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Hold for the long term, five to ten years or preferably longer. Avoid the temptation to sell when the market has a bad day, month or year. The long-range direction of the stock market is always up. On the other hand, avoid the temptation to take profit sell even if your stocks have gone up 50 percent or more. As long as the fundamental conditions of the company are still sound, do not sell unless you desperately need the money.
It does make sense to sell, however, if the stock price appreciates well above its value see Step 3 of this Section , or if the fundamentals have drastically changed since you bought the stock so that the company is unlikely to be profitable anymore. Invest regularly and systematically. Dollar cost averaging forces you to buy low and sell high and is a simple, sound strategy. Set aside a percentage of each paycheck to buy stocks. Remember that bear markets are for buying.
That may sound scary, but the market has always bounced back, even from the crash that occurred between and The most successful investors have bought stocks when they were "on sale. Part 3. Establish benchmarks. It is important to establish appropriate benchmarks in order to measure the performance of your stocks, as compared to your expectations. Develop standards for how much growth you require of each specific investment in order to consider it worth keeping.
Typically these benchmarks are based on the performance of various market indexes. These allow you to determine whether your investments are performing at least as well as the market overall. It may be counter-intuitive, but just because a stock is going up does not mean it is a good investment, especially if it is going up more slowly than similar stocks.
Conversely, not all shrinking investments are losers when similar investments are doing even worse. Compare performance to expectations. You must compare the performance of each investment to the expectations you established for it in order to determine its worth.
This goes for assessing your other asset allocation decisions as well. Investments that do not meet expectations should be sold so your money can be invested elsewhere, unless you have good reason to believe your expectations will soon be met. Give your investments time to work out. One-year or even three-year performance is meaningless to the long-term investor.
The stock market is a voting machine in the short term and a weighing machine in the long term. Be vigilant and update your expectations. Once you have purchased stock, you must periodically monitor the performance of your investments. This is a part of investing. The key is to properly process and assess all new information and implement any changes according to the guidelines set in the previous steps.
Consider whether your market expectations were correct. If not, why not? Use these insights to update your expectations and investment portfolio. Consider whether your portfolio is performing within your risk parameters. It may be that your stocks have done well, but the investments are more volatile and risky than you had anticipated. If you aren't comfortable with these risks, it's probably time to change investments. Consider whether you are able to achieve the objectives you set.
It may be that your investments are growing within acceptable risk parameters but are growing too slowly to meet your goals. If this is the case, it's time to consider new investments. Guard against the temptation to trade excessively. After all, you are an investor, not a speculator.
In addition, every time you take a profit, you incur capital-gains taxes. Besides, every trade comes with a broker's fee. Avoid stock tips. Do your own research and do not seek or pay attention to any stock tips, even from insiders. Warren Buffett says that he throws away all letters that are mailed to him recommending one stock or another. He says that these salesmen are being paid to say good things about a stock so that the company can raise money. Don't pay too much attention to media coverage of the stock market.
Focus on investing for the long term at least 20 years , and don't be distracted by short-term price gyrations. Consult a reputable broker, banker, or investment adviser if you need to. Never stop learning, and continue to read as many books and articles as possible written by experts who have successfully invested in the types of markets in which you have an interest.
You will also want to read articles helping you with the emotional and psychological aspects of investing, to help you deal with the ups and downs of participating in the stock market. It is important for you to know how to make the smartest choices possible when investing in stocks, and even when you do make wise decisions you should be prepared to deal with losses in the event that they occur.
Did you know you can get expert answers for this article? Unlock expert answers by supporting wikiHow. Ara Oghoorian, CPA. Support wikiHow by unlocking this expert answer. Not Helpful 0 Helpful 0. Not Helpful 1 Helpful 3.
Include your email address to get a message when this question is answered. Buy companies that have little or no competition. Airlines, retailers and auto manufacturers are generally considered bad long-term investments, because they are in fiercely competitive industries. This is reflected by low profit margins in their income statements. In general, stay away from seasonal or trendy industries like retail and regulated industries like utilities and airlines, unless they have shown consistent earnings and revenue growth over a long period of time.
Few have. Helpful 0 Not Helpful 0. Wall Street focuses on the short-term. This is because it is difficult to make predictions about future earnings, especially far into the future. Most analysts project earnings for up to ten years and use discounted cash flow analysis to set target prices.
You can beat the market only if you hold a stock for many years. Information is the lifeblood of successful investment in the stock and fixed-income markets. The key is to stay disciplined in implementing your research and in assessing its performance by monitoring and adjusting.
Helpful 1 Not Helpful 0. That way, they will always have an excuse when it goes down in value. Warren Buffett is famous for saying, "Risk is for people who don't know what they're doing. Look for chances to buy high-quality stocks at temporarily low valuations.
That is the essence of value investing. Remember that you are not trading pieces of paper that go up and down in value. You are buying shares of a business. The health and profitability of the business and the price you will pay are the only two factors that should influence your decision.
Don't look at the value of your portfolio more than once a month. If you get caught up in the emotions of Wall Street, it will only tempt you to sell what could be an excellent long-term investment. Before you buy a stock, ask yourself, "if this goes down, am I going to want to sell or am I going to want to buy more of it?
Be mindful of your biases and do not let emotion dictate your decisions. Trust in yourself and the process, and you will be well on your way to becoming a successful investor. Companies with strong brand names are a good choice. Invest in companies that are shareholder-oriented.
Most businesses would rather spend their profits on a new private jet for the CEO than pay out a dividend. Long-term-focused executive compensation, stock-option expensing, prudent capital investments, a sound dividend policy, and growing EPS and book-value-per-share are all evidence of shareholder-oriented companies.
Understand why blue chips are good investments: their quality is based on a history of consistent revenue and earnings growth. Identifying such companies before the crowd does will permit you to reap larger rewards. Learn to be a 'bottom up' investor.
Invest in tax sheltered accounts such as Roth IRA or k and max them out each year before putting money into taxable accounts. You can save a great deal in taxes over the long run. Before buying stocks, you might want to try "paper trading" for a while.
This is simulated stock trading. Keep track of stock prices, and make records of the buying and selling decisions you would make if you were actually trading. Check to see if your investment decisions would have paid off. Once you have a system worked out that seems to be succeeding, and you've gotten comfortable with how the market functions, then try trading stocks for real. During your wealth accumulation stage, consider over-weighing stocks that pay low or no dividends.
Lower yielding stocks tend to be safer, have greater growth potential, eventually leading to bigger dividends later, and save you on taxes by allowing you to defer tax on unrealized capital gains rather than paying tax on dividend, a form of forced distribution. Invest only money you can afford to lose. Stocks can go down sharply over the short term, and even an investment that appears smart can go bad. Helpful 22 Not Helpful 5.
Do not attempt to time the market by guessing when stocks are ready to reverse direction. Nobody other than liars can time the market. Helpful 17 Not Helpful 4. Do not use technical analysis, which is a technique for traders, not investors. Its viability as an investment tool is debated long and loudly.
Helpful 15 Not Helpful 4. Stick with stocks, and stay away from options and derivatives, which are speculations, not investments. You are more likely to do well with stocks. With options and derivatives you are far more likely to lose money. Helpful 17 Not Helpful 5. When it comes to money, people may lie to save their pride. When someone gives you a hot tip, remember that it is just an opinion.
Consider the source. Helpful 28 Not Helpful Do not buy stocks on margin. Stocks may fluctuate widely without notice, and using leverage can wipe you out. You don't want to buy stocks on margin, watch stocks plunge 50 percent or so, wiping you out, and then bounce right back.
Buying stocks on margin is not investing, but speculating. Helpful 14 Not Helpful 5. Don't blindly trust the investment advice of anyone, especially someone who will make money from your trades. This could apply to brokers, advisers or analysts. Helpful 15 Not Helpful 7. Do not day-trade, swing-trade, or otherwise trade stocks for very short-term profits. Remember, the more frequently you trade, the more commissions you incur, which will reduce any gains you make.
Also, short-term gains are taxed more heavily than long-term more than one-year gains. The best reason to avoid ultra-short-term trades is that success in that area requires a great deal of skill, knowledge and nerve, to say nothing of luck.
It is not for the inexperienced. Don't blindly feed the dogs. In other words, do not buy stocks that have had low returns and appear cheap. Most cheap stocks are cheap for a reason. All stocks can go to zero, and many have. Helpful 18 Not Helpful Avoid "momentum investing", the practice of buying the hottest stocks that have had the biggest run recently. This is pure speculation, not investing, and it does not work consistently. Just ask anyone who tried it with the hottest tech stocks during the late s.
Helpful 11 Not Helpful 7. Furthermore, remember that past performance does not guarantee future returns. Do not engage in insider trading. If you trade stocks using inside information before the information is made public, you may face prosecution for felony crimes. No matter how much money you could potentially make, it is insignificant compared to the legal troubles you could get into. You Might Also Like How to. How to. How to Calculate the Daily Return of a Stock. Expert Interview.
More References About This Article. Co-authored by:. Co-authors: Updated: November 1, Categories: Financial Stocks. Article Summary X To invest in stocks, research the ones you're interested in, figure out their value, and determine the right price to pay for them. Italiano: Investire in Borsa.
Bahasa Indonesia: Investasi di Saham. Thanks to all authors for creating a page that has been read 2,, times. Reader Success Stories Anonymous Jan 20, Like studying for a test, only in this case you're putting your life on the line. More reader stories Hide reader stories. Did this article help you? Cookies make wikiHow better.
I think I'm starting to grasp the concept. Shawn Hiil-Watkins Aug 22, That is wonderful. Use the advanced screening tools available to you. Start with broad categories, then narrow down your search. You might begin by selecting a particular sector or industry , like technology, consumer staples, healthcare, or energy. Another broad filter is market capitalization , or market cap. This is the number of shares outstanding multiplied by the price per share, and it's a common way to gauge the scale of a company.
Screeners can help you find small cap, mid cap, or large cap stocks. You can add additional screeners for criteria like the price of the stock, its recent performance, trading volume, price volatility, and many more. Use the tools of fundamental analysis and technical analysis to refine even further. Fundamental analysis helps you judge the value of a company, and the outlook for its stock, by analyzing the company's financial performance—its fundamentals—as shown in its balance sheet, income statement, and cash flow report.
The figures that are in these reports or derived from them can be used to easily compare one company to another. This is the company's stock price divided by its earnings per share. It tells you how much investors are paying for a company's stock in relation to its profits.
Other fundamental factors like revenue and profit margins may also be useful indicators. You can look at how a particular company ranks by these measures compared to similar companies. Depending on your strategy, you may be interested in stocks that rank high or ones that rank low. Technical analysis is used to evaluate stocks by analyzing trends and movements of the stock's price.
In other words, you're looking at the stock's price chart rather than the company's financial reports. Price trends are a key idea in technical analysis. You can set up a screener to view a stock's price relative to its high or low over a given time period. If the price is trending towards new highs, you might want to be a buyer. On the other hand, short sellers who aim to profit from a stock's decline would screen for stocks trending towards new lows.
Moving average is another important figure. If it's trending up, that means that the stock price is also trending up. News is another factor that can affect stock prices, especially earnings reports or legal news related to stocks you own or might want to buy. Be aware of upcoming scheduled news events.