How to pick out stocks: 6 good advice for the new investor
Getting into the investment in stocks is a huge trend right now and always and a lot of people are making serious money from gambling on the development of different companies, markets, and funds. The interest in day trading is increasing in Sweden, Norway, Denmark and generally the european countries right now and if you want to join the trend, there are a few things that you should consider to read up on before investing all your money. Investing in stocks means spending and gambling with real money, so you can never have too much knowledge about it. The best way to make sure that you are gambling with your in a responsible way is to increase your knowledge about the matter.
Do your ground work before investing
When deciding to try out stock or stock fund investing, it is crucial to do your homework properly beforehand. The key is to find good value among all the options, especially if you plan on holding on to the stocks for a while. It is important to do proper research on the companies that you are considering investing in as well as reviewing and evaluating the viability of the stock. When buying in like this you are becoming a shareholder in the company, so you need to be willing to invest some time in it as well. When reading up on the history of the different companies, it is important to bear in mind both recent activity, but also ancient history. Learning about all aspects of a company is crucial as you can otherwise experience nasty surprises after you have invested money. It is a good idea to look into the mission and vision of the company in order to understand the mindset and the goals that the company is working towards. For example, if you are dealing with a company focused on green development and sustainability, it is wise to learn about the concrete goals they have set for themselves in order to be able to measure their success over the years.
Trends usually means growth
A good thing to look for when looking for a company to invest in are trends in the company’s earnings growth - are they generally increasing over time? If so, it is a good indicator of company success. Not necessarily over a long period of time, but if it is the case then it is an even better indication. "Evaluating a company is a combination of understanding how the business works and how valuable its future cash flows are," says Faron Daugs, founder and CEO of Harrison Wallace Financial Group in Libertyville, Illinois. "This involves evaluating its products/services, target market and cost structure. This process allows one to determine a company’s competitive advantages, market opportunity and the sustainability of cash flows."
Investing in trends are often a relatively secure way of earning good money as companies that set the trends often grow dramatically when the trend spreads to the market. However, it is really important that you find the early birds in this area as you want to be among the first once to invest. Once the public has found this company or this trend, everyone will start investing in them and the attractiveness of the stocks will fall.
The relationship between the company and its dividends
If a company is paying their dividends, it is often a good sign of stability - especially if the payout each year is increasing. However, one should also consider the risk of companies getting desperate and here you should look out for those who have very high yields. This could also indicate that the company is not investing enough in itself. A good relationship with a company’s stock owners, stakeholders, and generally partners is of key importance in order to succeed as a good business.
Make sure you have liquidity
When starting to invest in stocks, it is important to evaluate whether or not you have enough money in your wallet to be able to do so. It is never a good idea to be investing money that you cannot afford to lose. As a start up rule, that is a good thing to remember. Having enough money on hand is also essential when you are looking at the prospect of how long you want to keep your stocks. Not needing the money is a good way of not being forced to sell the stocks in bad times, even though you will experience losses.
Determine your time horizon of the investment
Making a time plan before investing in a company is a very good idea as it is always better to keep an investment for a while rather than making a quick win and then selling out. As a general rule, it is usually not a good idea to make a big, long term investment unless you can keep the money put for at least five years. As mentioned earlier, this is why it is important to never invest money that you cannot afford to lose and that you need for your everyday life. This is a very high risk way of gambling your money.
The perfect moment in the marked does not exist
If you are in doubt when it comes to investing, questioning whether or not you should invest, in who and how much, there is one piece of advice that is great to remember: Time in the market beats timing the market. This means that you will always be rewarded for taking action and making an investment, whether or not you hit a good moment in the market. Having an investment for a longer time will usually always pay off in the end, which is why we always encourage people to just do it. The first investment is always the hardest as you will need to break through a personal barrier to do it, but once you have gotten a hang of how the things work, it will not be as hard and uncertain work for you.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes