Important tips to become a successful stock investor

The thought of investing in the stock market may seem a little frightening at first, especially for those who have never done so. Wading into any uncharted territory is scary, but armed with knowledge and guidance, the stock market is not so difficult to navigate and shares should form an integral part of any investment portfolio.

In fact, shares have been shown to be the best long-term investment, surpassing property, cash and fixed interest as a generator of wealth. The key to becoming a successful stock market investor is to obtain a comprehensive understanding about investing in the stock market. Stock market investor should be aware of the following points. A successful investor has a lot of patience, common sense and the willingness to research, practice and build up a portfolio that will provide a high enough return to meet personal investment goals. You should never invest huge amount of money all at once. It would be wiser to put in the money at various times. One of the biggest investing mistakes that many people make is investing before they are financially ready. To be a successful investor, you should clear up your debts first before using those funds for investment purpose. Set aside some money to ensure you remain financially secure. If you do not have enough funds and you ever get into financial trouble, then you may end up selling all your stocks for less than the purchase price and make a loss. Therefore, make sure you set aside some money in a reserve fund in case there is an emergency. By doing so, you can protect yourself from losing money and maximize your returns in the long run. A successful trader has a strong desire to succeed. A strong deter- mination to succeed can be the one factor that makes all the difference. Some investors don’t follow the financial plan. A number of investors simply invest money on other areas without following the initial plan and this may yield higher risks of losing the money. A good trading plan is one of the secrets to having the confidence to trade in the stock market. Your trading plan must be realistic and includes all the details such as which markets you will trade, how much profit you want to achieve, and which strategies you will follow. Being well prepared is a secret of success that many people miss out on. It is very important to create a successful trading strategy before any investments have been made. Every investor is different and what’s good for one isn’t necessarily good for another. You must develop an effective strategy that works for you. Be aware of the risks and returns associated with your investment. Don’t put all your money in one type of investment. If you have all your money tied up in a single investment and something goes wrong, you will lose all your money. Reduce risk through diversification. Invest in different types of stocks instead of buying only one company’s stock. Buy stocks from several different industries. Such action can protect you from industry risk, whereby all companies in a certain industry experience a major downturn. Don’t diversify too much. Though portfolio diversification can reduce investment risk, spreading your investment over too many companies will also lead to some problems, you will have too many to properly manage. Diversify beyond the stock market. Invest a certain portion of your portfolio in other types like Unit Trusts, bonds, treasury securities, gold, etc. This diversification helps to maximize your return, while reducing your risk since you are spreading your investments over different types of asset classes. So even if one investment fails, the other investment in your portfolio will balance out the loss. Don’t put all your eggs in one basket. Do some research beforehand. If you don’t have a good under- Following market fads may cause you to purchase an overvalued stock. When everyone starts talking about a particular stock, you are probablytoo late. Don’t follow rumours without doing your own research and analysis. Investing should not be emotional. Find ways to keep your emotions out of buy and sell decisions, and stick to your plan. Don’t let your emotions rule your decisions. Monitor the market news and stay up to date on the current events/ developments. Not only country’s economic situation and policies, the world events such as political unrest, crime, changes in oil and energy prices can have a direct impact on the prices of stocks. Don’t get all your information from a single source! There are so many different sources of advice, from the stock broker, television, radios and newspapers to websites. You should search for reliable stock market news sources to keep you informed of what is going on in the market. Don’t be afraid of taking losses. Successful investor takes losses in his stride and tries to understand why the market moved against him. Understand where you have made errors in the past so as to avoid making the same mistakes. Some fail to learn from mistakes. Don’t be greedy. This is the most common mistake associated with trading stocks. Don’t be in a hurry to make quick money. One of the most common mistakes that beginners make is forgetting about expenses or not budgeting enough for certain costs. You should note that inactive stocks contain more risks. Inactive securities are fairly illiquid and trade in very small volume. Don’t focus only on return and don’t be overconfident. It’s good to have confidence in the ability of your stock broker, but remember the final decision is takenbyyou. Some investors place too much focus on past performance. Investors usually think that the past performance is a good indicator of future performance but ignoring the fact that best performers can also turn into the losers over a period of time. Past performance is no guarantee of future returns. Don’t Overtrade! This is a very serious problem and you should learn to avoid it. Successful investors are highly disciplined, consistent and rational. Highly effective people will do what needs to be done even if they aren’t inthemood. A successful investor/trader should calculate the risk-reward ratio of a particular trade and try to minimize their risk exposure. Investing in the stock market on “too much credit” is not going to help you to reap the benefits of your investment. Only invest with money that you won’t need in the short-term and can live without for a while. “An investment in knowledge pays the best interest.” - Benjamin Franklin

When it comes to investing, nothing will pay off more than educating yourself. Do the necessary research, study and analysis before making any investment decisions.

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