Investing in the stock market can be fun and rewarding, but it can be risky as well if you are not careful. First and foremost, before making any investments, remind yourself not to be greedy. Tell yourself the price point at which you are willing to sell. Have the discipline to execute if the price reaches the pre-determined level.
For example, if you plan on selling once the price rises by 50 cents, then sell if off once the stock has reached that price. Don't hesitate and hold on to the stock and hope that it will go further. Sometimes, the market can be so volatile that you may see all your earnings wiped out overnight.
Of course, if you wish to see any kind of earnings, you need to be able to know how to pick the right stocks. Here are some tips to help you get started.
Tip 1: Never invest based on hearsay or rumors.
There are always tons of information flying around. If you don't really know the company, then don't invest. Depending on hearsay and rumors is very risky. You have no idea whether the information is accurate or not. The best thing to do is to check things out for yourself, which leads us to the next tip.
Tip 2: Performing due diligence.
Always do your homework before making an investments - especially if there is a large amount of money involved. Do your due diligence to see if the numbers reflect wise business practices. Learn how to review balance sheets and business accounts. The numbers are always very revealing. If see something that you don't like, steer clear of the company, even if the stock looks promising.
Tip 3: Keep abreast of the latest changes by following relevant news.
If there is a sector that you are interested in, spend a bit of time each day following relevant news. News can help you spot trends, and you also get a better feel of where the company is heading. A lot of your investment decisions will depend on your own intuition and vision. If the future looks bright for a particular company, then perhaps it's the right stock to pick.
Tip 4: Be aware of management changes.
Every company depends on the competency of its core management for financial success. A company may be doing well due to having a strong management team. But people resign and join new organizations all the time. So if there are drastic changes to the management, the business may be in for some turbulent times. In this case, it may be best to wait for the company to stabilize before plonking down your investment.
Tip 5: Pay attention to the products.
No marketing can save a company from downfall if the products are not killer products. If possible, buy and use the products. For instance, if you invest in Gillette, buy their latest products and use them. When you use a product, you get an idea of whether the management is doing a good job with product designs or not.
Tip 6: Stay away from businesses that you know nothing about.
Tip 7: Never fall in love with a stock.
A given stock is just a means to an end; it is a way to make money. If your stock has a sell signal, based on your criteria, then sell it. You can always repurchase it at a later date.
Finally, if the company is in an area that you don't really understand, simply don't invest. The risks are extremely high and you don't want to use your hard earned money to undertake unnecessary risks.
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