Tips for Entering the Stock Market as an Investor
Thinking about investing in stock? If you are relatively new to the stock market, investing can be rather daunting and intimidating. Here are several important things to keep in mind as an amateur stock investor so you don’t lose your hard-earned money trading:
Try to Buy Stock You Understand
This piece of investment advice comes from Warren Buffet himself. Arguably the most successful investor ever, Buffet cautions newbies against making investments in sectors they don’t understand. When you invest in company stock, there are two things to know: how the company makes money and what impacts the particular industry of the company. If you are not able to understand these two factors, then don’t bother with the stock and move on to something else.
Use Limit Orders to Profit More
There are two ways people can buy or sell stock: with a market order or a limit order. Newcomers commonly use market orders to buy stock. That is to say, buying or selling stocks at the current going rate. The problem with the market orders is that it’s highly vulnerable to volatility. When you are day trading you will notice that a price of a stock can fluctuate up and down within minutes. You can protect yourself against such fluctuations by using a limit order, where the investor can set a maximum limit for buying stock or the lowest limit for selling stock. Your investments will not be subject to the worst whims of the market when you use limit orders.
Don’t Obsess over News
Investors should follow the news carefully. However, don’t let one or two negative news articles send you on a selling spree. When you read the news, be careful that you fully comprehend what you are reading. A temporary setback at a company might generate one or two negative headlines. That should not be cause for shorting or selling stock. Consume news from legitimate sources and read more than one or two newspapers to make well-informed decisions.
Invest in Individual Stocks for Better Returns
If you want high returns, then the best way to go is with individual stocks of well-performing companies. Think big names, like Apple or Microsoft, that have been in operation for decades. Buy stock from the best companies with the intention of holding onto the stocks. Individual stocks are best suited for long-term investment, not for temporary trading.
Be Aware of Stock Indexes and Mutual Funds
As an amateur investor, you may have heard that mutual funds and indexes are great tools for diversifying a portfolio. These can be so, but not necessarily when you start out. You should understand that funds and indexes often accompany stifling fees and impossible rules. Some of these fees may eat into the profits you make with small investments as you start out. Also, newcomers are not experienced enough to fully comprehend the complex charter rules that govern funds and indexes. Therefore, it’s recommended that new investors don’t put all they own into mutual funds and indexes.
Above all, learn to control your worst impulses when you enter the stock market. You are not gambling or trying to earn easy money. Succeeding as a stock investor would require commitment and self-discipline as well.