Monday, February 3, 2014

Ask Bert Griffin: Some Tips for New Stock Investors

English: Phillippine stock market board
English: Phillippine stock market board (Photo credit: Wikipedia)
In the wake of the financial recovery and the resurgence of the stock market, stocks have returned as one of the more popular investment vehicles for independent investors. And for good reason – if you have funds set aside that you’re looking to invest more aggressively, stocks can offer a great opportunity for strong returns. However, with that said, becoming active in the stock market offers far more risks and uncertainties than other investment avenues, especially for those who are new to stocks.

But, knowledge goes a long way, particularly in the investment world. Which is why I thought it would be worthwhile to share my thoughts in this ‘Ask Bert Griffin’ article on what I think needs to be known when someone first considers investing in the stock market. 

Background research and knowledge is critical

Here’s the thing – if you’re new to buying and selling stocks, then you’re probably also new to the workings of the stock market and to the full range of stocks available for you to purchase or trade. Which is fine. However, it does mean that performing background reading on not only the stock market in general, but also the different types of stocks traded in the market is imperative for any sort of success.

Now there are entire books and classes devoted to different stock purchasing and trading methodologies. If you do not have time to take these sort of classes, then try to do some sort of background reading on how the stock market works before making any sort of purchases. Furthermore, once you have an idea of what stocks you would like to buy, be sure to complete detailed research on both the history of the company you’re investing in, as well as its stock. 

Never be surprised at the volatility of these kinds of investments

One of the things you have to be mentally prepared for when becoming active in the stock market is that stocks can be very volatile vehicles for investment. Unlike mutual funds or other forms of investment, when you buy stocks, you’re directly investing in the daily performance of a company. That means there’s no cushion or anything else protecting you from the performance of that company. Thus, if the company you buy stock from begins performing poorly or if their stock becomes ill-favored on the market for some reason, this will be reflected in the stock price – and not several days or a month later, but immediately. Additionally, even if the financial market is doing well, the stock(s) that you choose to invest in may perform poorly (and of course, the opposite is true too).

In short, the value of stocks can fluctuate wildly and when beginning to make your first investments, you need to be prepared for potential volatility and remain confident in the intelligence behind your stock picks.

If interested in more conservative trading, then consider stocks from major corporations like McDonalds or Coca Cola

Now that doesn’t mean that every single stock traded on the market should be deemed high risk. Yes, stocks of start-ups and small companies doing business in unproven industries are certainly more risky investments. However, stocks of such global, big-name companies like McDonalds, Coca Cola, Pepsi, IBM, Intel and Google, to name just a few, can be seen as far more stable investments. 

 However, there’s some caveats to be had here – first, stocks of these kind of established companies are typically more expensive; second, because these big corporations have relatively stable value, you’ll most likely not see any sort of wilds gains when buying their stocks. Yes – in the investment world, ‘no risk, no gain’ is a phrase that proves true more often than not.

Never forget that buying and trading stocks is a high-risk form of investment

I always advise those clients of mine who purchase and trade in the stock market to never forget the risk that comes along with it. As much as I want my clients to succeed financially, there’s a potential danger that comes along with enjoying success in the stock market – namely, a person can become complaisant or they can forgot the risk they are taking. 

 And, in a worse case scenario, all the success they have enjoyed can come crashing down in a matter of hours or days, and a lot of assets can be potentially lost. That’s why I repeatedly remind my clients that knowledge, confidence and a continual awareness of the stock market and one’s activity in it is imperative for success.

1 comment:

  1. High risk for sure - that's what some seem to forget! The stock market changes so quickly, so it's imperative to be careful/mindful and keep a watchful eye. Good advice.


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