Amanda is a graduate student focusing on global economic trends.
You are about to think of investing in the stock market but have a myriad of questions on your mind. In order to make the best possible investment, you should take into account your objectives, skills, and of course, your budget. To make you more confident, we give you within the next lines, deep insight into crucial things before start trading stocks.
First Things First: What Is Investing in Stocks?
Investing in stocks means buying ownership shares in listed companies. Each share represents a part of the capital of the company. The percentage that a partner owns in the company is proportional to the number of shares. Investing in the stock market can be done directly or through funds managed by professional brokers, who will pursue a predefined strategy and direction. When buying a stock, you become a shareholder, which means no more and no less that you become a partner of the company. Does it sound great?
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Why Investing in Stocks Is Interesting for Investors
There are two key reasons for investing in stocks. Firstly, investing in the stock market means investing in the real economy and participating in societies' development. A company that issues shares and sell to investors, raise funds to finance the company’s growth. For example, this money can be used to develop internationally and launch research and development projects. Or to create new products or improve products already on the market, hire staff, etc.
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10 Tips to Help You to Invest in Stocks Wisely
Investing in the stocks market also means benefiting from the very attractive long-term return provided by this class of assets. Be aware that in order to position yourself on the most attractive stocks, it is necessary to familiarize yourself with the financial markets and follow some advice.
1. Invest in the Stock Market the Money You Are Prepared to Lose
Always keep in mind that investing in the stock market carries a risk of capital loss inherent in stocks. The primary objective is to make money (via obtaining dividends or making capital gains), but you can also lose money, and, in the event of a loss, this should not impact your way of life. Therefore, a novice stock investor should not invest all his money in the stock market and respect the elementary rules of diversification, particularly by having safety savings on investments with guaranteed capital. Never invest all of your assets in securities that present a risk of capital loss, such as stocks.
2. Inform Yourself and Train Before Investing in the Stock Market
Investing in shares cannot be improvised. Knowledge of the stock market, of listed securities, are essential for success. And monitoring economic and financial news is particularly important. To start on the stock market, you will also need to have good notions in fundamental analysis and technical analysis. In that way, you will carry out effective stock-picking and determine the best time to buy and sell.
Are you far from mastering all of this? No panic, books exist to know how to invest in shares. You will find a wealth of information and training on the Internet to understand the stock market: webinars, white papers or ebooks, educational articles, can help you improve your knowledge of finance.
3. Keep Calm and Keep It Simple in Any Situation
Whoever wants to invest in the stock market should always stay calm and keep it simple. The hyperactive mice who place 20 stock market orders per day based on complicated mathematical indicators, usually only enrich their broker or stockbroker.
4. On the Stock Market, There Is No Miracle: Making Money Is Not Systematic
If you are aiming to invest in stocks to get rich quick, go your way. Unless you are fortunate enough, you won't double your investment in the shares in the first year or even the second. You will also have to get used to taking losses.
Beware, although equities are the asset class that shows the best performance in the long run, don't expect crazy returns. The stock market is not a miracle, even if investing in the stock market should allow you to increase the return on your savings significantly.
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5. Be Prepared to Invest in the Stock Market for the Long Term
There is often some volatility in the performance of stocks. Investing in the stock market must, therefore, be considered over a long period. If you have too short an investment horizon, you will be tempted to take disproportionate risks to make money quickly. In the short term, stocks are volatile. They react to all the mood swings in the market. Investing in the stock market, therefore, requires a long investment horizon. Seeing your stock market portfolio increase in value can indeed take a little time. Predicting short-term market movements is impossible.
Unfortunately, far too many investors still see the stock market as a constant racing. Investing in the stock market successfully means being patient and paying attention to the fundamentals of the business. The price always ends up reflecting intrinsic value.
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6. Think Independently to Invest Well
Stay away from the crowds. You will succeed in your investments by reasoning correctly, not because other people think the same. If you can keep a cool enough head to buy during price declines, you will be well-positioned to take advantage of the upside when it comes.
But, above all, investing in the stock market is a question of timing! As Warren Buffett says, "Be worried when others are greedy, and greedy when others are worried."
7. Are You Buying a Share on the Stock Market? Think Like an Associate
Stocks aren't just paper; they are a title to the assets of the business. If you buy shares in a business, behave like a responsible partner. Follow the evolution of the product and service offering and the company's results closely, studying its annual reports. Invest in stocks requires real involvement on your part in the management of your stock market portfolio.
8. Look for Quality Stocks on the Stock Market
Focus your efforts on identifying companies with sustainable advantages. A sustainable competitive advantage is a guarantee that the company can maintain its profitability for many years to come. It is a challenge for anyone who wants to invest in the stocks successfully. This competitive advantage can take the form of a strong brand, for example. Classic examples of such companies are Coca-Cola, McDonald's, or Google.
9. Always Take Into Account the Intrinsic Value of the Company
During the dot-com bubble, there were many good companies on the stock market, but it was almost impossible to find cheap stocks.
Finding quality stocks is only half of your job as a new market investor. The second half: wait for prices to drop enough to make the investment worthwhile.
To invest in shares effectively, you will need to carry out numerous analyses and arm yourself with patience.
10. When Selecting a Security, Always Reserve a Margin of Safety
Unless you have clairvoyance skills, you cannot predict what will happen in the future. To guard against the future's inherent uncertainty, be sure to buy your stocks at prices well below intrinsic value. This will give you a safe margin in the event of a fall in the stock. It will ensure that you invest in the stock market while reducing risks to a minimum.
As a beginner on the market, as long as you follow certain rules, investing in the stock market will allow you to enjoy a higher return than some risk-free investments. With time, as you gain experience you will be able to develop your own winning strategy. Nevertheless, don’t get involved in too complex investments, but rather keep to your circle of competence. Keep your calm at every circumstance and only follow the advice of those you can completely trust!
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Bryant Edwin Caveness on July 28, 2020: