, and if you don’t understand why that is, don’t buy. Timing is obviously very important when investing in stocks, but it’s so much better to invest in a well respected company that’s on an upward trend even if the stock price is higher. If it keeps climbing you’ll be happy in the long run.
Diversify Your Portfolio
Another common beginner mistake is to invest all or most of your money in 1 or 2 companies. This might seem appealing at first, but what happens if one of them goes on a downward spiral? You’ll lose most of your investment, and you don’t want that. It’s much better to instead invest that same amount into 10 companies. Sure, your profits might be smaller, but more consistent over the long term, and much safer too. As long as you perform good research, you’ll have every chance of hitting several winners, and the ones that don’t pan out won’t hurt you nearly as much.
Reinvest Some Of Your Profits
Once some time has passed and your portfolio has grown, you should look to reinvest some of your profits into buying new stocks. Of course, you could stop and make a decent amount of profit regularly, but if you always stay active, always adding more to your portfolio while eliminating stocks that might no longer be profitable you will actually be maximizing your profit potential.
These stock market investment basics should help you be much better informed when just starting out with investing into stocks.