Are you considering getting into the stock market? Maybe your friend made some money on it this past year, or you have been watching the tape and finally feel ready to execute your first order. Either way, the stock market can be an excellent place to build wealth and save for the future.
However, according to a recent study, 20 percent of Americans who are not invested in the market noted the reason being “they don’t know enough” about it to allocate money towards it.
If you are looking to get involved with stock market investing, keep reading this investing guide and learn the stock market secrets to give you the edge needed to make a profit.
1. It’s a Waiting Game
The first thing you should know about the stock market is that it’s designed to benefit those who are patient with the process. Legendary investor and CEO of Berkshire Hathaway, Warren Buffet, famously once said, “the stock market is a device for transferring money from the impatient to the patient.”
The general rule of thumb is if you don’t plan on owning the stock for an extended period of time, such as 5 to 10 years or more, then there is no reason to invest in it in the first place. Stocks will experience increases and decreases in price at times. Even the best companies in the world will have times when the stock doesn’t perform as many investors expect.
It’s best to look for companies that you believe will continue to grow and expand based on your research. Keeping track and staying up to date with the latest macroeconomic developments can also help you decide when it’s best to enter or exit positions.
2. Do Your Due Diligence
Before ever pressing the buy button, it’s essential to conduct your own research into a company and decide if it’s the right company for you to invest in.
One of the best stock market investing tips is don’t buy a stock based on other people’s opinions. They can be completely wrong or biased towards the company without any facts to back up their opinion. That’s why doing your own due diligence is critical.
There are a few different areas of the business you will want to research and look into further. These include:
One of the first things you will want to look into is the company’s financial statements. There are three primary statements to go over, including the:
- Income statement
- Balance sheet
- And cash flow
The income statement will give you an idea of how much money the company is making. Studying the balance sheet will reveal the company’s debt obligations and what assets the business owns. And the cash flow statement can show you where the cash is being distributed throughout the company.
You should also consider the competition and their place in the market. Look for companies that are outperforming the competition. These are the leaders and should be focused on.
If you’re looking for ways to analyze the competition and industry, try using a SWOT Analysis. A SWOT analysis will consist of the company’s:
Studying these few critical areas of a business can better understand where the company stands in its industry.
The people leading the company will play a significant role in how well the company performs. Good leaders tend to outperform the competition.
Reviewing the management and what they have accomplished in the past can help shape what they are capable of in the future.
It’s also important to consider where the stock price has been in the past to predict where it’s headed in the future. Has the stock experienced significant drops in the past? If it has, find out why, and make sure it won’t affect the future price.
3. Start Slowly
One of the most helpful stock market tips for beginners is to start slowly. It may be tempting at first to throw all your money in and expect it to grow rapidly. This is rarely the case.
Instead, find good stocks, and look for price levels where there tends to be support. When the price hits your entry level, you can allocate a portion of your desired position, not all of it. Then, if the price begins to fall, you can allocate more towards the position.
4. Analyze & Adjust
An essential part of investing is reviewing or analyzing your past performance. When you check this information, look for what has worked for you and what is dragging down your performance.
When you find this information, write it down somewhere so you can review it later. Getting in the habit of writing down what works for you and what’s holding you back can help you see where your investment strategy needs some adjusting. This can help you perfect your investment plan and allow you to enjoy a better portfolio performance.
You can also opt to use algorithmic trading to automate the trading execution for you. Learn more about this trading style at KJ Trading Systems.
5. Never Stop Learning
Rule number one when it comes to investing – never stop learning. There is always going to be new information that can affect your conviction of a company.
That’s why it’s crucial to write down the information you research and discover about a company you are invested in. When new data is released, you can go back and review why you had that conviction in the first place. If the information changes your belief, you can adjust the position. If not, then no changes are necessary.
The Best Stock Market Investing Tips
If you have a winning streak, don’t fall victim to thinking you know everything, there will always be more to learn when it comes to the stock market. You need to have the ability to quickly take in new economic information and apply it to how it’s going to affect individual stocks and the market itself.
If you are looking to get started in the stock market, check out the rest of our website for more stock market investing tips that can help you grow your wealth!