The stock market seems to be a complicated place for beginners. It may take years of studying and learning before you can make your first investment. However, some rules can help any beginner invest without making too many mistakes. Let me save you some time, here are my top 10 stock market rules for beginners:
1) Know Why You Are Investing
This is the most important of all stock market rules for beginners. You must know why you are investing in the first place. If it's because of a tip from a friend or relative, forget about it. Or if it's because Warren Buffet said so, think twice. Be sure that you have researched on your own and understand the business. If you do, you're ready to invest.
2) Invest ONLY What You Can Potentially Afford to Lose
Do not invest more than you can afford. It's not a competition and there won't be any prize if your investment does well. The stock market is for investors who are willing to take risks and wait patiently for their investment to grow. If you are not sure if the amount you are investing is too much, then it probably is.
3) Do Not Follow The Herd
When everyone's buying into a company, that's the time to sell. When everyone's selling, that's when you buy. It can be confusing, but this stock market rule for beginners is telling you boils down to this: don't follow the crowd. The reason is because they may be irrational and emotional at times that they cannot think straight. In most cases, a good stock will rise when it's out of favor and vice versa.
4) Do Your Own Research
This means you have to look at the company yourself and do the necessary research. This means reading annual reports, checking out news online, or watching business channels on television. You can't make your decisions with limited information!
5) Stick With What You Know
This way you are more comfortable with what you are investing in. It's a good stock market rule for beginners because you will have a better idea of what you'll need to do if/when something goes wrong. You can also expect some sympathy from the people who might know you are investing in that particular company.
6) Have A Good Reason To Buy
Stocks must be bought only when there is a good reason to do so. This is part of stock market rules for beginners that many investors don't follow. It's no use buying high and selling low. If the company has just reported higher earnings, this would be a better time to buy than after announcing lower than expected results.
7) Buy Bargain Stocks
For beginners, some stock market rules say that stocks must be bought when they are down in price. If the company is truly doing well, then it's only a matter of time before its shares rise to their previous price or even higher.
8) Know Where To Sell
It's best to have the target price in mind before you even buy a stock, this is part of stock market rules for beginners that many investors forget about. This makes it possible to sell your shares when the price hits your target. If not, then at least you can expect to sell if ever the price falls to half of what you paid for.
9) Ignore Headlines
This is also stock market rules for beginners that many investors seem to forget about. What's inside the company's annual report is more important than what's in the papers or on television. If they say a company will soon be bankrupt, but its balance sheet shows otherwise, don't believe it. If you do, chances are you'll sell your shares and miss out on great wealth building opportunities.
10) Be Aware Of The Risks Involved
Investing is risky business and there's no such thing as a risk-free investment. Always bear this idea in mind and if ever something goes wrong, you won't be so surprised and you will have a better understanding of what to do.
I hope today's post has helped you learn some of the basics of stock market investing and I wish you luck in your journey! Stay tuned for future how-to's for stocks!