Starting a side hustle or a full-fledged business is expensive. It requires capital to start the business, and with that money you can invest in stocks. With many stock brokers out there, how do you know which ones to choose?
Investing in the stock market is always tricky, but if you’re smart, you can really take advantage of it.
In fact, with the right stocks you can double or even triple your money within a year or less.
That doesn’t mean that you should be overly reckless when investing. Always be mindful of your risk tolerance and how much you are willing to lose on a bad trade.
Here are 7 simple rules to follow when doing your stock selection and research.
Buy Stocks with Sensible Valuations
The first thing to do is to find a company that has a solid business model and can generate a profit.
A company with solid fundamentals can outperform the market and grow. Pick these companies based on value stocks and invest in them for the long term.
A stock with a good fundamental foundation represents a good company with a solid footing.
Look for companies that deliver solid earnings growth; great companies with solid fundamentals are your best choices.
Since value investing is about buying at a bargain, the discount can be a significant factor in your decision to buy the stock.
However, don’t buy companies just because they are offering a huge discount to their original price. The fundamentals have to be strong as well.
Good companies tend to offer consistent growth in earnings per share over time. They also provide a consistent cash flow from their core business.
Be a Contrarian
There are always stocks that don’t run with the pack, invest in them before everyone else does.
Keep yourself up-to-date on the latest news in the market so that you can identify these hot stocks before they explode in value.
Understand that the market for small cap stocks is usually more volatile than the market for large cap companies; this is because small cap companies have greater potential for growth than large cap companies.
Therefore, they tend to be more risky investments; on the other hand, they have the potential to deliver higher returns.
Always be aware of this risk and be ready to exit if the company fails to perform as expected.
Keep Emotions in Check
Don’t buy stocks based on your emotions or hype. Instead, keep your emotions in check and do your due diligence before you make any decisions.
If you rush in and make an investment without thoroughly researching the company, you may miss out on a great opportunity.
Remember that many investment failures happen because people make decisions based on emotions instead of facts.
Stay calm and take your time before making an investment decision; this will ensure that you’ll be making the right decision at the right time.
Also, don’t be afraid to sell a stock if it’s not performing as expected; you have to keep a constant eye on your investments.
Trust Your Gut Instinct
Stocks that yield positive returns usually do follow a certain pattern – trends in the market.
If you notice that a particular stock or class of stocks is performing well, chances are the trend will continue.
Of course, you also have to remember that not all trends in the market are your friend; you have to take care to avoid the ones that are making you lose money.
Your gut instinct can also be a good way to spot trends in the market and help you make smart investment decisions.
You should never invest in a stock or sector you don’t understand. Whether it’s marketing, technology, or licensing, you should have a thorough understanding of what it is you’re doing and why you’re doing it.
This will ensure that you make the right decision at the right time.
However, if you don’t understand how a particular stock works or why you should buy it, don’t invest in it – just move on to the next one on your list.
Study the Financials of the Company
You should study the company’s financial history, including profitability ratios, earnings per share, cash flow, debt-to-equity, etc.
Review the annual report of the company thoroughly to understand its past performance. Then compare its financials to those of its competitors in the same industry.
This will help you to understand whether the company is performing well or not; then you can make an informed investment decision.
The chances of a stock to increase in value often depend on its industry, but as a rule of thumb, the more established the company is, the better it is to invest in it.
For example, blue-chip companies like Apple Inc. and Google Inc. are likely to perform better in the long run than startups with little to no experience in the marketplace.
Diversify Your Stock Portfolio
Pick at least five companies to invest in to diversify your risk and minimize losses if one stock underperforms.
A good idea is to select companies that belong to different industries to diversify your portfolio even further.
This also helps to reduce your risk level and minimize losses in case of an economic downturn in one industry sector.
For example, you could include an auto manufacturer in your portfolio as well as a bank and a software company.
In this way, if the economy takes a downturn in the auto sector, your gains from the bank and software companies will compensate for the losses from the auto company.
Also, make sure you don’t invest in too many stocks at the same time; limit yourself to a handful and do your research before investing in them. Otherwise, you run the risk of over investing in a single company.
Be Consistent In Buying Stocks
While you don’t have to make every trade yourself, you should consistently look at the stock market. Keeping track of the trends, and investing your money accordingly.
Don’t just invest whenever the mood strikes you. Instead make regular investments every month or so to ensure that you have a steady flow of passive income.
By making regular investments, you will always have money in your bank account to invest when the time is right.
This discipline will help you become a better investor over time. You’re also less likely to panic and make bad decisions when market falls are forecast.
Bonus Tip for Passionate Entrepreneurs
The best way to learn to invest is to learn from other investors who are already doing it successfully.
If you aren’t confident, consider investing in a stock market education course to learn skills to get started right away.
If you’re looking to maximize your chances of success as a stock market investor, you can take some free investing courses from the guys at WealthyEducation.com.
Education is the best way to ensure that you start making money as soon as possible with the stock market.
If you can’t afford to invest in a formal education, there are books available that can help you learn the ropes of stock market.
The more you learn about stock investing, the better you will perform; it’s as simple as that.
Investing in the stock market can be a daunting task for beginners. Like many things, the more you know about investing in stocks, the easier it becomes to make the right choices.
You can look for companies that are profitable, generate cash flow and have minimal debt. This will make your investment less risky.
Also, choose to invest in different industries and sectors to increase your chances of winning big in the market.
This will help reduce your risk of losing money should one industry fall flat while the others perform well at the same time.
Finally, don’t panic when the market dips or plummets; stick to your investment plan and stay patient.
Remember that making money with the stock market isn’t easy. With time and dedication, you can learn to trade like a professional and make loads of money in the process.
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