Investing in stocks and making the stock market your place of business can be a tricky undertaking. For one, there isn’t a single investor who can confidently claim to predict the stock market in their favor consistently. If anything, it’s usually a matter of using your wits and knowing when to buy, hold, or sell. At other times, it’s just a matter of luck. When the stock market hits higher highs, you feel like you just won the jackpot of a lottery at a casino. However, the chances of the stock market lows are real. That’s when the game gets real.
The trick is to ride out any storms that come your way and anticipate them, especially when the sun is shining on you. Not everyone can generate market-beating returns like, say, Warren Buffet, for half a century. But at the very least, it is only right that you earn returns in line with your stocks – a feat that most investors fail to achieve.
Most investors would agree that experience is the key to being a successful investor. But what about investors who are only just getting into the game? What if you do not have any experience? These are the newbies in the stock marketing world. Fortunately, you can learn from some of the veteran investors like Warren Buffet. Here’s what you need to know.
Make Investments That You Understand
Most investors, even ones with experience, sometimes think quite a bit before they invest. Sometimes, they even overthink. However, investing in a business that you do not fully understand yet is a risky move and one that can cost you dearly.
You must, for example, understand how the company you are about to invest in operates, how it makes money, its main drivers that influence its industry and other relevant information. Think of it as predicting the next fashion trend for teenagers or whether a drug will be successful after distribution. Even if you have more data and information about a stock than anyone else, it is still impossible to have a 100% accurate prediction about the future.
Most investors would advise that you refrain from investing in stocks and situations that rely heavily on accurate forecasts of the future. If you find a stock complex or difficult to get a read on, just move on to another business and make a profitable investment.
Track Your Financial Goals
Stock investment is a business. You must grow and nurture it. Successful stock market investing necessitates a level of introspection that most investors do not have. However, this is a vital factor to consider, especially if you want to prosper and meet your financial objectives.
Always check which stock investments made money and which ones didn’t. Check if you bought too much stock all at once from getting greedy or whether you didn’t invest enough from fear of losing. Use this information to form rules that you will put into place the next time you invest to lower your initial risk. You can even start by buying through dollar-cost averaging instead of going all in.
One grave mistake that most new investors make is to panic and sell when they see prices dip. However, this is not always a wise move. In most instances, the dipped prices usually recover, and sometimes even to higher highs. As such, you also want to uncover the reason for making each purchase or sale order.
If you already have a regular stock account but still don’t understand options trading, then maybe checking investing lessons to learn about trade options is a good start. You can even consider opening a demo account and practice from there. Hone your trading skills before you start using real money.
Generally, tracking your performance and results, noting your gains and losses, and documenting relevant investing lessons is the best path to follow. This path will iteratively improve your stock investment skills and put you in a better position to achieve your financial objectives.
Manage Risk First
As Warren Buffet often says, the first rule of investing is not to lose money. And the second rule is never to forget the first rule. It is true, though. No one wants to invest their hard-earned cash only to end up losing it in the long run.
Ideally, the percentage you always need to gain profits after losing is always greater than the percentage you lose to get back where you began. This occurs since, after a loss, you have even less money to play with. Thus, you must put in more effort to pull yourself back to your initial investment. Only after that can you start making profits. Therefore, focus on risk-adjusted returns. Generating high returns is not always the biggest challenge. You must generate high risk-adjusted returns to ensure that your account doesn’t stay on the red for too long.
Focus on Financial Metrics
You must be diligent about how you invest your money. Ensure that you, first, understand what you plan to invest in and gather all the information about it that you can. Start with the financial metrics, look at the important numbers that will eventually impact on your investment. You don’t necessarily need to go all crazy with dozens of spreadsheets and programs.
You can then use the information that you’ve gathered to tell where the stock may be headed next. With any luck, you can also make more accurate future earnings growth expectations of the stock and the company. After viewing the underlying financial metrics, you will have an idea about how volatile the company’s stock has been and use that information in your favor as well.
Don’t Be A Day Trader
When new into the stock market, it is only natural that you would want to make more money fast. However, the secret to getting much better return on your investment is to buy a stock then forget about it. Most of the veteran investors believe in the buying-and-holding mentality. These investors can hold stocks for decades at a time.
Warren Buffet explains this, saying that investors that constantly buy and sell stocks dent a significant portion of their returns through trading commissions and taxes. As such, it is better to buy great stocks then hold them for an extended period.
The stock investment tips mentioned above have helped numerous newbie investors break into the stock market and become successful investors. You can also try out these tips and see how they work out in your own investing. They work perfectly for both new and experienced investors. Remember, the learning never stops when it comes to making a killing in the stock market.