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There are so many routes to wealth creation; investing in stocks is one of them. Stock trading has made many millionaires and has at the same time wrecked the financial fortunes of the unlucky. So, if you are looking to put your money to work by investing in stocks, first learn how to play the game by the rules.
Stock investing has its set of rules – call them commandments if you wish. When starting out, following these rules as vigorously as possible will save you lots of headache and disappointments. Then with time, you can bend them as you wish, but that can only happen when you have mastered the game.
Without much ado, let’s get the ball rolling. The beginner’s guide to investing in stocks – and making profits out of it!
1. Tame Your Emotion
The crux of the matter is, the stock market is driven by emotions. Ever heard of the market going “bullish” or “bearish”? Literally, the stock market goes bullish when investors become more enthusiastic, leading to the rise in the price of stocks. The reverse happens when it turns bearish.
Fear and greed are the two major emotions that will want to work against your trade. Fear will make you sell off when, as a matter of fact, you need to buy more. Greed will make you blind to pitfalls that can sink your investment.
Keep these emotions in check, build up emotional intelligence. Before investing in a company, first, study them up. Do a thorough research on them. How did they perform in the previous year? Where do they hope to be in the future? What are experts saying about them? These are some questions the research should provide answers to.
More also, don’t let sentiments cloud your judgment. The fact that all your friends, colleagues and family members are buying/selling a certain stock doesn’t mean you should too. Every investment decision should be guided by a well-thought-out plan, not emotions.
2. Make Time Your Best Ally
You could make a few wins by speculating the rise and fall in the value of a particular stock. However, this strategy, at best, will only work out for short-term investing. If you are in for the long haul, then time – not timing – should be the buzzword.
The price of stocks will always rise and fall, and there is nothing anybody can do about that. The good news, however, is that over time prices will eventually pick up. In essence, be patient with your trade.
Patience will save you from making a bad judgment. But for this to work, you first have to believe in your trade, and that can only happen when a proper research has been done.
3. Leverage Wisely
Leverage, basically, means borrowing money to execute a trade. Yes, banks and some other financial institutions lend money to investors looking to invest in the stock market.
Say you borrowed $100 to purchase a certain stock whose price doubled after some time. That way, you would have made 100% profit, interest, and fees aside. But if the price dips, the losses would be huge. Ordinarily, this shouldn’t be a problem for the experienced investors, but for newbies, it is an absolute no-no. So, as much as possible, avoid leveraging completely.
Shrewd investors will tell you that diversification is the best safety net you can trust. No matter how rock solid a company may seem to be today, misfortune could befall them at a later time. And, if the company goes down, so also will your investment.
Invest in different companies in different industries. That way, even if an entire industry flops the losses won’t be severe. As an added protection measure, consider putting in money into other investment channels. Cryptocurrency – bitcoin in particular – is a good place to start. Mutual funds and the money market are also good investment alternative worth giving a shot at.
5. Broaden Your Knowledge
At the end of the day, it is what you know, not what you have, that count. Stock investing can’t be mastered in a day – it takes a great deal of time to fully understand it fully. Investing heavily in your education is a good first step to trading successfully. Buy books, watch tutorial videos, subscribe to paid publications – learn fast, and you will be grateful you did.
Investing in stock is profitable and worth the time. However, making costly mistakes right from the get-go can discourage you altogether, and that is something that has to be avoided. Following the tips shared here will save the beginner investor costly mistakes.