Ever wonder how should you approach the stock market? No matter where you are, which exchange your country is based in or which exchange you would like to buy shares in, the general principle and guideline remains the same.
Everyone knows the principle of buy low, sell high. It sounds easy, but is it? It COULD be, but the mental psychology of most human minds always play against you. Most people buy stocks and sell based on the same emotional ground. It's always a horde mentality that forces people to buy high and sell low, making a loss.
Buy on Rumors, sell on Facts
? DON'T. You're just hitting yourself in the face. Here are some guidelines that I adhere to, as a stock investor
, no matter how big or small an investor you are.
If you are a news trader or you are a speculator and don't intend to hold your position for a good period of time (say 6 months to a clocking good 2 - 3 years or more), these guidelines aren't for you.
Never Ever Listen To Your Broker
Unless they advice you to sell and stop since your account got margined out. You can listen to updates from them on how the stock market is doing, how the counter's company has been screwing up or doing well, but never base on another individual's opinion to buy a counter.
Do Your Homework
This is the number one rule. You don't expect yourself to start buying in a particular counter without knowing exactly what is the company doing behind the scene. How fundamentally strong is the company? How are they generating their profits? What is their Price-Earning Ratio? (I know that there are lots of people who do not believe in PEs nowadays, but they're still a good fundamental indicator to me) Is their core business team good in handling business? Have they been changing their CEOs and CFOs as much as you change your clothes every day? Generally I'd like to buy stocks in those fields that I have at least relevant knowledge in, so I could keep track of how the company is doing, their plans, their work and the future. I see it as buying a piece of the company and holding it to collect dividends. You grow as the company grow. (Yes, price grows too)
Decide Your Risk Level
Never ever punt, even if your exchange allows you to do contras, never ever do that if you don't have the risk appetite to do so. I have heard so much cases where people don't have enough money to pay to hold the stocks that they were speculating and it went the wrong price direction that they were hoping. Remember never ever to mix bread money with money you are to invest in stocks.
Golden Investment Rule: Never Invest With Money You Cannot Afford To Lose
Anytime is Always A Good Time to Enter The Market
Only when you know what you are buying. The stock market movements has cycles. Some believes it works the Elliot way
, some wait for events like disasters to happen, most generally just wait and follow the crowd.
Now the general rule of thumb is this, as long as you think the price is right (not overpriced), as long as the company's financial health is in good standing, fundamentally sound, has a good track record of income, manages its field of business well, grows exponential and steadily, responds to investors queries, anytime is always a good time to buy its stock whether it is a bull or bear market.
Never Stop Learning
Avoiding another's advice on buying a counter is although a must here, formulating your own opinions with good load of news and facts gives you the choice of making an informed decision of your action.
Find related websites on stock investing of your own stock exchange, read the business section of your national preferred paper, sign up for relevant mailing list on stock investing, update yourself and never stop learning. Yes it's true that since you believe that your stock buy is a good one and should be around for years, it's never too old to learn some new tricks from time to time (e.g. how to handle your stock broker when they call and give you hot tips, how to save up on your brokerage fees etc, those related sort of topics)
The due diligence work is done on your preferred stock counter. The purchase has been made. It's really sitting back and just wait out to reap the rewards on the long term. If you are refreshing your screen every 10 to 15 minutes just to see the last done price, you're obviously stepping over your own risk appetite. If not, chill and reap the long term rewards of your preferred stock purchase.
Adapted from Jude's No Bullshit Investment Blog