Basic Stock Market Tips

Basic Stock Market Tips

I do not want sound bias about anything I say, most of it is just my opinion and what has worked for me. Everything that has worked for me may not work for everyone else, but it is always worth a shot, or taking what I say and breaking it down into your own thing and take advantage of it in a way that will function for the best.

I will go over five basic market tips, especially for beginners, that I find useful.

1. The classic "don't put all your eggs in one basket". Pretty easy to interpret, don't put all your hard earned cash into one investment. Example, if you have $10,000 and you decide to put all of it into the energy sector or an energy stock, you probably would have been losing a ton of money the past few months.You need diversification in your portfolio in order to build, and secure a sustainable flow of income. Now, an example of a little diversification would be spending that $10,000 and splitting it between the energy sector with $2000, technology sector $2000, consumer goods sector $3000, and if you're interested in real estate you put $3000 into a REIT or Real Estate Investment Trust. 

2. Do not base off a hot tip you get from a friend. "hey man buy ABC stock tomorrow morning they are suppose to crush earnings". Makes sense? When a stock beats its earnings it usually increases in price, in some cases it may not. So you decide to buy ABC in the morning, but you bought it after the earnings and then the price starts to drop because the volume starts to decrease. Unfortunate isn't it. There are many more reasons why you should never base a stock pick from a hot tip you received from a friend. Do your own thorough research, understand what you are putting your money into, check out how the sector is doing, do fundamental and technical analysis before coming to conclusions (will go more in depth on those in future posts). Always go with your gut and invest in what you understand. Never invest in what you don't understand.

3. Set long-term goals for yourself. We all want to achieve success, in order to achieve this I believe you must set goals for yourself, not just for your own self-prosperity, but goals so that you enjoy your life and live it to the fullest without any regrets. Financially, long-term goals should be surrounding your retirement, future kids college education, saving for a house, saving enough capital so you do not have to worry about how you will come up with the money when the time comes around, especially for emergencies. Retirement calculators exist, and you can use them to gauge how much you want to save and how much you will have by and certain year. Bankrate.com has a retirement calculator. 

4. Do not let your emotions get in the way. I mean, I may have only been investing for about two and a half years, but I have seen plenty of people let emotions get in the way of buying and selling investments. To say the least, it is erroneous. You invest in ABC stock, and all of a sudden the stock dips 10%, you just lost 10% of your initial investment being whatever you put in. You owned the stock for a week. When investing in stocks in my opinion, you should be in it for the long-run, someone might get scared and have fear about the stock just because it dropped 10%. Here is a tip to help get your fear out of the way, buy the stock and do not look at it everyday. Do not look at your investing account everyday, every minute, diminutive gains mean nothing. You make more money holding investments for years at a time, accumulating dividends and having them reinvest back into your investment to buy more shares. Have confidence, I mean, you would not have invested in the company if you didn't have faith in them in the first place, right? Simple as that, a small dip should not impact your decision. I know that I have purchase stocks before and they have gone down more than 10%, but in the long-run the return was much greater, it rebounded back and shot up to over a 12% return. Fear will not create money, but confidence will. Be confident about every penny you put into an investment. I guarantee in the long-run, you will have no regrets. 

5. Always sit on cash. My number five rule, and my favorite rule, I think you should always sit on cash, how much? That is up to you to decide, but personally at such a young age, I prefer to put about 50% to almost 60% of my paychecks into a Roth IRA, Individual account, or Joint WROS account with my bank and invest it in equity so it grows. As I get older I am going to have to pay more and more bills, so save as much as possible while you're young so you have more to work with in the future. Back to sitting on cash. Sitting on cash is always a good thing, I read in an article one time on how "cash is king". I would have to agree with this, once you have the cash, you can do anything you want with it. Most investors tend to hold approximately 10 percent of the total portfolio in cash, this information I read from a few articles on Yahoo! Finance. That is ideal. Always be ready for the next investment opportunity, you do not want to liquidate your other investments just to invest in something else. As possible as that is, I personally would not do it. I would always try to find new ways to come up with cash for my next venture, and as I get older, I hope my ventures increase in size. 

Terminology (10)

Ten definitions that I think are a good starting point. 

1. Diversification: allocating capital in a way that will reduce exposure to any one asset or risk, reducing risk or volatility. 

2. Fundamental Analysis: examination of forces that affect the economy, industry groups, and companies, derive a forecast and profit from future price movements. 

3. Technical Analysis: forecasting the direction of prices through studying the past market data, mainly price and volume.

4. Volume: number of shares or contracts traded in a security or market during a given period of time, amount of shares that trade hands from sellers to buyers.

5. Bull Market: when the stock market as a whole is in a prolonged period of increasing stock prices.

6. Bear Market: when the stock market is being in a down trend, or period of falling stock prices.

7. Dividend: portion of a company's earnings that is paid to shareholders (people who own stock in the company) on a quarterly or annual basis, not every companies give dividends.

8. Portfolio: collection of investments owned by an investor. anywhere from one to infinite amount of stocks.

9. Volatility: price movements of a stock or market as a whole. 

10. Sector: a group of stocks that are in the same business.

Stocks to Research 

Here are five stock picks that you could research and comment below whether you think it would be a good investment or not, some may be good, some may not be good. Keep in mind what I think is good you may think is bad, vice versa! Remember, think about the long-term!

1. Starbucks (SBUX)

2. Cogent Communications (CCOI)

3. IPG Photonics (IPGP)

4. Salesforce (CRM)

5. ResMed (RMD)

Take a look at them, comment your opinions, and I hope you enjoyed todays post. The next post will be about how to accumulate wealth, and not living paycheck to paycheck. 

Invest at your own risk.

Chris Barto