The world of investing is crazy. For many new investors, the idea they have of investing in stocks and trading the financial markets come from movies like The Wolf Of Wall Street. And honestly, they aren’t completely wrong.
The legendary Wall Street investor, Warren Buffet once said about the stock market: “Remember that the stock market is a manic depressive.”
Being emotional in a market that has no feelings is the same thing as self-sabotage. In this market, knowledge, and the ability to control one’s self is power.
Too many people treat investment like gambling. They hear a random “guru” on YouTube talk about how this stock or that stock is the next big thing, and without doing any proper research they buy.
The stock market just has this way of taking money from the gamblers and giving it to knowledgeable investors.
Some people simply buy or sell a stock simply because it is at all-time lows or highs respectively. But unfortunately, The laws of physics do not apply to the stock market.
If you are not careful, there’s a huge chance of getting caught up in all the madness and losing a whole lot of money.
But with the right knowledge, the stock market can be a means to steady financial gains over time. In reality, purchasing stocks isn’t that hard.
You can just download a trading app on your phone, deposit some money inside, and buy stocks, all within 15 minutes. It doesn’t take too much effort or expertise to know how to do that.
What is difficult rather, is investing in the right companies. Anybody can invest, but not everyone can invest the right way. The truth is that most people lose money in the stock market, and frankly speaking, investing in the stock market isn’t for everyone.
Here are five essential stock investment tips that could help you out in the market:
Control Your Emotions
When investing in stocks, the worst thing you can do to yourself is to be emotional about your decisions.
Thinking rationally is what will give you longevity in these markets. Warren Buffet once explained that successful investing isn’t necessarily a product of a high IQ, it is a product of self-control. Taking investment decisions on hunches or feelings will not make you profitable long-term.
Active portfolio management is critical for successfully navigating the changing tides of financial markets.
Individual investors must, however, control the behavioral impulses of emotional buying and selling that can result from following the markets ups and downs.
Indeed, investors appear to buy at market peaks and selling at market bottoms, as it is not uncommon to become caught up in media frenzy or fear, buying at peaks and selling during the cycle's valleys.
Here are a few tips to help you navigate the mess of emotions in the market:
- Before purchasing any stock, think critically, and think long term. If you can’t see yourself holding that stock for at least 6 months, it’s best to let it go.
- Never underestimate the risk involved in making an investment decision. Know the risks and fully accept them.
- Sometimes, turn off the news. Don’t let the media hype get to you. Make calculated decisions.
Stop Choosing Ticker Symbols To Make Decisions!
A ticker symbol, alternatively referred to as a stock symbol, is a collection of letters or characters (or a combination of both) that identify specific securities that are either registered on a stock exchange or traded on a public market.
Although they have some advantages such as making it easier for traders and stock analysts to identify stocks on stock market websites and trading sites, they can also be misleading.
It's worth remembering that beneath the array of stock quotes that crawls along the bottom of each CNBC broadcast is a real business. However, try to avoid making stock selection an abstract process. Bear in mind that purchasing a share of a company's stock automatically makes you a shareholder.
Do proper research on whatever stock you want to purchase. Find out about the company itself. Treat yourself as a potential business partner, trying to decide whether or not to purchase part of the business.
Yes, stock trading has been made easy these days because of apps like Robinhood, but as much as possible, make your investment decisions as formally as possible, thinking through and researching the company extensively.
Prepare for Short-Term Volatility
One investment tip I would give you any time is to always think long-term. This way of thinking will save you a lot of money in the long run.
But if you’re going to think and invest this way, you will have to come to terms with the fact that there will be short time moves against you.
So treat your stock purchase like a serious marriage; you’re in it for the long run. It doesn’t mean you won’t have bad days or difficult times, but you’re in it for the long haul.
Most investors are sometimes tempted to alter their partnership status with their stock holdings. However, making snap decisions in the heat of the moment will result in the classic trading error of buying high and selling low.
In your trading journal, have certain reasons (clearly written out) that would justify a divorce with your chosen stock.
For example, you can decide that you would only sell a particular company stock if they change their CEO, or if it breaks a certain high or low. Whatever your reasons are, it must be clearly spelled out and strictly followed.
Build Your Positions Slowly
A timeless investing tip I came across was by a man named Jesse Livermore, a great stock trader from the US, who lived in the 20th century and was considered to be the father and pioneer of day trading.
He said: “Patience is the key to success, not speed. Time is a cunning speculator's best friend if he uses it right.”
A profitable investor’s main strength lies in his ability to use the concept of time to his advantage. Rather than worry too much about intraday movements, focus more on monthly, yearly, and even decade movements.
Patience will turn time to your best friend in this world of investing. The most profitable investors purchase stocks with the expectation of being paid over years or even decades — by share price growth, dividends, and so on. This also ensures that you will take your time purchasing.
These two investing tips will assist you in mitigating your risk during market fluctuations:
- Buy in Thirds: If you think that a particular stock would be a long-term winner, you can divide your original purchase amount into three and then buy using those thirds at different price points.
- Dollar-Cost average: This means investing a predetermined amount of money at regular intervals such as weekly or monthly. This fixed sum purchases more shares when the stock price falls and fewer shares when the stock price increases, so it balances out the total price you spend.
Ensure you regularly check on your stocks. Once a quarter — when you receive your quarterly reports, for example — is more than enough. However, it's difficult to ignore the scoreboard.
This can lead to paying too much attention to short-term events, concentrating on stock price rather than company value, and feeling compelled to act when none is necessary.
Determine what caused a sudden price movement in one of your stocks. Is your stock suffering collateral damage as a result of the market's reaction to another event?
Has the company's fundamental business model changed in some way? Is it anything that will have a major impact on your long-term prospects?
Short-term noise, such as loud news and sudden market swings, is rarely representative of how a well-chosen business performs in the long run.
What matters is how investors respond to the noise. This is where the sensible voice from the more relaxed times that you created your investment journal will assist you in persevering through the unavoidable highs and lows associated with stock investing.
Investing in the stock market can be exciting and scary at the same time. But your profitability in the long term is determined by the choices you make in the markets.
Following the investment tips that I shared will increase your chances of success in the stock market. New investors tend to be intimidated by the markets.
Without proper investing experience — or emotional control — you run the risk of losing the majority, if not all, of your investment capital. This is why it is important to learn the fundamentals of stock investing.
Although a lot of people are afraid of the markets, there is also another category of people who are anxious to begin investing and eager to put their money to use. However, they may easily find themselves losing money or putting their finances at needless risk.
This is not intended to make you scared of investing, but rather to remind you to be well-informed before taking unnecessary risks when investing in stocks.