Carlos Slim, a Mexican business tycoon and one of the richest men of the world, has said that, “Anyone who is not investing now is missing a tremendous opportunity.”
Investing in stocks is the easiest, most profitable and most tested method of growing your wealth. In recent years, the stock transactions have hugely increased. Earlier, it was considered as gambling and was exclusively for elite class. But now a day, it has become a money making method for middle class people too.
For any newbie in the stock market, the biggest question is how to invest in stocks? This article will educate you to invest confidently and intelligently.
Before knowing how to invest in stocks, knowing the ins and outs of stock investing is more important. There are some points that you must know about stock investing:
- It is not a stock, but a company which you are buying.
- 100 percent of your asset should never be a stock.
- The environment of the company influences the price of the stock.
- You common sense and logic is as important as the advice of an investment expert for choosing the right stock.
- Use stop-loss orders, if you don’t have any idea about the prospects of a company.
Here are some simple steps, following which you will easily learn investing in stocks.
Collect information about all the types of stocks in the stock market. There are large cap, mid cap and small cap stocks, energy and technology stocks, growth and value stocks etc. Try to get an idea of each type of stock by using stock analysis techniques. This will help you in deciding in which type of stock you want to invest. Once you have decided the type, make sure that you know each and everything about that type.
Collect information about the stock you are considering for buying. Check the earning history. The stock, you are considering to buy should be with a strong and decent earning history.
Investing is all about taking risk. In this step, you have to analyze your capability of taking risk. It means you have to analyze how much you can afford to lose. This will be the amount that you will invest.
In this step, you have to find the price per earning (P/E) ratio of that stock. It is price of a share divided by the total earnings. Now you have to use this P/E ratio to get the PEG ratio. It is actually P/E divided by the long term growth rate. A stock with a PEG near or less to 1.0 is a safer bet.
Now you are ready to invest. Choose 15-20 stocks using portfolio management tools and keep tracking them. Buy only one or two stocks at a time. Keep tracking their cycle to enable your-self to buy and sell stock at right time.
Warren Buffet has said that, “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
You can easily make good money in stocks; you just need to be smart enough.
Tips and warnings:
Taking advice from an investment expert before investing will be a wise move.