Investing in Stocks

Although I wouldn’t call myself a professional stock market investor, I do spend a lot of time following the market and reading about the ups and downs of companies. I’ve never been interested in mutual funds or index funds very much as I would much rather invest in individual companies. My work allows me plenty of time to indulge in my stock market obsession though, so I understand that not everyone can put in the hours of research required to invest in individual stocks.

Over the years I have made enough mistakes and have had enough successes to learn enough about investing in stocks to have developed my own set of rules. These are general investing tips that can easily be adapted to most styles of investors.

HOT tips Don’t pay any attention to HOT tips
As tempting as the hot stock market tips may sound, don’t risk your hard earned dollars on them. Impulsive buys are no different to gambling, so unless you can afford to lose your money, buying just because a friend says they have made a lot of money from a company is no reason to race out and buy it. If the hot stock tip is really worth adding to your portfolio, it will still be worth adding after a couple weeks of research.

learn about stocksLearn as much as you can about the stock before investing in it
Each stock is actually a business, not just a stock ticker symbol that goes up or down each day. You wouldn’t buy a business before doing a lot of research into what the company actually sells, what services they provide, what the earnings have been, what earnings are expected to be, and a whole lot more about the business. The famous stock market investor from Omaha, Warren Buffett always refused to invest in businesses that he never understood. He avoided technology stocks as he knew very little about the businesses behind the stocks, which allowed him to miss both the boom and bust of the tech bubble.
Learning about the industry the stock is in can also be as important as learning about the company.

Don't pay too much for a stockDon’t pay too much for a stock
If a stock is getting a lot media attention and everyone from your local butcher to your taxi driver has been buying into it, there’s a good chance that the price of the stock is inflated. Compare the company data with similar stocks in the same industry. If they don’t compare, move with caution. It may be that the company is a quality stock in a strong, long term uptrend or it could be that a bunch of sheep are simply reacting to media hype. The challenge is to work out which stock is the quality company that demands a premium price and which is the stock that will halve in value.

sell a losing stockAdmit to your mistakes and don’t be afraid to sell a losing stock
No one likes to admit they are wrong, but even the best investors make mistakes. Hoping for your stock to turn around while it keeps losing value month after month, year after year is a no win situation. Some companies will always underperform. Cut your losses and put it into something that has some hope of making you money.

Professional AdvisorGet Help from a Professional Advisor
Even if you have a lot of spare time to research the market and investing in stocks, it is advisable to see a professional before making any major financial decisions. The tax implications and financial obligations of individual investors may mean that it wiser to pay off debts or invest in other assets. If you are sure that stock market investing is the right thing for you, it is still good to seek professional advice.

With the abundance in financial data online now and online brokers being so easy and affordable to use there has been a massive increase in individual investors entering the markets for the first time. Don’t ever feel that you have to buy stocks in haste though. Impatience will burn more people than it will reward. Know the stock, the company, and the industry it is in before even thinking about logging into your internet broker account!

Original article here.