- Study the companies of your interest
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” – Peter Lynch
Do a thorough research on the companies you want to invest in before investing to avail yourself with some hidden knowledge about the companies, ask questions from experts, don’t think you know it all. Investing in stock is not a simple deal as you might think and it requires that you have some basic knowledge about any company of your interest; after all, it’s your money you are about to pour in, you should therefore treat it as your business, keep your eyes on the news to monitor the market trend, read stock reports and annual reports of the companies of your interest. In studying the companies, you will learn about their stability, operations and ability to pay dividends and as at when due, and it will shield you from any fraudulent situation that might arise due to your ignorance of the market.
- Go for stable companies
“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it” – Peter Lynch
Stocks rise and fall, that is the market trend, but sometimes a stock will fall too low for comfort, while some companies recover pretty quickly, others take ages to bounce back. There are huge risks associated with every kind of investment, but relatively stable company offers a kind of peace and comfort volatile companies can not afford.
- Don’t panic when stocks values drop
Long term investing comes with bugs and fevers of market fluctuations. When the stocks drop, don’t panic, don’t be caught up with the bug and out of fear, sell off your stocks. This is really the time to buy. “We simply attempt to be fearful when others are greedy and greedy when others are fearful” – Warren Buffett. If you sell when the chips are down, you will lose out on your investment capital and the potential gain. It may take time, but market always has a way of recovering from shock.
This is not to say that you should hold on to a stock when it is obvious it is going down the sink, an investor should be able to know when to sell a bad stock. When a stock has a protracted decline and no hope of it bouncing back at sight, it will be an utter folly to hold onto it. But don’t sell simply because of the bear market effect, investor panic, rumors or a bad quarter.
- Diversify your stocks
“We can no longer let the threat of an early frost send a chill of fear throughout a large portion of our workforce. Diversification is the only answer.” – Alan Autry
Diversification helps shield an investor against losses, by investing in so many categories of business, the risk of losing all your investment should something unexpected happens will be reduced. Also when you spread your stocks, there is a kind of a bailout from stronger companies to your financial goal when the weaker companies aren’t generating enough, and also it affords you the luxury to wait for the market to bounce back whenever there is a bear effect. It is advisable to purchase mutual funds from companies that have already spread their investments. Before buying mutual funds, you must learn about the different the different types of mutual funds and then find a good one to buy.
- Don’t rely much on stock brokers
There are so many stock brokers out there, some are good and honest, and some are good but dishonest, while some are bad in all ramifications. Finding the good ones might prove a herculean task, you should therefore acquire the knowledge and you will be covered. Most times what they do is to gamble with your money, which is the more reason you should familiarize yourself with the rudiments the stock market before investing in any business.“No thief, however skillful, can rob one of knowledge, and that is why knowledge is the best and safest treasure to acquire” ― L. Frank Baum.
