A Beginner’s Guide To Successful Stock Investing

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The actual process of buying stocks isn’t difficult. What is far more challenging, however, is deciding which companies are worth investing in.

In fact, picking which companies will turn out to be winners is so difficult that most people fail when they try. That is why the vast majority of investors do best by investing in exchange-traded funds or low-cost index funds. Both of these investment tools take a lot of the risk out of the equation while still allowing investors to make a lot of money. In fact, they are such powerful tools that even the top investors put some of their money in these funds when they are not using it to invest in other opportunities.

If you are motivated enough to be reading this article on how to invest in stocks, however, it is a pretty safe bet that you are ready to learn as much as you can about how best to grow your money. Ideally, you should limit your individual stock investments to less than 10% of your overall investment. Additionally, you should only invest money in the stock market that you won’t need to access anytime during the following five years.

If you want to successfully invest in stocks, you need to adopt the following five habits:

  • Don’t allow your emotions to cloud your judgment.
  • Focus on individual companies – not just on ticker symbols.
  • Have a plan in place for difficult times.
  • Focus on slow-but-steady growth with minimal risk
  • Don’t fall victim to overactive trading.
  1. Don’t allow your emotions to cloud your judgment.

Veteran investors such as Warren Buffett will tell you that a high IQ isn’t important when it comes to investing. Instead, what is important is the ability to control your emotions.

Anyone who has successfully been trading stocks for any length of time will tell you that it is extremely important to make investment decisions with your brain rather than with your emotions. In fact, emotional involvement is one of the biggest triggers for problems like overactive trading.

The tips that follow can help you develop the right attitude toward investing. Anyone who is able to master their emotions and instead allow logic to control their decisions stands a greater chance of success.

  1. Focus on individual companies – not just on ticker symbols.

When you look at a stock ticker, all that you see are a bunch of letters scrolling by. It is important to remember that behind every ticker symbol is a real company. Don’t fall into the trap of choosing stocks in a way that is abstract or arbitrary. Instead, always remember that when you invest your money, you are buying a small amount of ownership in a company.

As you look for companies to invest in, it is easy to get overwhelmed. One way to make the process of making picks easier is by thinking about each business as if you were going to buy it. If you were actually in the market for a particular business, you would no doubt want to know more about how it operates, what role it fills in its particular industry, how it compares to its competition, and how likely it is to succeed in the future. Analyzing this information can help you decide whether or not a company is a good investment.

  1. Have a plan in place for difficult times.

The stock market can be extremely volatile. When unexpected changes happen, it is easy to panic, making rash decisions without really thinking through the consequences. In fact, this is how many investors wind up falling into the trap of selling low after buying high.

Keeping a journal is a great way to avoid panicking during difficult times. Although it may sound strange, it is an extremely effective technique.

Keep a journal where you track all of the stocks that you have invested in. Be sure to write down why you committed to them in the first place. Think through the situations that would justify selling your shares. Here is an example:

Each time you buy stock, write down what prompted you to invest in the company. Where do you see them going in the future? Why are you attracted to their business? What do you expect to get out of your investment? How can you judge the success or failure of the company as it moves forward? What setbacks could the company experience that would be temporary in nature?

Next, consider what would make you sell the stock. For each company that you have invested in, write down the top reasons why you would consider selling. Don’t think about the movement of the stock prices. Instead, think about changes to the business that would make it an unattractive investment. For instance, if the company were to lose one of their primary customers or if the company got a new CEO that started completely changing the way that it operated, these could be significant enough changes that they would prompt you to sell.

  1. Focus on slow-but-steady growth and minimal risk.

Investing in the stock market is not a race. In fact, the investors who are the most successful are the ones who are willing to wait for their investments to pan out. This often means waiting multiple years before they can cash in. Because you are going to be holding onto your investments for such a long period of time, you don’t have to be in a major hurry to buy. If you wish to do something else then penny stocks in Robinhood could work, but if you’re going long term then its a different ball game. Using the following techniques, you can minimize the effects of volatile prices:

* Learn about dollar-cost averaging. This is a relatively simple technique that can help you avoid falling victim to price changes. In essence, all that you do is set up a specific amount of money that you invest on a set schedule. When each investment period rolls around, if stock prices are down, you can afford more shares. If stock prices are up, on the other hand, you can afford fewer shares. Over the long haul, however, the prices will usually average out.

* Learn about buying in thirds. One of the most discouraging things for a new investor is having a rough experience right when they are getting started. One way to avoid this problem is by buying in thirds. In essence, all that you have to do is split the amount of money that you are planning on investing into three separate chunks. Then, decide on three distinct intervals when you will purchase your shares. Some investors choose to stick to a regular schedule. For instance, they may buy on a monthly schedule. Others choose to base their purchasing strategy on specific events or performance metrics for the company itself. As an example, an investor might choose to buy immediately before a new product release. If the product is successful, they then may invest an additional third of the money that they had set aside into the company. If not, they can then invest that third in a different opportunity instead.

* Buy a basket of stocks. Another way to minimize your risk is by purchasing a “basket” of stocks in a particular industry. Instead of trying to figure out which company in a certain industry to invest in, buy shares in all of the companies in the industry. Naturally, some companies will succeed whereas others will fail. If you have a stake in all of the companies, however, you are less likely to experience major losses. This can be a good way to evaluate companies to decide which ones you want to go all-in on.

  1. Don’t fall victim to overactive trading.

One of the biggest mistakes that investors make is monitoring their stocks too closely. Ideally, you should only look at how your stocks are doing on a quarterly basis. If you watch your stocks too closely, you are more likely to succumb to overactive trading. Small fluctuations or short-term events that affect the market can make you panic, causing you to buy or sell when it is really unnecessary.

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