Stock Market Investment Strategies: For Beginners’

19 Feb, 2017 | 0 comments

Stock Market Strategies
In the stock market, when designing your investment strategy, you need to consider many essential factors. These factors were discussed in our

previous segment on stock market basics. Based on those factors, you should develop your short-term and long-term strategies.

GENERAL GUIDELINES

1. Don’t fall in love with day trading:
Day trading refers to the practice of buying stocks solely for its expected uptrend. When you participate in day trade, you use big amounts to buy cheap stocks so that you will have a large number of shares. Because of this, even just a 0.1 Rupee increase in the price of the stocks you own can generate big profits. The day trader then sells their stocks when they think that the trend will stop.

Most of these day traders just take advantage from what they hear in the marketplace. They do not look into the true value, the products or the leadership of the companies. They are only interested in the reputation of the companies and they depend on the hype for those companies to make money.

2. Only buy stocks of companies that you are happy with:
You should only buy stocks of companies that you know add value to the market. In contrast to day trading, you should be mindful of the types of companies that you invest in. Examine each one based on the information that you can gather without breaking the law. You should consider that every time you buy stocks, something unexpected might happen in the next hours, days or weeks.

Because of the uncertainties of the market, you should always buy companies with strong business foundations. When the market goes down, the prices of the stocks of these companies will be affected. However, they will not go out of business because of what happens in the market. Instead, they will keep doing business and building their assets. These companies will rebound when the economy recovers. You can sell your stocks when this happens.

3. Find your circle of competence:
When investing in stocks, you will notice that there are a vast number of companies listed in the stock exchange. New companies are added frequently. It is impossible for one person to know all of these companies and their respective statistics.

Instead of looking at all the possible options, you should narrow you search in an industry where you are an expert. Let’s say you are a doctor and you are knowledgeable about pharmaceutical companies.

4. Diversify your investments as it grows:
As your stock investments grow, the need to diversify of your allocation of your funds emerges. To diversify your investments, you need to spread it over many types of stocks. You may also start thinking of looking into the bonds and tech markets.

The idea is to put your money in other sectors so that when certain parts of the economy fail, some of your money will be protected. If all of your money for example, is in FMCG (Fast Moving Consumer Goods) companies, your investment portfolio will decrease in value significantly if something negative happens in the FMCG industry.

5. Short-term strategy:
To take advantage of the growth of the market, you need to have both short-term and long-term strategies beforehand. Short-term refers to buying stocks and selling them just as soon as they grow. With this type of strategy, you are buying and selling stocks at a faster rate. With each transaction, there is a fee for the brokerage firm.

To make sure that you make profit with your short-term buys and sells, you need to consider the fees when calculating your profits. To become successful in your short-term investments, you need to be knowledgeable of the news happening in the market. You can only make money if you are aware the things that may affect the market before other investors know about it.

6. Long-term strategy:
A bigger part of your funds should be allocated to long-term stocks. The best companies to buy for long-term gains are those that consistently make positive profit reports. Your goal when investing with these companies is to buy and hold at the beginning of your investing time until the end.

These companies grow in the long run. By putting most of your money in these types of companies, you no longer need to worry about the short-term fluctuations to affect value of your overall investment portfolio.


You should also think about your preferred actions when the stocks you buy decrease in value. For certain investing software, you can set a stop-loss value. This a limit that you set for stock prices when you buy stocks. When the price of a stock hits this limit, the

brokerage will automatically sell your shares to prevent further losses. If you buy in an economic time with a suspected economic bubble, you should always set a stop loss order. This will allow you to limit your losses when certain bubbles in the economy burst.


There are times however, when sitting on your stocks is the better solution. If you are invested in stable companies that have little chance of going under, you may choose to keep your stocks and sell them when the stock prices rebound.

In the stock market, when designing your investment strategy, you need to consider many essential factors. These factors were discussed in our previous segment on stock market basics. Based on those factors, you should develop your short-term and long-term strategies.

GENERAL GUIDELINES

1. Don’t fall in love with day trading:
Day trading refers to the practice of buying stocks solely for its expected uptrend. When you participate in day trade, you use big amounts to buy cheap stocks so that you will have a large number of shares. Because of this, even just a 0.1 Rupee increase in the price of the stocks you own can generate big profits. The day trader then sells their stocks when they think that the trend will stop.

Most of these day traders just take advantage from what they hear in the marketplace. They do not look into the true value, the products or the leadership of the companies. They are only interested in the reputation of the companies and they depend on the hype for those companies to make money.

2. Only buy stocks of companies that you are happy with:
You should only buy stocks of companies that you know add value to the market. In contrast to day trading, you should be mindful of the types of companies that you invest in. Examine each one based on the information that you can gather without breaking the law. You should consider that every time you buy stocks, something unexpected might happen in the next hours, days or weeks.

Because of the uncertainties of the market, you should always buy companies with strong business foundations. When the market goes down, the prices of the stocks of these companies will be affected. However, they will not go out of business because of what happens in the market. Instead, they will keep doing business and building their assets. These companies will rebound when the economy recovers. You can sell your stocks when this happens.

3. Find your circle of competence:
When investing in stocks, you will notice that there are a vast number of companies listed in the stock exchange. New companies are added frequently. It is impossible for one person to know all of these companies and their respective statistics.

Instead of looking at all the possible options, you should narrow you search in an industry where you are an expert. Let’s say you are a doctor and you are knowledgeable about pharmaceutical companies.

4. Diversify your investments as it grows:
As your stock investments grow, the need to diversify of your allocation of your funds emerges. To diversify your investments, you need to spread it over many types of stocks. You may also start thinking of looking into the bonds and tech markets.

The idea is to put your money in other sectors so that when certain parts of the economy fail, some of your money will be protected. If all of your money for example, is in FMCG (Fast Moving Consumer Goods) companies, your investment portfolio will decrease in value significantly if something negative happens in the FMCG industry.

5. Short-term strategy:
To take advantage of the growth of the market, you need to have both short-term and long-term strategies beforehand. Short-term refers to buying stocks and selling them just as soon as they grow. With this type of strategy, you are buying and selling stocks at a faster rate. With each transaction, there is a fee for the brokerage firm.

To make sure that you make profit with your short-term buys and sells, you need to consider the fees when calculating your profits. To become successful in your short-term investments, you need to be knowledgeable of the news happening in the market. You can only make money if you are aware the things that may affect the market before other investors know about it.

6. Long-term strategy:
A bigger part of your funds should be allocated to long-term stocks. The best companies to buy for long-term gains are those that consistently make positive profit reports. Your goal when investing with these companies is to buy and hold at the beginning of your investing time until the end.

These companies grow in the long run. By putting most of your money in these types of companies, you no longer need to worry about the short-term fluctuations to affect value of your overall investment portfolio.

You should also think about your preferred actions when the stocks you buy decrease in value. For certain investing software, you can set a stop-loss value. This a limit that you set for stock prices when you buy stocks. When the price of a stock hits this limit, the brokerage will automatically sell your shares to prevent further losses. If you buy in an economic time with a suspected economic bubble, you should always set a stop loss order. This will allow you to limit your losses when certain bubbles in the economy burst.

There are times however, when sitting on your stocks is the better solution. If you are invested in stable companies that have little chance of going under, you may choose to keep your stocks and sell them when the stock prices rebound.