For anyone who wants to venture into the world of trading, it is important to know that you do not need a large amount of money to start investing. The important thing is to choose what to trade on, skills that can be more or less intuitive, but once learned will allow anyone to start trading. This guide wants to suggest some basics to be able to invest in stocks.
Invest In Stocks In The Short Or Long Term?
The stock market has always been considered very volatile. Equities tend to vary a lot in very short periods of time, which leads to large rises or falls in individual shares. Some traders choose to focus on the short term, buying the shares and reselling them after a few hours or days, while others hold the shares for much longer (even years) in order to get revenue from the wider growth of the stock. Some studies show that choosing long-term strategies tends to be the best choice to make the biggest gains. In particular, many large, successful investors such as Warren Buffett, for example, prefer this method.
The moment you go to buy a stock, you are automatically taking a small part of a company that operates in a real business. So it is important to focus on companies whose history and way they operate is known, so you can better understand their performance. In this way in the long term the value of the stock will tend to reflect the results of the chosen company, which if it goes well, will see the stock rise, but if the company goes wrong, will do the opposite.
Choose Well Managed And Growing Companies
A company is considered a good investment if it can offer a competitive advantage over others in its own sector. This advantage can manifest itself in different ways, such as product quality, the production process, or relationships with suppliers and employees. It is important to choose to invest in stocks on companies with good management. The executive management of a company indicates the path that the company wants to take, and observing a manager’s success or failure history, experiences and events, can help to limit possible mistakes.
In order to make a long-term strategy successful, it is important to look at companies with the greatest scope for growth. Many investors tend to focus on projects that show greater capacity for growth than their competitors, looking for those who can generate above-average profits.
Find Out What You Are Investing In
Nowadays you can find information in many ways. By searching the Internet, through newspapers or attending company conference calls, you can keep up to date at all times. These are often made on a quarterly basis, where companies disclose important information about their economic and financial performance during the quarter. These can be a good starting point for understanding whether a company’s management has managed to overcome the difficulties that periodically recur. In this way you can obtain useful data to assess its quality.
Investing In Shares According To The P/E Ratio
There are several methods to assess the value of a company: The so-called price/earnings ratio calculates by dividing the share price by the earnings per share, usually indicated by P/E. This factor must always be seen in conjunction with the other parameters, as it does not provide a unique value on its own. Usually, a high P/E ratio indicates that investors are willing to pay a lot for a company, as they expect strong growth. But beware, a high ratio may mean that the company is overvalued, while a lower ratio may indicate a company momentarily undervalued. It is always important to observe the actions you want to operate.
As we have seen, this factor makes more sense if seen in a broader context, but in general, if you want to invest in stocks with the long term in mind, it is advisable to look for stocks that are undervalued by the market, so that over time they can achieve higher growth values.
Controlling Your Investments
The most frequent advice is to invest only a small part of your capital in shares. At the same time, however, diversifying your market strategies, choosing different stocks, will reduce the risk of your investment (if I bet everything on an action that is then at a loss, I will have catastrophic results). Even better if this diversification takes place on different sectors of the market.
Once you have chosen your long-term strategy, it can be tempting to stay glued to observe whether your securities are in slight gain or loss. It is important not to let yourself be distracted by small daily variations, it is advisable to keep an eye on your stocks once every three weeks/one month. A good trader who “plays the stock market” must be able to observe not only the financial aspect of a company, but the whole process that surrounds it, see if it is still positive as before, and if the business prospects are still economically interesting.