The stock market has an incredible allure, and there are a good few reasons why so many people are enticed by the ever-changing numbers, bright lights, and sheer exhilaration of playing the major world indexes. Get in with a company at an early stage, and you could make a killing that sets you up for life. But just like any other form of gambling, there’s a grave risk of losing everything – and it happens more often than you might like to think.
When you are just getting started in the stock market, it’s a time when you are likely to be at your very weakest. You’re a beginner, after all, and it can be a bewildering world to approach as an outsider. However, by remembering a few key points about limiting your risk, learning financial terms, and being able to show patience, it’s possible to get started at an advantage over others in your position. Here are some of the secrets to success in the stock market that might just give you an edge – and at the very least, will help you protect your money.
Don’t believe the hype
One of the big draws of the stock market is that the world that surrounds it seems incredibly glamorous. Outsiders can look in and assume that the lifestyles of traders, investors, and everyone else involved in buying and selling shares are all about flashy sports cars, yachts in the Med, and the presidential suite at the Ritz-Carlton. The truth is somewhat different, however. Buying and selling stocks is a highly stressful business, whether you are going it alone with software at home, or have a team of people trading for you on the floor on Wall Street. Don’t believe the spin from all the ‘insider secrets’ websites that are out there, either. The chances are these people make more money from selling products and courses than they do from the stock market itself.
Learn first, trade later
When it comes to making money on the stock market, expect to do some homework. Just like anything else in life, if you want success, you will need to put in the hours learning the ropes. As we discussed in the intro, buying and selling stocks can be a bewildering experience, and if you don’t really know what you are doing, you will be at an incredible disadvantage. Given that successful investors place a high priority on reducing risk, it’s clear that throwing money at a company willy-nilly is likely to end in tears at some point. You must be conversant in the financial terms used in trading circles, research reports, and everything in between. You’ll need to be able to pick out key information and data from company balance sheets and be at ease with the intricate financial details in quarterly and annual reports. Take your time to learn the basics, buy some recommended stock market investing books, and don’t try and run before you can walk.
An investor who gets rich – and stays rich – from a single stock market punt is a rare beast indeed. As https://fortunateinvestor.com/ points out, it’s imperative you don’t put all your eggs in one basket. We’re not just talking about putting all your money in a single company here, either. Successful stock market investors spread the risk around several companies, from all different kinds of industries. Just as a company can go bust overnight, the same can happen to entire sectors – again, consider the dot-com disaster which wiped an astonishing $5 trillion from the market value of technology companies in an incredibly short space of time. You should also consider spreading your risk into different territories, too. A quick look at the stock market’s reaction to the Brexit referendum should give you a clue as to how investors can lose money if it’s all in the same country. Other factors can have a significant impact on a country’s investment potential, too, from natural disasters through to political unrest. As an investor, you will encounter some of these scenarios at some point, unless you are incredibly lucky. Therefore, the more your money is spread across different companies, industries, nations and even other investment platforms, the better.
Watch your pennies
Being wealthy certainly helps you play the stock market with more aplomb, but it’s no excuse to blow all our savings on risky ventures and insider tips. You can still invest in stocks and shares if you aren’t wealthy, too, but never use money that you can’t afford to lose. Successful investors understand this completely, and while they might appear to lead luxurious lives, the simple truth is that they are careful with every cent. Ultimately, you don’t need a huge amount of money to lead a good life, but you do need to be careful that your investment portfolio is managed and controlled, so it doesn’t impact your day-to-day living expenses in any way, shape, or form. Failure to do so could end up ruining you. It’s also worth pointing out that as you get older, your responsibilities change. When you are young, free and single, it might not matter if you lose a few thousand on a duff company. When you have a wife, kids, and mortgage, however, it’s an entirely different story.
Trading is expensive
There are a lot of figures thrown around when it comes to the stock market. You buy at a low price, sell for a higher one, and you go home happy – everyone knows that’s how it works, right? But as http://www.thesimpledollar.com/ points out, the reality is somewhat different. Yes, you might buy low and sell high, but you also have a lot of fees to pay. You might have a guy to pay for doing the trade, and company researching and suggesting your next move. There are trading subscriptions to pay for, too, as well as taxes and buying services that help you keep up to date with the quagmire of financial regulations that change almost daily around the world. And then there is your own time you must invest – unless you are playing with a million dollars or so, it’s unlikely you will be able to go ‘full time’, and you still have to go to work, spend time with your folks, and keep yourself fit and healthy. So, don’t assume that having a modicum of success will bring you real money – even if your stocks go up, you could actually be in the position where if you sell them you will lose money.
It’s a dangerous world
Let’s not beat around the bush. When it comes to playing the stock market, it’s about as far from a game as you can possibly imagine. There are many sharks out there, for one. And more importantly, there are many more investors out there that are cleverer, have more experience, and far more resources at their disposal than you could ever hope for. In short, your chances of success are incredibly slim. You are up against hedge funds or asset managers who are in regular contact with the chief financial officers of the companies you are investing in. While the hedge fund researchers are pulling in data from all over the country and analyzing the impact of world events, you might have to take the kids out to the local swimming pool. You can’t compete with that kind of market, or hope to outsmart it. And trying to would be financial suicide. It’s important to play your own game and make the right decisions for you and your family, rather than trying to pitch yourself against the major players.
Good luck with the stock market – following these simple rules should help you make the most of your investment!