08:42 AM, 02 Mar 2024 (AUS EST)   The market is currently closed       

Stock Market Investing and Share Market Tips

Our fast paced world has created a new breed of trader, one that wants to learn about stock market investing and share market tips fast. It used to be that to become a sound investor you would need to join a school of economics, hire on at an investment firm, and make use of a mentor. Whether you are a beginner or season investor, today people can quickly scan the Internet for ‘stock picks’ and ‘share market tips’ to accelerate the learning curve, many of these are free.

If I had to pass on a few tips that would help investors most, what would they be? The following judicious tidbits will be those quick financial bran muffins to munch on the way to work to help your investing prosper.

Share Market Tip #1: Trade the Trend

Probably the most important lesson that can be learned in the stock market is to trade the trend. When four out of five stocks are going up, why would an investor try to find the one that is going down? The odds are simply against him. Trading the trend goes against the buy and hold mentality. With the volatile market we find ourselves in, trading strategies need to be adjusted to coincide with reality and not ideals.

This need not be some wild swing trading strategy. Trading the trend could be staying invested in macro-trends using weekly or monthly stock information instead of daily price data. Simple trend analysis using technical indicators can differentiate between long-term bull and bear cycles. This one tip should help investors more than double their long term profitability.

Stock Market Tip #2: Quality Stocks

You receive a super-hot tip on a stock. The technicals look awesome as it is making all the right moves price wise. Before you invest you look at some fundamentals. The stock has no cash flow, no intrinsic value, but merely a speculative play based on future expectation. Or maybe the stock is teetering on the edge of financial ruin and the shares are being traded with much volatility.

While short term trades might get the adrenaline pumping the risk is very high if the stock is not high quality. To lower risk, simply add screening criteria for stocks that could include a high book value, low debt, low PEG ratio, and so on. Even if the short term play fails, you still own a quality stock with longer term prospects.

Hot Stock Tip #3: Be Realistic in Your Expectations

Internet ads are littered with unrealistic expectations of making millions on the stock market overnight. Greed is one sure way to destroy a portfolio. The higher the returns desired, the higher the risk. To be realistic, compare what you would earn with savings in the bank and other types of investments. Then double that number to come up with a good long term annual goal for the stock market.

If you try to double your money every year, you will eventually take an opportunity that will leave your account penniless.

Trading Tip #4: Have a Plan

Having a strategy cannot be over-stressed. Not having a plan is like driving without a goal…how do you know when the destination is reached?

A strategy need not be complex. It could be as simple as sell when stock goes up 30 percent and sell if it goes down 15 percent. Of course, this may not yield great results but it will surely do better than the investor that rides stocks up and back down again for a loss.

Have a reason to buy and sell. Strategy means you should know why you are buying and selling. Is this a growth company that recently improved its bottom line? Are you buying because the market just turned bull? Are you selling because the industry is going out of favor? What makes this stock better than the thousands of other stocks? Why buy now? Why sell now? If you can answer the last two questions, you have a system. Have a strategy and stick to it.

Share Market Tip#5: Have Patience and Discipline

If there is one lesson to be learned from Warren Buffett it is to have unending patience and an iron will discipline. During the dot-com boom people began to disregard Warren Buffett as irrelevant. Warren Buffett did not jump onto every new fad but had patience that his methodology would turn out in the long-run. After the dot-com bust many realized the importance of being patient.

A trader should never trade just because he is bored. This requires much patience as certain stocks may take weeks, months, or even years before they are good buys. Buying just because you have the money to do so is a poor rationale. Also, once a stock is picked it may take a long time to be acknowledged as undervalued by less observant investors. This means waiting.

Discipline means following through on a set of rules. Often a trader has a great ideal but throws it aside in greed or panic. The stock doubles and he remembers promising himself that he would sell in such a circumstance. But now the message boards are full of ’experts’ saying the stock will double again. If he follows his emotions the profits will usually disappear like a drop of water on a hot element. Or the investor knows a certain stock is very strong fundamentally. However he might be one of the weak hands shaken out during a short term sell off. Without discipline the trader might succumb to fear and sell at the worst possible time.

These stock market and share market tips should help keep you on the profitable side of the market.