Stock Investment

In recent years stock investment has been a roller coaster ride. Stock portfolios have, more often than not, seen a decline in value due to the prevailing global economy. For the stock investment beginner, this outlook can result in, understandable, procrastination when it comes to taking the first steps into stock investing.

If you are about to start stock investment, understanding the markets can appear as confusing as rocket science. Candle charts here, stock graphs there; huge quantities of jargon everywhere! Considering all the financial speculation and data that is freely available, it’s no wonder that you can easily leave without getting the knowledge you were seeking.

Stock Investment - What are stocks?

Stocks (aka shares, equities, securities) represent your ownership of a small portion of a listed company. The “Stock Market” is a place where stocks and bonds are "traded" {i.e. bought and sold!}. Most large public limited companies trade stocks during every trading session, creating an opportunity to buy or sell shares any day the markets are open. This means that common stocks are considered to be highly liquid. The definition of “Liquidity” is a measure of how easily an asset can be converted into cash {cash being the most liquid asset}.
Ownership of companies stocks gives you the right to vote on members of the board of directors, and on major decisions the company may face. You can also receive a dividend (profit payment) based on the size of your investment. The technical term for issuing stock to raise money is “equity financing”. The money received from investors who buy stocks is called, “equity capital”. Companies issue stock to raise money with which they can finance expansions, pay for equipment or fund any form of activity. If the company's profits increase, you take a share of the profits. If the company's profits fall, the value of your stock holding falls. If you sell stock on a day when the price of that stock is more than the price you paid for it, you make money.

There are two different types of shares:-

1. Preferred shares.
2. Common shares.

If your stock investment is in common shares, there is more risk of losing part, or all, of the funds that you have put into the company. Why is this? In the event of company failure, creditors, bondholders and preferred shareholders are considered to possess a higher priority claim to reimbursement. This means that they’ll get the first bite of the cherry. In addition, preferred shareholders may also have a greater say in the companies’ decision-making process, and be entitled to larger dividends.

However, one benefit of stock ownership is the notion of limited liability. If the company loses a lawsuit and must pay compensation, your stock can become worthless. But, the creditors can’t come after your personal assets.

Stocks and shares can be a long-term investment. Stock investment in a company stock represents your confidence in the companies’ future viability and profitability, and as such, should be based upon good research, professional advice and sound judgment. Provided that this is the case, you will find that holding a stock portfolio in the long term, with a balance of stock investment vehicles {individual company stocks, mutual funds, and index-based investments} is usually a good and profitable idea.

Don’t be the horror story, knee jerk trader, who takes “Hot Stock Tips” from anyone and ends up bitter and broke. This is not a game for anyone who hasn’t researched a sensible stock investment strategy, and who is not willing to implement it with discipline, and without compromise.

3 Basic Stock Investment Strategies.

1. Value: The classic Warren Buffet strategy seeks to find stocks that appear undervalued on the stock market, purchase these stocks, and profit in the future when the companies’ true potential becomes apparent to all.

2. Growth: As the name suggests, investors focus on stocks with a high potential for growth, purchase these stocks, and profit in the future when the companies’ true value is realized.

3. Technical Analysis: Some traders {“chartists”} use charts to predict a stock's movement. Technical analysis tends to be used for short-term trades, day trading, end of day trading, and the like, instead of long-term investing.

3 Basic Stock Investment Mistakes

New investors often make similar mistakes. Here are three!

Stock Investment

1. Trading too often: New traders buy and sell stocks far too much, usually on the back of rumor or speculation. This is tax inefficient and the only one who profits from this naivety is the broker, coining in the fees.

2. Panicking: You need to keep a cool head, and a well researched stock investment. Investors that panic end-up buying high and selling low. This sort of fear is detrimental to any investor.

3. Being Greedy: Jim Cramer frequently says “bulls make money, bears make money, hogs get slaughtered”, so keeping a conservative outlook is a benefit to a good trader.

7 Basic Stock investment Tips

1. Keep the Gains; Limit the Losses
New investors earn profits by selling the investments that have appreciated in value; Great! But then they hold onto stocks that have declined and declined and declined, desperately waiting for them to bounce back. Key Message: If you’ve invested in a dog stock, let it go!

2. Don’t chase the “HOT TIP”
Don’t waste your hard earned money on someone else’s guess, the rumour mill, or some bizarre stock speculation tip that comes wafting across the Internet. Do your research and be a pro.

3. Focus on the Big Picture.
Long-term stock investment requires that you shouldn't panic when your stocks experience short-term movements. Provided you’ve ensured the quality of your stocks, you need to remain focused on the big picture.

4. Don't “live and die” by the P/E ratio.
Investors place too much importance on the price-earnings ratio (P/E ratio). Just as in any other business, profit performance can never be wholly based on one quantifier. True performance measurement is derived from a portfolio of different business metrics that define lots of different qualities. Always look deeper…

5. Penny Stocks?
Never undervalue a penny stock, as a penny stock is just as volatile an investment as a company stock with a much higher value. Some would say, more so! The common misconception is that there is less to lose in buying a low-priced stock. Wrong; there’s still the same 100% of your investment to lose… Use caution and prudence.

6. Pick and Stick.
Don’t chop and change your strategy; stick with it and ride it out. No one strategy is inherently better than any other, but, once you’ve found your trading style and strategy, stay honest to it. Investors who flip between different stock strategies experience the worst, rather than the best, of all of them.

7. Think about the future.
Past performance may be the best predictor of future performance, but stock investment is all about focusing your attention on the future. You can certainly base your predictions on evidence from the past, but your mind always needs to be thinking in the future.

Stock Investment Conclusion

There are exceptions to every rule, but these solid tips and common-sense principles for long-term investors will benefit you and provide insight into how you should think about stock investment.

More articles below:-

Stock investing for Dummies
Intelligent Stock Trading
Sensible Stock Investment
Investing for beginners: Learn How to Invest and Trade in the Stock Market