Stocks Investment 101: A Beginner’s Guide
Investing your hard earned money is always a great idea for a whole lot of reasons. Whether you decide to put it into real estate or something more volatile like currencies, it goes without saying that it is a move which when made wisely will make the world of a difference in your life. Investing in stocks in particular is by far one of the oldest, safest and as a result most popular methods that people use to secure their financial futures. With so much development and improvement going on all around us, it is very easy for you to find a company to invest in so as to reap great rewards later on. However, it is important to understand that losing money you have invested is just as easy as making more. The information and guidelines below should help you make sound and informed decisions that will see you counting your financial blessings and not mourning your losses.
How Does It Work?
In order to understand how stock investments work, you first have to understand what it is exactly that you are investing in.
The commodity of interest in stock markets is shares to publicly traded companies. This means that you as the investor more or less lend money to the business or the company in return for a fraction of ownership. This allows you to share in their profits but also means that you share liability where if the company doesn’t do well the value of your shares goes down.
Profitable investing in stock exchange would therefore require you to identify a company, buy shares while they are cheap and sell them when the company does well enough to drive the value of your shares up. It is that simple.
Benefits Of Investing In Stocks
Investing in stocks might sound easy but it is not all smooth sailing. So why, with all the risks involved, would you choose to spend your money on the stock market? Below are five reasons:
1. The stock market holds just the right amount of volatility. Unlike forex and precious commodities markets that are too volatile, investing in stocks allows you to go about your business without having to always keep an eye on market trends every other second. Unlike real estate markets on the other hand, stocks are volatile enough to allow you to quickly liquidate your assets for fast cash.
2. With some companies, being a shareholder gives you the right to participate in decision making.
3. It provides you with a complimentary source of income through the dividends.
4. Market trends are easy to analyze for speculation purposes.
5. You can invest in more than one company at the same time as each is more or less independent from the other unlike currency markets where all currencies are linked in terms of value.
6 Tips For A Stocks Investment Newbie
Having understood how investing in stocks works and the benefits you stand to enjoy, you are probably itching to get started. But before you go spending your money in all the wrong places, below are a few tips that should help you as a beginner navigate the strange new waters of stock investment.
1. Don’t put all your eggs in one basket
No matter how well a company is doing, it is never a good idea to invest all you have in one place. It would be wiser to split the investment money between different companies in order to distribute and minimize the risks involved. This way, even when one begins to fail, you will have the others to keep you in the game and if you are lucky probably even cover the losses you have incurred.
2. Monitor your investments
Another way to make sure that you make the most out of your stock investment is by keeping up with what is going on with the company that you have chosen to invest in. Staying in the loop about developments and changes they intend to make allows you to monitor and predict possible changes in terms of the value of the shares you hold. For example, if you invest in a tech company and they plan on launching some new software, being in the know will allow you to speculate possible value increase for liquidation that will give you maximum payout. On the other hand, if you sense trouble in your business paradise, you can dump the stock before things go south and turn your investment into waste. Either way, once you choose to invest, the company’s business becomes your business.
3. Choose a company whose business you understand
You cannot keep an eye on a company that you do not understand. It is therefore always best in the stock investment to invest in a company whose dealings you understand. This way, even when there are changes and developments being made, you understand enough to deduce the possible implications in order to make informed decisions.
4. Attend shareholder meetings
Once you buy shares to a company, you own a part of it and it is therefore your obligation to attend shareholder meetings. These provide you with a platform to air your views and to listen to other people’s ideas and opinions for the growth of the company. This way, you get to directly contribute to the company’s development which will benefit you eventually. Attending these meetings also helps keeps you in the loop when it comes to important and sensitive matters concerning the company.
5. Know when to walk away and know when to fight
Investing in stocks is not all sunshine and daisies and you are bound to experience some moments of loss. It is therefore very important to know how to identify the best market entry and exit points. In stock market circles, it is said that the secret to success is to buy low and sell high. This means that when the share value is low and you see potential of things looking up again, you should invest. When the value is high and you feel like it won’t stay so for long, then liquidate and count your blessings. Just don’t be greedy because holding out too long might cause you to lose a profitable window of opportunity.
6. Be patient
Patience is important because in stock markets, things don’t always move very fast. This means that it might take a while before the value of your shares gets to a point where cashing out would be profitable. So stay put and wait patiently for your opportunity and when you find it, do not hesitate.
It goes without saying that investing in stocks is a great idea. With the six simple tips provided above, you should be able to make sound decisions that will translate into impressive returns that in turn make the entire process worth your while.