When it comes to money, most of us are pretty quick to spend it, but not so quick to invest it. The fear of the unknown plays a huge role for those deciding if they want to dabble in the stock market or not. Don’t let a lack of knowledge keep you from investing! The CGS team has put together 5 basic things to know about stocks to help you feel less intimidated when it comes to investing. The fear of the unknown can hold you back, but once you dive in, you’re usually glad you did!
Buy Low, Sell High
It’s easier said than done, but in the world of stocks it’s important to keep this in mind as a simple rule of thumb. Buying low and selling high is a major part of successful investing. The term means to take advantage of the market. This may seem like an obvious tip, but most people act on emotion. They see their portfolio going down and sell as quickly as possible to avoid losing more money. This is never a good idea. The market is known for its ups and downs. Being able to buy low, ride the waves, and sell high will take you a long way.
Nothing is Guaranteed
In the stock market, nothing is certain. One can never be too sure on what they are actually buying. If someone is telling you that an investment can “guarantee a return”, be wary. While people try to predict the stock market, nothing is ever guaranteed. To help diversify your risk, it’s best to invest in different companies. Putting all of your money in one stock can cause major financial loss if something unexpected happens.
Get Acquainted with Company Filings
A “Filing” is a detailed list of a company’s financial state that includes potential risk factors. All public companies who trade stocks are required to complete annual filings. Regular filings will include any major changes to the company including stock transactions, senior management changes, and acquisitions. The annual 10-K will detail the most important information of financial numbers and commentary on growth opportunities. It will give you an idea of how the company has grown (or shrunk) over the previous calendar year. All filings can be found online through the SEC’s EDGAR system.
Think Long Term
When you deal with stocks, the goal is to think long term. When buying and selling, you want to focus on companies that offer long term gains, as opposed to short term profits. The stock market is designed to be profitable for those who invest for the long run. When you keep “long term” in mind, you can emotionally prepare yourself for the inevitable ups and downs that come with the stock market. Better opportunities come when companies have gone through the long haul and bounce back after industry disasters.
Take Market News with a Grain of Salt
The first day of stock trading is always the most hectic! Sometimes the news can make a stock investor jump the gun, making a decision too quick. Of course, listening to market news can be profitable and give you good insight into potential great buys, but to base your purchasing decision solely off of the news is a major no-no! Always do your homework and follow up with the company’s market information. As an investor take the news as interesting, not as a valid source of stock recommendations.
Related: The Beginner’s Guide to Investing with Little Cash
When you know better, you do better! The more you get yourself familiar with stocks and how the market works, the more confident you will feel about exercising it. Are you familiar with stocks? If so, how long have you been involved in stocks? Do you have any tips for new investors? Leave a comment below to share your investing experiences and tips!
2 thoughts on “5 Basic Things to Know About Stocks”
I’ve had experience with the stock market for a few years now, but I think this is a great overview of the basic need-to-know items.
I used to work for a mutual fund company! It was always so sad to see people sell their shares because the price per share went down, only to see it go up after they sold. These people lost thousands! Make sure you can tolerate the lows and think in the 5-7 year range minimum (at least for mutual funds invested in stocks)!