Stock market investment is more popular than it ever has been whether direct investment or through collective funds. Many people see their stock market investments as their pension fund of the future and while looking to protect their funds in the longer term they are often prone to high-risk investments in the early days. So, what are the best five tips to successful stock market investment?
Do not overextend your finances
They always say never invest money that you can’t afford to lose or you might require at short notice. This is perhaps the best piece of advice you will ever receive because investing should be seen as a long-term activity not short-term speculative investment. There may be times when you see a short-term gain, and there is no harm in taking a gain, but once you move towards the short-term speculative area of investment you are potentially looking at high risk/high rewards. Even if you initially invest on a long-term basis but find that you need the money it would be more than likely the wrong time to sell your shares. Put the money aside, invest on a long-term basis and forget about it.
Remember to cut your losers
While it is obviously important to take a profit, perhaps the hardest thing you will ever have to do is to take a loss and admit that you got it wrong. Unfortunately many investors have an ego the size of a planet and if they were to sell at a loss this would hit their ego and mean they had to admit they got it wrong. Over time you will find that it is harder to take a loss than it is to take a profit, indeed many people will sell too early, but it is vital that you learn to do this. The investment world is littered with individuals who made good money in the good times but their egos stopped them from taking losses in the bad times. What have they got left now?
If it looks too good to be true….
On occasion you will see shares which look “too good to be true” and are a no-brainer with regards to investment. On the rare occasions that the market “gets it wrong” you could likely be onto a winner but more often than not the markets do not lie. If you think of a stock market as an information exchange, hundreds of thousands of people inputting their views by buying selling shares, then at the end of the day the markets arrive at a “fair valuation”. Even though the authorities are trying to cut down on insider trading, there is no doubt whatsoever that information does leak into the market and impact share prices before official announcements.
If the share price continues to fall but the fundamentals look good on the surface, what is going on behind-the-scenes? Unfortunately insider trading is not under control, the leaking of price sensitive information is still rife so if it looks too good to be true….think what the markets are telling you?