Key Points to Consider Before Making Investment Decisions

Earning maximum returns on his investment is all an investor wants. Given a chance, who wouldn’t like to become another Warren Buffett? But Stock Investing has its own share of risks; rather we should say that risk is an inherent element of every investment decision. Though, there are risks but there are remedies too. Knowledge of some crucial and important points about Stock Investing can avoid mishaps and make your investment fruitful.

By now, you must be wondering as to what are those points, knowing which you can make your investment successful?

The three essential points about Stock Investing are described below:

1. Realistic Expectation

Stock Investing is no miracle. If you are expecting your money to be doubled in one month, then either you are being too ambitious or you live in an imaginary world. Being a successful investor needs you to be patient, a rational thinker and a continuous learner. In the beginning, 10 to 15% return is enough for paving your path to be a successful investor. The only thing, you need to ensure, is that the return should be continuous, year after year.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki

2. It’s not just a stock that you are investing in; but the business

Before investing in any stock, most important thing to do is to analyze the business. When you buy a stock, it becomes your share in the ownership of that company. Your future depends on the company’s future and company’s future depends on its fundamentals, past performances and future projects. So, it becomes a must for every investor to evaluate and analyze the stock before putting his hard earned money into it. In other words, you must carry out Stock Analysis before investing. Two prominent methods of stock analysis are:

a) Fundamental Analysis

It is carried out by using actual data to evaluate a stock. This method involves measuring the intrinsic value of the stock by investigating relevant financial & economic factors. It is the method to study each and every factor, which can affect the business such as the overall economy, industry’s conditions, financial conditions and the management of the company. For long term investors, carrying out fundamental analysis is beneficial.

b) Technical Analysis

This method works on the belief that the clue to the future performance of the stock relies into the past performance of the stock and the market. This method involves analyzing data & figures produced by market activities. In this method, charts and other tools are used to identify the patterns to predict the future activities. This method of stock analysis is beneficial for short term investors.

When buying shares, ask yourself, would you buy the whole company?” – Rene Rivkin

3. Stick to the Margin of Safety

Even if you pick your stocks with great care; surprises happen sometimes. Using Margin of Safety, then, helps in lowering the losses significantly. It is actually the difference between the intrinsic value and the market price of a specific stock and helps protect the investment from downturns in the market.

“It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently. ” – Warren Buffett

The money is yours. Only you know how much pain, you have gone through, to earn it & it’s totally your responsibility to make your money pay for your pain.

To wrap up, I would like to mention this famous quote of Warren Buffett, that is:

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”

Article written by

Kevin is among other things.. a fan of old school fundamental analysis of stocks and is madly obsessed with finding the best stocks to invest. A keen giver of free advice, Kevin evangelizes long term investing and on occasion can be disparaging of pure technical analysis and its proponents.

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