To be a successful Stock Market Investor, one needs to have the right approach towards Investing.
In this post I share with you a 14 Stock Market Investment tips that will help you emerge a winner in the long run.
Seek Long Term Value Appreciation:
In the stock markets, one would encounter daily traders, short-term players as well as long-term investors. Daily traders never carry positions overnight. Short term players typically hold stocks for a period ranging from a few days to a few months. Long term investors tend to hold stock much longer (often as long as 5-10 years) and seek substantial value appreciation.
As a beginner, it is important for you to identify which of the trading strategies suits you the best. While choosing your perfect trading style takes time and is generally accomplished through a process of trial and error; short-term/day traders typically invest a lot more time into the markets than long-term investors.
As a beginner, your focus should be on picking fundamentally strong companies (those with strong balance sheets, a proven track record and a strong potential for future growth) and seek long term capital appreciation on your investment.
Keep Yourself Informed – Knowledge is the ‘Key’:
Movement in individual share prices depend upon a lot of variables which include stock specific and industry specific factors; as well as the economic and political conditions prevailing in the country (often an influencer of market sentiment referred to in the earlier point).
Knowledge about what drives the markets is critical for any investor who is hoping to make it big in the world of stock market investing.
Each company is unique and having an understanding of its business, the environment in which it operates and the critical factors (both internal to the company and external) on which its success depends, will help you make informed decisions about when to enter a particular stock and when to exit.
Remember, its not just the factors that are internal to a business, several external factors, like a regulatory pronouncement or the entry of a new competitor, could have a significant impact on the health of a business.
By keeping yourself updated about these variables, you can emerge a winner in the long run.
Start By Reading The Following:
While taking an investment decisions, based on the data which is currently available, try to comprehend where a particular company would stand say 3 or 5 years from now.
If a company has been growing at the rate of 15% in the past three years, what argument do you have to support the presumption that the company would be able to exhibit the same kind of growth rate in the next few years? Do you have evidence that seem to suggest otherwise.
Invest in companies that you believe, based on evidence at hand, would grow in the future. Your investments would also grow with the company.
Look at Cash Flows:
While analyzing a company for potential investment opportunities, look beyond profits and into the cash-flows that the company is generating.
By looking into the company’s cash flow statement you can tell whether the company is generating enough cash to sustain its operations in the long run.
In the world of stock trading, there are no set rules. Trading strategies are perfected over time and often through a process of trial and error. As a beginner in the stock-market, it is important to play small. A big loss early could easily dash your hopes about making it big in the markets.
So, start investing with a small amount which you can afford to lose. Once you are comfortable with your trading strategies and are generating profit for yourself, you can raise the stakes. Also, never enter the markets with borrowed money.
Trade Stocks as a Beginner; not Derivatives:
Derivative instruments (futures and options) are complex products that should be traded only you have a profound understanding of the markets.
No Overnight Riches:
Share market investing cannot make you rich overnight. However, a disciplined investor who takes informed decisions will surely achieve financial independence over-time.
No One Is Immune From Losses:
The key to winning in the stock markets is to cut your losses by determining a loss tolerance limit. Stop loss orders might help in this regard.
Invest in a Sector you are Familiar with:
Invest in a sector or industry you are families with. This way you can use your industry knowledge to take more informed buy or sell decisions and bring home extraordinary profits.
Do Not Fight the Market:
Individual stock prices and the broad market movement depend to a large extent upon the overall ‘Sentiment’ prevailing in the market. If the market sentiment is ‘upbeat’, you would most likely make money going ‘long’ rather than going ‘short’.
Do not outsource your investment decisions:
Never leave your investment decisions onto your brokers. After all, they make money every time you buy or sell a stock irrespective of whether you make profit on the transaction or not.
Every time you think about buying a stock ask yourself why you are doing so. Do not invest until and unless you have found a convincing answer to ‘this’ question.
Track a Limited Number Stocks At a Time:
Do not make the mistake of tracking dozens of stocks and then loosing track of it all. Confine yourself to a few ‘quality’ stocks and take the diversification advice with a pinch of salt.
Do Not Go GA-GA Over Dividends:
Dividends are nothing but an outflow of ‘cash’ from the company. Think about it this way “It might serve the prospects of the company much better if such cash resources were used to finance the growth plans of the company.
Analyze Each Trade Carefully:
Analyse each and every completed trade to determine what went right or what went wrong. This way you strive to perfect your investing game plan.
Thanks for your time and happy Investing.