To the uninitiated, trading stocks and playing with investments can be a daunting, often confusing process. Things are only made worse by the fact that financial markets are often volatile and knowing just which stocks you should put your money into can seem like luck of the draw more than anything.
Any experienced trader or investor can tell you that this isn’t exactly the case.
I agree with the experienced traders – It doesn’t have to be luck of the draw… nor does it have to take a LOT of time and be a mind exercising activity either.
While investing in stocks is indeed a gamble, it isn’t the shot in the dark that many people believe that it is. Like with any venture that involves risk, investing can be made a lot easier if you know exactly what you’re doing before you set out on your first endeavor.
There are three (3) principal ideas that anyone new to investing should always keep in mind when they start out. These simple ideas are things that long time players in the stock market swear by exactly because they’re so simple that they could almost be considered common sense.
Let’s take a look at the steps and you’ll see just what I mean:
1. Invest in Companies You Use
This often lines up with the conventional wisdom of only investing your money in good companies.
How is that so?
Think about this: You have a certain tennis shoe or clothing manufacturer that you will shop when you want something new, right?
More often than not, people stick with one company for things like electronic devices and other consumer products because that company has proven its brand over the years with build quality and reliability.
While trying out new foods is always fun, there are certain restaurants and brands that you’ll always find yourself going back to because you’ve liked what they offer for some time.
Brand loyalty is made or broken on what a company’s product or service can continually give to its customer base. By investing your money into a company whose offerings you’re familiar with, you already know that the company is making money and has established itself in its sector.
Therefore, you know that company’s stock is a good place to park your money for now.
Here is a list of companies whose products or services I use every day: Bank of America (BAC), Google (GOOG), Apple (AAPL), Under Armour (UA), and Activision Blizzard (ATVI) – guess what, I own each one of their stocks as well!
2. Invest for the Long Term
Your main concern when buying stock is how well that stock is going to do and, by extension, how much money you stand to make or lose over the course of time, right?
It’s a legitimate concern, but trust me when I say that checking to see how your stock is doing every chance you get will cause you unnecessary stress.
Put those thoughts out of your mind and commit yourself to the long term when playing the stock market.
Know that like many of other areas of our society, the stock market follows trends and that means that businesses have their good days as well as their bad days. This often translates to stock prices that fluctuate.
Remember the companies that offer quality products and services from the last tip? Well, if their products are truly of high quality, then enough people will continue to buy from that company to guarantee that the price of their stock will only go up as time passes and company not only generates revenue, but profit as well.
Those fluctuations aren’t entirely bad either.
By paying attention to how prices in stock rise and fall, you can play the market to your advantage if you keep the third tip in mind.
3. Have Cash Available to Spread Out Your Investments
Everything in moderation.
Keep that old adage in mind when you want to buy stocks for a company.
Let’s say, for example, that your ultimate goal is to buy 100 shares of BAC (Bank of America). Any professional investor who knows his trade well enough would advise you not to buy them all at the same time.
It’s not so crazy when you think about it. If you buy 20 shares today, 20 more in two weeks, wait a month until you buy another 40 and then wait another three months to buy those last 20 shares, you’re averaging your position to the general 6-month market price instead of buying all 100 shares at one price.
Over that six month time span, the stock’s price could have dropped for any number of reasons.
Stock prices are particularly vulnerable to things like companies having a bad quarter, a raise in capital or rumors about a change that the company or its industry would undergo brought about by speculators.
If the price drops for any of those reasons, or the company does something like announce that it’s going to lay off half of its workforce or close a production facility, you’ll be glad that you didn’t buy all of your intended shares in one fell swoop.
By waiting and buying your shares in chunks, you’ll already have cash put aside. When stock prices dip for whatever reason, you can then buy your additional shares “on sale”, as it were, and wait for the price to go back up.
For classic examples of this happening you need to look no further than Apple’s stock. When company CEO Steve Jobs announced his taking a leave of absence for medical reasons, the computer manufacturer’s stock price fell a few points but eventually recovered and even overtook its old position in time.
These are just a few of the basics to keep in mind when it comes to investing your moneys, but I’ll close this article with one bonus piece of advice.
Don’t Invest Money You Can’t Afford to Lose
This seems like a no-brainer, but I think it should be said anyway.
The ugly reality of the stock market is that there is always a chance that you could lose the money you have invested, no matter how safe the industries your stock picks fall into might seem.
Liquid assets that can’t be easily squandered should be put into safer, lower-yield investments like a savings account or money market account where they can be easily called on in case you come across an emergency where you’ll need access to cash that you know for a fact is there.
That said, anything extra that you have can easily be taken and put into the stock market where it could do you some real good if you play your cards right.
Now you know what to look for when it comes to putting your money into the stock market. Go out there and make it happen!
Good luck!