Investing in stocks
If you are a new investor wanting to make money, or an experienced baby-boomer investor and you are struggling with questions like- How should I begin investing in stocks? – What are the things to keep in mind before I invest in a stock? – What kind of research is required to invest in stocks? – Which stocks should I invest in? How can I make money in stocks without taking a risk? You will be happy to note that you are not alone in facing these questions. Every investor faces the same questions. And there is no one particular answer to these questions. You need to figure out the answers yourself.
You need to research stocks
One of the most important things you need to do is research on stocks. If you don’t want to do research, then you should not be in the stock market as a retail investor. In that case, you should invest in mutual funds that have professional management researching stocks and investing in them on your behalf. Of course, they will charge their money, but they should ideally give you more return than the stocks that you bought without doing any research.
Are you investing in stocks or trading stocks?
The second important thing is to understand whether you should be day trading. Day trading is nothing but gambling, to put it in plain words. Of course, your stockbroker will be very happy if you indulge in day trading as he or she sure to make money irrespective of your loss or profit. I have not seen a retail investor who has made money consistently in day trading. Day trading is a gamble that entices many people in the hope of making a few quick bucks, but most of them are losers. If your stockbroker knew how to make fast money as in day-trading as a retail investor, he or she would have been doing it herself. He is doing what assures him good money.
Are you investing in stocks for the long term?
And finally, let’s discuss short-term vs long term investments. If you are investing for a short time, essentially you are gambling again. We will try to explain this with an example. If you have bought a stock and you believe its real value is much higher than its current price, and you will make money later when the market realizes the actual importance of the stock. However, as happens, the cost of a stock is also dependent on the liquidity situation and market sentiments.
Suppose the feelings turn negative and the stock market tanks. Most likely, your stock will also tank along with the market. If you are a short-term investor, you will have to get out of the stock after some time. If the market doesn’t turn around by then, you will have lost money on your investment. However, if you are a long-term investor, you will hold on to your stock. The market will recover one day, and you will be able to sell your stock at a price which is higher than the price you bought it for. Therefore, your chances of making money on stocks are high if you are a long-term investor. If your investment horizon is short, you should invest your money in other safer investment avenues.