When you think of investing in the stock market, it's natural to first consider what kind of stocks to buy. After all, it can be fun and interesting to research companies and see which ones you'd like to own. However, it's also crucial to consider what not to do, as there are several mistakes that the most successful stock investors have learned about. Of course, the overall goal is to make money and avoid losing money. Sometimes you must learn through trial and error, but here are some common errors you should be aware of.
Things You Will Need
First and foremost, only buy companies that are profitable. Many times, speculative stocks get a lot of attention in the financial media. Maybe they have a product or service that the media enjoys talking about, or maybe they're from a sector considered hot. But avoiding unprofitable companies is important because those stocks can go from media darling to goat in a heartbeat. If there's some bad news, or even a rumor, investors can run for the exits, and send the stock plunging. It's better to focus on stocks that are profitable. Even though these, too, can be victims of bad news, at least there is a track record that investors are buying into. That's usually safer than just the promise of earnings at some future date.
Second, don't be afraid to sell! And, just why would that be? With every stock, there comes a day when an uptrend is ending. It could happen after several years, months, weeks or even days. The timespan doesn't matter; whenever you buy a stock, you must know that someday, you will sell it.
But often, people are reluctant to sell. They frequently become attached to their stocks, as if they were pets or beloved family members. But don't fall into that trap! Stocks are investments, and you buy them so you can make money. But remember: In order to make money, you need to sell at some point. Otherwise, you have paper gains, but no actual money in your pocket. So when a stock you own begins weakening, don't hesitate to pull the trigger and sell it. After all, if it does begin a new uptrend, you can always buy it again.
Third and lastly, avoid day trading. That's because it's far too risky to try and time the market's swings on an hour-by-hour basis. While it sounds appealing as a way to make money, it takes a tough constitution and high tolerance for risk. In addition, it's tough to time the market so precisely. It requires constant monitoring of the market and knowledge of the stocks you are trading. The reason it's important to avoid day trading is because the risk factor is far too high for the average investor, especially a newbie. If you have successfully invested for many years, and understand how the market works, perhaps you can dabble. But until then, it's best avoided.
Far better, is a basic strategy for growth investing or value investing.
Eliminate the negatives by avoiding these three things. That will give you a leg up in the market. You'll keep more of the money you make, and be able to sleep at night because you won't be up worrying and fretting.
Tips & Warnings