10 Stock Investing Tips

Need to know 10 stock market investing tips?  Today’s stock market can be intimidating for a new investor.  By following these simple strategies you’ll avoid some common pitfalls and build a portfolio to be proud of.

1. Know your goals.  Jack Schwager studied Wall Street stock traders and found that the best “never trade impulsively, especially on other people’s advice.”  Knowing your end goal ensures that any stock market investment will be based on your own needs instead of promises of quick wealth.
2. Understand the stock market as a whole. On many days, stocks move with the market in general.  By understanding drivers such as economic data, news reports, and the impact of weather on the financial markets, you’ll be better prepared to deal with the ebb and flow of daily investing
3. Understand options. “Calls” and “puts” allow investors leverage to purchase or secure investments in the stock market. A “call” option is an option to buy at a predetermined price. Investors may buy a call option to secure the right to buy a large number of shares in the future at today’s prices without investing much capital. A “put” option is an option to sell at a predetermined price, allowing investors to secure a good price today and wait to see if conditions improve. Options are complicated but can allow investors flexibility to better secure stock purchases.
4. Use stop losses. “Offense sells tickets, defense wins championships,” famed high school coach Dave Thorson once said. Stop losses are the defense of investing. Here’s how they work: a stop loss is a trade placed at a point below the current stock price.  If a stock price falls to that point a computer automatically sells the issue. This will allow you to go about your daily life and not worry about having to sell if the market collapses.
5. Use automatic investment plans, or DRIPs (Dividend Reinvestment Plans). In a DRIP, investors automatically reinvest dividends paid out back into the issuing stock.  This helps investors accumulate shares without adding additional capital to the initial investment.
6. Learn charting basics. Active stock traders rely on charts to make minute-by-minute decisions in the marketplace. Having a basic understanding of charts will help you organize decisions around good times to buy or sell your favorite stocks.
7. Learn fundamental analysis. Understand the company to better understand the stock. Answer questions about the company, such as “how does the company bring in money?  How do they spend money?  How quickly can they sell products? How much money does the company have to spend to make a buck?” By answering these questions you’ll know the heartbeat of the company and can better decide if it’s a good investment or not.
8. Follow market trends. Good traders “figure out which market environments lend themselves best to trading,” writes Marcel Link. Most times individual stocks will follow the market. Investing in negative market conditions may create unnecessary losses.
9. Not much time? Use exchange trade funds, or “ETFs.” An ETF gives investors diversification by purchasing an entire market vs. an individual stock. This ensures investors with little time will have the comfort that if a single stock sinks, they own not only that position, but also an entire market, such as the S&P 500.
10. Want a manager? Investigate mutual funds. According to the Securities and Exchange Commission, a mutual fund is “a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments.” Stock investors who don’t have the time for research may do well to purchase mutual funds.

References:

U.S. Securites and Exchange Commission