Tips and Tricks for Stock Market Investment
Jan 01, 2020
In such a day and age where information is openly available, it would seem like nothing is difficult anymore.
The same goes for stock market investment.
Stock market investment isn’t difficult in itself; what’s more challenging is knowing which company to invest in, and that is something that most people do.
You will need a few proper tips and tricks before you start to invest in the stock market.
Stock market investment – gamble or strategy?
Peter Lynch, a famous portfolio investor from 1977 to 1990, said that it doesn’t require any special brainpower to achieve success in stock market investment.
Even if you have basic mathematic knowledge of a fifth-grader, you can do it.
This success isn’t all based on luck.
This success comes from using a few principles and tricks that have been formulated from the experience of many successful stock market investors who have taken part in endless cycles of the stock market over the years.
Tips for Stock Market Investing
While it is true that some level of intelligence is required in any venture, you do not need a superior IQ to be successful in stock market investment.
While it is human nature to go for quick rich schemes in easy ways, there are some keys and strategies that are hidden, and a bit of knowledge that is necessary for hitting the jackpot of success.
Below are some such genuine, yet unique, and lesser-known tips that will guarantee success in investing in the stock market.
1. Deciding a percentage of your portfolio
This tip is perhaps the most important and crucial before anything else.
- At any given point, you must never invest more than ten percent of your portfolio in an individual stock.
In other words, it is not advisable to invest the amount of money that you may need in the next five years.
The rest of the amount should be an amalgamation of low-cost index funds (mutual funds).
In other words, always diversify your investments.
2. Study your risk tolerance
Risk tolerance is basically how one reacts to risk, what the level of anxiety is when you feel that there is a risk or even a possibility of a risk present.
In terms of investment, how much will your risk tolerance be in case of stock market investment?
How much money loss is acceptable for you?
Are you willing to bet a hundred dollars for a chance to win a thousand dollars?
Or will you bet a thousand to win a thousand and follow a trend?
- All humans have a different level of risk tolerance, and while there is no exact right balance to be told, it is different for every person.
You must always assess your risk tolerance before investing.
3. Setting proper goals
Investing in the stock market blindly, without setting any short term or long term goals, isn’t wise.
What matters is why you are investing in the stock market in the first place.
When are you expecting a return on investment? Are you going to need the cash back in six months, or in five years? Are you investing to get some cash for retirement or to purchase a house?
It is best to know the purpose and your goals before investing in the stock market.
- The changing nature of the stock market can't guarantee that all your capital will be present when you require it.
By determining how much capital is needed, you can actually calculate how much you can invest and how much time it will be returned.
4. Investments should be diverse
Experienced investors, such as Warren Buffet, do not support the idea of
stock diversification due to their belief that they have done a hundred percent research necessary for the identification, as well as quantification, of the risks involved.
- They believe in putting all the eggs in one basket, and then observing the basket.
However, you cannot make the mistake to follow this strategy at the start of your investment years.
Always have a variety of exposure to minimize risk, even if it has to be different countries.
5.Have a reign on your emotions
This relates to the point about knowing your risk tolerance.
- In any short term period, the stock prices are the collective emotions of the whole investment community.
Therefore, the inability to reign in your emotions is very damaging, as this affects the ability to make rational decisions.
Final Thoughts
It can be both a scary notion and an exhilarating experience to think about investing in the stock market.
The thing to keep in mind is that stock market investment is more logical than technical, and is more of a game of wits and timing.
- If you know your priorities and your risk factor, you are bound to see success over time.
- It doesn’t require you to have a high-level college degree or a very high IQ.
It requires you to have logical reasoning, clever timing, as well as a strong mind in terms of accepting and bearing risks.
