6 STOCK MARKET INVESTING TIPS AND GUIDE FOR BEGINNERS

6 STOCK MARKET INVESTING TIPS AND GUIDE FOR BEGINNERS

    

1. Set Long-Term Goals

Before investing, you should know your purpose and the likely time in the future you may have need of the funds. If you are likely to need your investment returned within a few months, consider another investment; the stock market with its volatility provides no certainty that all of your capital will be available when you need it.
By knowing how much capital you will need and the future point in time when you will need it, you can calculate how much you should invest and what kind of return on your investment will be needed to produce the desired result. 

Remember that the growth of your portfolio depends upon three interdependent factors:

                     1. The capital you invest

                     2. The amount of net annual earnings on your capital

                     3. The number of years or period of your investment

2. Understand Your Risk Tolerance

By understanding your risk tolerance, you can avoid those investments which are likely to make you anxious. Your risk tolerance is how you feel about risk and the degree of anxiety you feel when risk is present. In psychological terms, risk tolerance is defined as “the extent to which a person chooses to risk experiencing a less favorable outcome in the pursuit of a more favorable outcome.” 

3. Control Your Emotions

Even when the stock price has performed as expected, there are questions: Should I take a profit now before the price falls? Should I keep my position since the price is likely to go higher? Thoughts like these will flood your mind, especially if you constantly watch the price of a security, eventually building to a point that you will take action. Since emotions are the primary driver of your action, it will probably be wrong.

                                  

4. Handle Basics First  

Before making your first investment, take the time to learn the basics about the stock market and the individual securities composing the market. There is an old adage: It is not a stock market, but a market of stocks. Your focus will be upon individual securities, rather than the market as a whole. There are few times when every stock moves in the same direction; even when the averages fall by 100 points or more, the securities of some companies will go higher in price

5. Diversify Your Investments 

Experienced investors such as Buffett eschew stock diversification in the confidence that they have performed all of the necessary research to identify and quantify their risk. They are also comfortable that they can identify any potential perils that will endanger their position, and will be able to liquidate their investments before taking a catastrophic loss.
The popular way to manage risk is to diversify your exposure.

Diversification allows you to recover from the loss of your total investment.

6. Avoid Leverage/Margin Loan 

Leverage/Margin loan simply means the use of borrowed money to execute your stock market strategy. In a margin account, banks and brokerage firms can loan you money to buy stocks, usually 50% of the purchase value.

Margin is a tool that can go extremely bad in a stock market like Bangladesh.