10 Important Things You Must Absolutely Know Before Investing In Stocks
The stock market has remained an institution that has both created millionaires, and destroyed fortunes. While the rewards of a successful stock investment can be alluring to anyone who hears of some success stories, the losses that could also be incurred could be detrimental to the finances of anyone affected.
How then do some folks make successful investment bids in the stock market? Isn’t this the same market that literally kick-started Warren Buffet’s rise to fame and fortune?
While there are major winners, there are also major losers. The only difference is, the losers far out-number the winners. The gimmicks of the stock market can be tricky, if you don’t have a good understanding of how it works; like when to buy and when to sell. What’s more important, is that you understand what could happen to your investment, before you even try to purchase your first stock.
Here are 10 important things to know before investing in the stock market:
1). Invest Only Your Excess Funds:
It would be unwise as a beginner to put in your major funds in an industry where the commodities are abstract. The problem here is, one morning, a $200 Dollars investment could be worth $2000, and the next morning, a $200,000 Dollars investment could be worth $2000.
When you cannot directly control the vices that trigger an increase or decrease in the value of your investments, only put in your surplus funds.
2). Master Your Emotions:
Your investment decisions must be based on logic, not emotions. The problem with acting based on a feeling, is that it’s not just only not a calculated decision, but one that mostly leads to terrible results.
Ever noticed when you see a big brand’s advert online or on the television, at some point towards the end, they try or successfully establish some form of emotional connection with you, the viewer. When people end up loving things based on how they feel, they purchase it, then later dump it. Because oh well, they never really needed it.
The same applies to decision making in the purchase and sales of stocks. If you make a purchase based on the fact that company A has advertisements everywhere, or they probably do something you like, and so, you feel every other person probably also values them the way you do, you could as well be throwing your hard-earned money into a raging flame.
Make only calculated decisions. If you’re not confident enough, find someone who’s been successful in trading stocks for a long time, or maybe talk to a broker.
Emotional intelligence will save you a bulk of your investments.
3). When You Buy Stocks, You Buy A Part Of A Company:
Whenever you purchase a company’s stock, you literally purchased a part of the company. This implies that your dividends or periodic earnings are dependent on the performance of the company’s products or services, and customer loyalty.
Sometimes, a company may generate higher revenues than their previous quarter, but the value of their shares still goes down. The upward rise of the revenue figures doesn’t mean if you try to sell your stock, you’d get a bonus. It only means the real value of your investment just dropped.
4). Don’t Attempt To Time The Market:
This is one of the major reasons people lose their whole investments.
Timing the market is like counting to 4 before a grenade explodes, then you make a run for it. By the 5th second, you expect to be far from it. The problem here, is you probably won’t make it, and that’s where the issue of timing stocks come in.
No one has successfully, and consistently timed the market for a long period (let me know of anyone the media can verify, in the comments section). Not even Warren Buffet. He stays away from it. Those who usually try, end up losing their whole investment.
5). You Must Monitor Your Stocks At Least Four Times A Week:
Like your health, your meal intervals, and more, you must consistently monitor your stocks. Monitoring your stockholdings everyday would be perfect, but if you can’t, ensure you’re on the alert at least 4 times a week.
You need to know when a certain stock is falling or rising. You need to be aware of the market situation at anytime, so you can make good calculative decisions.
If you don’t constantly monitor your stocks, you could either miss out on a great deal, or lose almost it’s total value.
6). How The Stock Price Grows Or Drops Is Dependent On The Company’s Performance:
You don’t have any influence over how the share values rise or fall. You couldn’t probably do anything about it. This is entirely up to the management of the company, the economy, their customer base, and several other factors.
If the company maintains a steady growth, meets sales projections, acquires more customers, and has a lot of genuine positive press & feedbacks, people would value the company more, and the share value would rise.
7). Be Disciplined In Your Investment Strategy:
It’s important that after you’ve had a good understanding of how the stock market works, you use only a disciplined approach when making your investments.
Only buy the right stock, hold on to it for a while, then sell when logic says it’s right. Waiting for too long before you sell to see how extremely high the stock could grow could turn out be a big mistake.
A systematic purchase and sale of the right stock, can produce outstanding returns. But a fool-hardy strategy coupled with a sturdy lack of self-discipline, could make you end up broke.
8). Stocks Must Not Be 100% Of Your Total Investments:
Tying your whole financial fate, to the stock market can/will get you ruined. If you decide to go beyond your surplus funds to invest, never invest more than 10% of your worth. If you exceed it and get some great returns, it’s a matter of time before you bet all you’ve got.
If all your investments are in the stock market, then you’re already in for a big fall. Be a smart investor.
See Also: The Top 10 Reasons Small Businesses Fail
9). Have Realistic Goals:
Before you invest in the stock market, you need to set clear goals and objectives. You need to know what you plan to achieve. For example; how much do you want to earn within a 6 month period? What industries will an investment tend to bring out that possibility? And if you don’t think you have the right knowledge, who can you talk to?
If you are really struggling deciding and setting your goals, we would definitely recommend speaking to a professional. Why don’t you reach out and ask for some advice from a company like bearbulltraders.com/simulator/? Having a strategy that you work with, will ensure you’re on track every step of the way. If you make a bad investment while you follow your plan, you’d adjust easier, than when you make a bad one with no plan to recover.
Make sure your speculations are realistic when purchasing a stock. This way, the chances of you ending up disappointed, reduces a lot.
10). Be Ready To Lose All Your Investments:
After all is said and done, it’s important you know you could still lose all your investments. The stock market can be unpredictable sometimes. A crash in a company’s stock you own could leave you bankrupt.
Knowing a total loss is very possible, is a good reason to ensure you have a well diversified investment portfolio outside the stock market.
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What opinion or tips do you have about investing in the stock market? Please leave a comment below.
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