The stock market can be a challenging especially without expertise and the right kind of information. However, the problem is that many people want to begin with a large investment. The best way would be to start small and increase your investment as you learn.
You can go your whole life without ever buying a single stock. But until you do, you won’t really understand the full potential of investing — and the rewards that come with it. For beginners, mutual funds give you a great way to get your feet wet. With just a few hundred dollars, you can invest in a mutual fund that will give you instant access to thousands of different stocks. The diversification that comes with broad-based mutual funds brings with it a measure of security.
You may still lose a lot if the whole market goes down, but if one particular company gets hurt, it won’t have a huge impact on your overall portfolio. Conversely, though, buying individual stocks can be a lot more rewarding. You can earn far greater returns from individual stocks than you’ll ever find from a diversified mutual fund — if you pick the right stocks.
Mutual funds provide a good way to learn about stocks. While most business including stock is about risk, it is best to determine the kind of risk you are willing to take in each buy. The following are some tips to make best of the opportunity in stocks.
1.Buy What You Know
Each investor forms their own trading strategies and rules for buying stocks based on personal goals and risk tolerance. Similarly, each investor buys and sells stocks and mutual funds based on what makes sense to them, right?
Not necessarily. The problem is that many investors fall victim to the latest fads on Wall Street and are eager to buy the stocks everyone else is talking about. This is how traders got taken for a ride by the tech bubble, as folks piled into stocks that had not yet turned a profit and with no realistic way to make money.
2.Buy Stocks Great Investors Own
Of course, there is a pitfall to relying on personal tastes alone. It is always valuable to have an outside perspective on your stocks to make sure you are on the right track. Also, if you want a second opinion, why not go right to the top and pick the brains of the best traders on Wall Street?
There is a reason Warren Buffett is a bit of a rock star to individual investors – because his trading strategies and ways to invest money seem almost superhuman. Buffett’s Berkshire Hathaway Inc. (BRK) continually makes timely and very profitable investments. In March, Berkshire showed its stuff yet again in a powerful earnings report as year-over-year results improved, and the stock’s book value was up nearly 20%.
3.Buy Stocks for the Future, Not the Past
Sifting through quarterly reports and past performance for a company can provide insight into the health of a prospective investment. However, whenever you look at these numbers, it is important to realize that they are lagging indicators. When you look for the best stocks to buy, you should put a premium on future growth trends over previous successes.
Consider changing demographics, such as the fact that China is now the #1 automobile sales market in the world thanks to an emerging middle class in the People’s Republic and flagging consumer confidence in the United States during the recession.
4.Buy Stocks with Great Leadership
At the end of the day, the success or failure of a company in large part relies on the leadership and vision of its top executives. Growth comes from the top, not from random successes at a smattering of stores that trickles upwards. When you buy a stock, you have to realize that you are buying its management too.
Consider the successes and failures of Apple Inc. (AAPL) over the last two decades. In the early 1990s, Apple was considered a second banana to Microsoft (MSFT).
5.Buy Stocks with a Clear Plan to Sell
You would think it goes without saying that the purpose of buying a stock is to sell it for a profit, but many investors run out and buy “great stocks” without a clear plan on what their investment goal is and when they want to sell. This can be brutal on your portfolio.
Because after all, what is a “great stock?” Trendy footwear manufacturer Crocs (CROX) was a great stock to buy in early 2007 at $23 a share — but only if you sold by October of that same year when prices were pushing $70, locking in your 200% gain.