The stock market is a feral animal, an untamed beast. Sometimes, it is a furious bull that lifts and hurls all stocks upwards into the heavens. Sometimes it is a prowling bear beating everything into the ground with brute force. If you’re intending to enter the stock market you have to ride this monster. It can be a rough ride or it can be a smooth one depending on how you grip the rains! Here are five precautions and factors to keep in mind to help plan your investments well:
- Know your limits: Every player in the stock market must not play beyond his means. The bottom line is that if you play beyond your financial capacity, and something goes wrong, you will end up with a loss of face and your family will feel the after effects. It's better to control your risk and adventurism while engaged in trading or investing in the stock market! Remember it’s a market, not a jungle that needs to be explored.
- There is no room for emotions: Never ever get emotionally attached to any stock. You must look at stocks as an asset class and treat them as such. If you don't, and keep holding a stock no matter what, you’ll lose out on many other opportunities!
- Book profits and stop losses: Profits are like a thief, if you don't catch them in time they will escape your grasp! And losses are like insurance salesmen, if you don't stop them they’ll just keep sticking to you! Therefore, you need to always book profits as soon as possible and cut your losses even quicker! The big players all do it so why shouldn't you?
- Not many people are good at timing the market. So, be happy when you get in, be contented when you get out, don't regret, don't fuss and grin no matter what you do, especially when you do it correctly.
- It pays to be familiar with as much as possible with what you’re buying: It will pay metaphorical dividends if you have a good understand the stock you are buying into. What are its finances? Are its books profitable or is it suffering losses? Does the market have it priced right? Is it overvalued or undervalued? Is the management trustworthy and clean or cousins of Enron? How does the industry’s future look?
You can build a nice nest egg for retirement if you recognize opportunities and act on them. So, get some know-how with statistics and with the economic and global trends. Analyze all the factors affecting a stock and then act on it.
Well, these are some basic elements you need to understand before entering the stock market. Obviously, you will make mistakes, but that's normal! Every stock market player does. Just take care to keep the pointers above in mind and play the market by the book! That will ensure you’ll ride out the booms in style and weather the busts healthier!
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