Buying stocks isn't hard any longer thanks to online brokerages and new technology. The hard part is choosing business stocks that are going to beat the market quarterly, annually, and for years to come. That means getting your investments outperforming the S&P 500, fund managers, and other major market indexes with portfolio growth and dividends.
This is a skill that most people don't have or don't want to take the time to learn. However, for people who take the time to learn fundamental stock investment strategies, they will be able to invest decisively and calmly.
One of the greatest ways to grow one's wealth is by investing in the stock market. Unfortunately, poorly managing your stock portfolio could end up having the opposite effect on your investments. So continue reading and we will go over the top stock market strategies that you need to know about as a beginner investor.
1. Put Your Emotions Aside
You don't have to necessarily be smart to do well in the stock market. More than anything you need to have the temperament that will help you not overreact to major swings in the market.
According to the Prospect Theory, you're more likely to feel the pain of a financial loss much more than you are to feel the pleasure that comes with financial gain. A person who isn't able to keep control over their emotions may end up closing all of their positions and running for the hills on the first big drop in the market.
An investor needs to keep the big picture in mind. You have to realize that in the long-run, many of these seemingly big market drops aren't that big of a deal.
2. Pick Businesses, Not Stock Symbols
After seeing dozens or even hundreds of letters scrolling along the ticker tape of financial news channels, it can be easy to forget that those symbols represent actually businesses. However, it's important that you don't let the practice of stock picking become an abstract idea to you.
When you invest in a company, you become a partial owner of that business. And you should treat it as such. You want to invest in companies that you know, that you believe in, and that you can understand.
Investing in foreign speculative stocks might seem like a sure-fire way to make money but it's going to be a lot more difficult for you to really judge the value of that company. When you are just starting out, you want to invest in companies that you actually interact with on a daily basis.
And before you decide to invest in a company, you want to learn everything you can about it.
Who are their competitors? Do they have room to grow? What is their business strategy? You could also consider investing in environmentally friendly & ethical stocks.
Knowing the answers to these questions will help you make more educated and less emotional investment decisions.
3. Be Ready for Rocky Times
Investors are constantly trying to decide if they should invest more in a stock or cut ties with a company completely, depending on the day. But making big decisions in the heat of the moment can lead you to commit one of the greatest stock market sins out there: buying high and selling low.
A good way to make sure you don't do this is to keep a financial log. You want to write down why you're buying each of the stocks in your portfolio. You also want to jot down what would need to occur in order for you to drop the stock completely.
Start out by writing down what you like most about the stock and what opportunities for growth they have. You should decide what milestones you're going to use to judge the progress of this stock. You also want to know what metrics are going to matter the most.
It's also important that you know what possible problems could be considered a minor setback and which ones could be game-changers.
When you're thinking about why you would sell the stock, you don't want to really worry about how the stock price moves in day-to-day terms. However, it could be helpful to set a certain price, both for the lows and the highs, where you can say that you're going to sell if share price hits those levels.
What you really want to be looking for are any fundamental changes that are going to make you want to sell the stock. For example, if you own a pharmaceutical company and their new vaccine doesn't get approved, that could be a reason to sell.
4. Consider Options Trading
Options are an alternative type of trading. These transactions use contracts that require the buyer to do certain things, like sell at certain times. Trading options can let an investor hedge or reduce the risk that comes with exposing their portfolio.
However, even though trading options could be a lucrative practice, it can also a little confusing when just starting out. You can view here to learn more about trading options and get a real edge on your trading.
5. Slowly Build Your Positions
You should never try to time the market because you're more likely to end up hurting yourself rather than helping yourself. You should be investing for the long-term and understand that short-term movements won't make a big impact on your portfolio.
Dollar-cost averaging is one strategy to consider. With this strategy, you choose to invest a set amount of money on certain days. For example, you can decide to buy $300 of Starbucks (SBUX) on the first day of every month.
Some months you'll be able to buy more shares of stock than in other months. But this will even out over time and help you avoid making irrational stock trading decisions.
Use these Stock Investment Strategies Tips to Improve Your Portfolio
While there is no way to guarantee that you'll have a successful portfolio, following these stock investment strategies is the best way to achieve your investment goals.
Are you looking to read other helpful finance articles to improve your stock investment strategies? If so, check out the rest of our Frugal Finance Blog today. Visit the Investing, Crypto, and Bitcoin sections right now!
