Compared to the Forex market or alternative investments, the stock exchange is considered to be a very forward-looking direction, less demanding specialized skills related to economics and more friendly to ordinary people. However, the stock exchange has its own rules, the violation of which may result in the loss of all savings. We present 10 principles that you need to know in order to invest in the stock market.
- Diversify your investment portfolio. Never, ever invest all the money in one company. This means the loss of part or all of the capital if its shares fall and it is never fully predictable, if this will not happen. One should invest in 3-5 share packages of companies from different economic sectors.
- You do not invest in highly indebted companies. By “indebted” we mean indebtedness of more than 25% of the capital held, “highly indebted” are companies with more than 50% of the capital being a debt. This is due to the fact that no company that is profitable and prosperous allows itself to be so indebted. A debt of up to 20% is the maximum you can think of when buying out shares.
- You should not investments in companies which have not brought profit to investors in the last five years. The sixth year will probably not be a breakthrough in this respect. If the company is not profitable, the investor should not bother with it. So, the best are those shares that have been going up in price for years and there is no indication that anything will change in this respect. Due to the growing Polish economy, the upward trend of the tycoons may not be reversed for many years.
- Use expert opinions on developing market sectors. Nowadays, the economy is changing really fast, some of its branches are losing importance as quickly as others are gaining it. Knowledge of future economic predictions is always useful for the investor.
- Escape from the sinking ship. If the company starts to fall, shares can lose almost one hundred percent of their value. Some investors are waiting until the absolutely last moment to sell shares that have in the meantime lost their value. Never make this mistake. Determine how much the share price may drop until you sell it to limit losses – and stick to that.
- Use the tools for stock exchange analysis. There are a lot of free programs and simple online tools that allow you to analyze many listed companies at once. Using them, you can discover which actions are worth your attention.
- Deep correction is the best time to buy shares. Correction usually happens several times a year and means a temporary drop in share prices by several to twenty percent. It is not a reversal of the trend, and for the investor it is a good point to start investing. The correction also sometimes triggers a speculative bubble.
- Learn about the plans and projects of the company you invest in. Tenders, changes of segments, building a new brand, new innovative research – these are matters that interest investors who put capital into a given company. Tracking stock exchange fluctuations alone may not be enough.
- Take an interest in foreign markets. The Far East stock exchanges are booming because, unlike the European and American stock exchanges, they were not so affected by the economic crisis ten years ago. In other words, it is a very good place for a talented stock market investor who is not afraid to explore stock markets from the other end of the world.
- Don’t trust your instincts too much… at first. Beginner investors overestimate the importance of intuition, wanting to make up for the lack of experience. The truth is, however, that knowledge should go first, then experience, and it is only from this experience that the famous intuition of skilled players on the exchange is born. Intuition is therefore something that is acquired rather than born with. A beginner may simply not have this intuition, no matter what he thinks.
Sticking to these ten points will make any investment a little less risky. A good investor, however, must be aware of the risks and possibilities of losing some of the funds, not once, not twice, but many times during his career. Even the best investors sometimes win and sometimes lose. This is quite normal, so you should remember one more thing – what matters is the final profit, and not losses incurred during the process.