Stock investing tips
It’s possible to make a heck of a lot of money investing in stocks, but for best results, you should know what you’re doing. Here are some tips for investing in individual stocks.
REIN IN YOUR EMOTIONS >> Buying stocks out of greed and selling them when you’re afraid is a recipe for disaster. Only buy when you’ve studied a company, understand its risks and opportunities well, and think it’s priced attractively. When the market swoons, as it will now and then, that’s a great time to buy more stock, instead of selling.
DON’T AVOID BORING STOCKS >>
Many companies are exciting, but you ignore boring ones at your own peril, because they may be very profitable. Warren Buffett’s Berkshire Hathaway, for example, encompasses many subsidiaries, but its main businesses are insurance, energy and manufacturing. Banks can be great money-makers, and real estate investment trusts (REITS) can grow while paying generous dividends.
DON’T BE A SPECULATOR >> Don’t take on unnecessary risk — by jumping in and out of stocks frequently, investing with borrowed money, trying to time the market, buying penny stocks or even just investing in companies you don’t fully understand.
PAY ATTENTION TO A COMPANY’S VALUATION >> Many companies are terrific, but some of them are priced steeply these days. Aim to buy shares when they are trading for less than they seem to be worth. Look for companies with priceto-earnings (P/E) or priceto-sales (P/S) ratios below their five-year averages, or well below those of their peers.
READ UP ON STOCK INVESTING (INCLUDING VALUATION) >>
It’s best to keep reading and learning throughout your investing life. If you prefer to keep things simple, you could buy few or no individual stocks, and just stick with low-fee, broad-market index funds such as those tracking the S&P 500. Keep adding to your index funds over time, and you should do quite well, earning roughly the same return as the index.
You can learn more about money management, and find a good brokerage, via our Theascent.com site.