Investors are always on the lookout for reliable stock tips that help them choose companies that beat the stock market while delivering tried-and-true strategies and rules for investing in them. Here are ten stock tips from investing experts from which all individuals looking to be successful in the stock market can benefit.
Latest Stock Tips and Market Tricks:
- Do Not Invest Money You Need
- Remember That Buying Stock Is Easier Than You Think
- Use Limit Orders to Buy and Sell Stock
- Avoid Mutual Funds and Indexes
- Invest in the Individual Stocks of Great Companies
- Plan for the Long Haul
- Try to Ignore the News
- Don’t Purchase Stock All at Once
- Enroll in Dividend Reinvestment Programs (DRIPs)
- Add to Positions Over Time
1. Do Not Invest Money You Need
The first and probably most important tip a new investor can receive is the reminder that there is no guarantee in the stock market. An investment looking good on paper doesn’t always go as planned in real life. Before investing any money into the stock marketing, investors need to realize that losing all of their money is a real, albeit unlikely scenario.
Investors can minimize the risk of significant losses by ensuring they won’t need to withdraw invested money in the immediate future. For example, at one time Chipotle (CMG) was selling around $400 a share before being attacked by short sellers, which crashed it to as low as $250 a share. Jump ahead a few years, and it was once again selling at $500 a share. The company itself didn’t change at all during this time. It just continued growing steadily as it had done for years. Investors who were able to weather the storm are now ahead, while those who needed to withdraw their money during the decline suffered a significant loss.
2. Remember That Buying Stock Is Easier Than You Think
The ease of getting started with buying and selling stocks often surprises new investors. By simply signing up for a brokerage account, potential investors can sync investing accounts with their bank accounts, allowing them to transfer money at no cost.
However, selling and buying stocks isn’t free as brokerage firms don’t buy and sell stocks for investors out of the kindness of their hearts. While not free, it’s not overly expensive either for investors using a discount brokerage whose typical fees for buying and selling range from $8 to $10.
Once investors have money available in their account, they can push the “buy stock” button to search for a company that interests them and then put in their order.
3. Use Limit Orders to Buy and Sell Stock
When buying stocks, investors have the option of purchasing via a limit order or a market order. A limit order allows investors to establish the highest price they’re willing to pay for a stock or the lowest price at which they’re willing to sell a stock. A market order means that an investor will pay whatever the current price is for the stock.
Buying or selling via a market order leaves an investor open to market whims. Stocks typically move up or down a few percentage points each day. If an investor puts in a market order, they may get caught on the high end of a stock’s average value. If they sell via a market order, they may end up on the low end of a day’s variance.
Using a limit order protects investors from these fluctuations by allowing them to set the max price they are willing to pay for a stock when executed as a buy and the lowest price they are willing to sell a stock at when executed as a sell.
By establishing a limit order for a buy at 0.5%-1.0% below the current price and as a sell at 0.5%-1.0% over the current market price, investors can seek out additional profits.
4. Avoid Mutual Funds and Indexes
One of the most common mistakes new investors make is investing in a stock market by buying into an index fund or a mutual fund. Despite mutual funds routinely delivering inferior returns, many investors place their entire stock holdings into them. Mutual funds experience two problems: rules and fees.
Understanding the fee portion is easy: there are management fees associated with mutual funds that affect total profits. A mutual fund needs to greatly outperform the overall market to pay its high management fees, something that doesn’t happen often.
In addition to fees, and even when being managed by a capable fund manager who can beat the market average, mutual funds are typically constrained by a set of governing rules the fund manager is required to follow.
Index funds also present problems for investors as they track the entire market as opposed to specific stocks. Some companies are clear losers, and investors want nothing to do with them. For example, if an index is tracking the New York Stock Exchange (NYSE) and an investor puts money into this index fund, they are purchasing a small piece of each company on that exchange, winners and losers.
5. Invest in the Individual Stocks of Great Companies
Once investors know how to buy stocks and understand that individual stocks generate better returns than funds, they need to select the stocks they want to purchase. The best option for investing in individual stocks is by investing in stocks of established companies that aren’t only likely to be around for the foreseeable future but will also continue to thrive.
6. Plan for the Long Haul
Once investors decide which companies they want to invest in and purchase shares, they should plan for the long haul. Stock prices fluctuate up and down in spurts, with even great companies losing 10%-40% of their market cap because of negative sentiments.
Successful companies are typically priced at a premium, sometimes spooking investors with the high relative cost of their stock. However, picking a great company generally means their earnings growth will eventually catch up to the share price, with the stock price following.
Just as a company can lose 10% or more of its market cap quickly, it can also gain that much in a single day. Even a company with a large market cap can be subject to jumps like this: Google (GOOG) jumped over 10% in a single day after a good quarter of its market cap increasing well over $25 billion.
7. Try to Ignore the News
Every day, news commentators attempt to spin stories about stocks, so they have things to talk about on their website or TV show. It’s best if investors can keep a safe distance from this as day to day news typically has little if any, influence on a company’s overall prospects, especially if the news is negative.
For example, when there were delays in the China Mobile and Apple deal, some commentators suggested this delay was a signal that Apple was suddenly an absolute sell. In reality, with their latest product refresh, Apple was going to be profitable with record sales even without the deal.
It’s best to ignore negative stories and instead stay focused on the long haul. Otherwise, investors may end up “panic selling” and losing a significant amount of money.
8. Don’t Purchase Stock All at Once
Another useful stock tip on how to be successful at stock trading is to split investments over multiple purchases. This protects investors from significant price drops because of a bad earnings report or other catalysts that may greatly hurt a share’s price. The best practice is splitting up an initial investment target into three equal amounts and purchasing shares 30 days apart.
9. Enroll in Dividend Reinvestment Programs (DRIPs)
A Dividend Reinvestment Program, or DRIP, automatically takes dividends issued by a company and uses them to purchase additional stock shares. When left to run over a significant period of time, a DRIP can accrue enough new shares for generated dividends to become substantial.
10. Add to Positions Over Time
Investors that want to create significant wealth via stock market trading don’t buy stock one time and then never buy again. Instead, investors continuously attempt to use their savings to purchase additional shares.
Once they get a feel for how the companies they own tend to be priced, they can begin allotting their new purchases to whatever stock has the cheapest price relative to historical values. As their experience with investing in these relatively inexpensive stocks increase, they can significantly increase their total return.
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