Tips for Investing in the Stock Markets

Stocks worldwide are the front runner amongst the various investment options available to investors. Stocks have the capacity to give maximum benefits and also possess the power to beat inflation, something traditional investments can rarely do.

The term stock trading invokes various emotions in people the foremost being fear. Fear arises due to ignorance, being ill informed and being misled by sham experts and rumours. The key therefore lies in STAYING INFORMED.

If you are a newbie in the world of stocks and still feel like a fish out of the pond, follow these simple Tips for Investing in the Stock Markets and you will soon be reaping profits;

Learn about the markets- Knowledge is the key to success in stock markets!  Read up and assimilate information on how the stock markets work, what are stocks, how the market index is calculated, what is the market capitalization of a company, what is the PE (Price/Earning) ratio of a company, what factors determine its EPS (Earning per share) and how all these formulae and calculations are relevant to you as an investor.

Identify your risk-bearing capacity – It is good to know that investment in shares carry an inherent risk and the greater the promise of return, higher is the potential for risk. Be your own judge and identify whether your riskbearing capacity is low, medium or high. Determining factors may be income, investment capacity and temperament.

Formulate your goal – Be your own judge  and decide whether you want to stay invested for long or whether you just to want to test waters with a medium-risk, mid-cap company for a short period and be prepared for a quick exit. Identifying a goal followed up by a game plan helps you remain rooted and focused and prevents you from over-indulging.

Create your portfolio – With the help of your new found knowledge of the markets backed by an awareness of the capacity to take risks and your market goal, move on to identify companies you seek to invest in.  The key is to have a mixed bag of shares or a diversified portfolio. The popular adage, ‘do not put all your eggs in one basket’ is highly relevant while creating an investment portfolio.

At the same time remember that the portfolio should be manageable so keep the list short and sweet. Pick those shares which have a realistic pricing and are backed by companies which exhibit strong fundamentals and  consistent performance. In case you seek to remain invested for long, it also pays to know which companies hand-out regular and high dividends to their investors. Make use of various tools on trading sites in creating a workable portfolio.

Stay vigilant- Stocks are highly dynamic as assets. It is important to stay afloat above the momentary fluctuations and learn to identify the real trends. Learn to distinguish real news from baseless rumors. Make use of financial news, corporate announcements, announcements of mergers and acquisitions and other information which makes sense to you as an amateur investor.  Read the financial statements made public by companies. Learn from your own mistakes and do not always rely on expert-talk aired on Television.

Review your portfolio – Market trends change and share prices fluctuate so timing is of utmost importance while investing and profiting from stock markets. Remember to periodically review and refine your portfolio in tune with the markets. As you mature as an investor, you may also learn to tweak your portfolio just a wee bit to stay ahead of the markets!