Stock Investing Basics
These basics of stock investing will provide a quick overview of what it takes to weed out good investments from the great investments.
Investigate the company you're interested in.
If you happen to find a company that interests you, what do you do next? The basic approach before you put your finger on the "buy" button is to get all the information you can about the company. This may sound like an obvious step, but surprisingly many people either stop investigating to early or simply don't investigate at all. Don't rush your analysis- unless you're incredibly experienced, you will be learning and gaining helpful analysis tools as you go.
Don't invest more than 10% of your investment dollars in a single stock.
It might be a good idea to invest some portion of your investment dollars into a less risky investment such as a mutual fund or blue chip stock. But if you concentrate your investment dollars in any one stock, you become too dependent on that company. Diversifying your portfolio may not exactly mean less of a possible return, but it will show less of a dependency on a particular stocks performance. Diversify, diversify, diversify.
Invest in what you know.
The most useful research has already be done. We all know what General Electric does right? They make light bulbs. Wrong. They don't just make light bulbs- they do so much more. From airplane parts to home electronics, GE is in it all. Given that, I know that GE is a company that has taken the advice of diversification to heart and incorporated that concept into it's business model. GE has been around for a very long time, and many people use their products. So, it might be a decent investment if it fits into your portfolio. So keep in mind that the companies you already know and use as a consumer, might also be a viable investment.
Buy for the long term.
If you remember that success can found by time in the market and not timing the market, you will be better off. Attempting to calculate exactly when to buy and when to sell is incredibly difficult, and may seasoned investors will tell you it is impossible unless you have some psychic abilities. But, if you buy what you know for the long term, you will experience the profit highs longer and be less tempted to second guess your decisions.
Only fools rush in.
Don't worry too much about buying round lots of 100 shares when you invest. If you focus on sticking with your plan and investing incrementally (i.e. 500 each month, or $100 a week) you could find better results. If you are interested in a few different stocks and would like to invest in all of them after your careful analysis, invest equally across the board so you can more effectively compare the performance of those stocks with each other. If after a six month period some investments are outperforming others, replace the under performing investments.
Don't act too quickly.
If you find a hot stock that seems fundamentally sound, remember to take your time with your analysis. You don't have to buy before dinner or before the markets close for the day. Decide first if the investment makes sense as a long term investment and if it fits in with your existing portfolio.
Learn from your mistakes.
You will undoubtedly make a mistake here and there, but if you learn from your mistakes, you will gain the "market wisdom" that it takes to become a successful investor.
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