Investing in stocks can be a daunting prospect for many investors, as those at Sumitomo Global know well, but it needn’t be. Here are some of their top tips for investing in the stock market.
The first step to actively picking out a stock from the sea of available alternatives is to determine what the purpose of your portfolio is. Investors focused on income, capital preservation or capital appreciation requirements will have different investment criteria.
However, deciding which category you fall under is the easy part; figuring out what stocks to actually pick is where the process becomes more complicated. Although there is no single correct method on how to go about picking stocks, a basic strategy should help investors narrow down their search before they start analyzing the financials of a firm. Furthermore, choosing an investment based strictly on the criteria inputs of a stock screener is prone to error and does not produce a full representation of the company.
Research stocks thoroughly. It is important that stocks are heavily researched before buying, not just to make sure that it is a good stock, but also so that the investor is comfortable with the stock, meaning they are more likely to rise out a storm rather than panic and sell when the price is low.
As a general rule, stocks with moderately above-average growth rates and reasonable valuations are the best buys. Statistically, high-growth stocks are usually overpriced and have a harder time meeting inflated investor expectations.
Develop a strategy and stick to it. An investment strategy is valuable not just because it consolidates all of the investors investing philosophies and risk tolerance into one, but also Sumitomo Global sees it is a guiding light during tough times.
Invariably those who make the wrong decisions at the wrong time are those that don’t have, or have strayed from, their strategy.
Diversification has always been the key to successful investing. There’s a reason that “don’t put all of your eggs in one basket” is such a famous proverb, it’s because it is so relevant. Investors should spread their investing across different companies and different market sectors.
Learn to be disciplined. It’s not always easy to remain rational when 20% of your portfolio’s worth gets wiped out in an afternoon, but selling low after a crash only to buy back later when the market recovers is one sure way to lose money. Don’t be swayed by emotions and overreact to the situation.
At Sumitomo Global they believe that investors that follow the above tips will have the knowledge and the confidence to act in a deliberate manner in the stock market.
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