Every business organization needs capital to function and earn profits. This capital is collected by the organization by issuing shares or stocks that can be purchased by individuals. When you purchase stocks of a company, you get a stock certificate which states the number of shares acquired, and implies that you have a partial ownership of the company. This means that you will earn a share of the company's profits, in proportion to the number of shares you invested in. For example, if a company has 100 shares and you buy 5 of them, you have 5% ownership of the company. A stock market is a place where you can invest in, and trade for, stocks of different business firms at a certain price. An example is the New York Stock Exchange (NYSE).
When it comes to the best strategies to invest in stocks, there is no single strategy that is universally recommended. You can choose a strategy that suits you, based on how much amount you wish to invest, the risk you are willing to take, and how the market behaves. You should have a clear picture of how the stock market works, in order to invest in stocks successfully.
Techniques for Stock Analysis
There are basically two analytical techniques used by stock investors for stock picking, or choosing the stock to invest in. Let us discuss each one of them.
Fundamental Analysis
This method of analysis is used for analyzing the financial condition of the company, its market share, competition etc. There are two approaches for conducting fundamental analysis: top down approach and bottom up approach. Using the top down analysis method involves beginning with the study of global and international markets, and finally zeroing in on the best business firm in the local area. In contrast to this, the bottom up method of analysis involves studying about specific business organizations, irrespective of the region.
Technical Analysis
This method of analysis is about forecasting the stock prices of business firms by taking into consideration the past market data. However, its major drawback is that stock prices are unpredictable and do not follow any distinct patterns.
Strategies for Stock Investing
The stock market can witness both upward and downward market trends, due to which it is always advisable to adopt certain strategies to avoid financial losses. Let us discuss few of the best stock investing strategies that you can keep in mind while investing in stocks.
- Remember the three golden words: selection, timing and price. Investing in the stocks of the right company at the right time, is fundamental for success.
- If you are a beginner to stock market investing, you should not opt for penny stocks, or stocks of small public companies.
- Set individual goals and decide what you want out of your investment. This will help you zero in on the perfect investment plan that will suit your needs. Remember that the ultimate objective of investing in stocks, is to make your money grow over time.
- Before investing in stocks of a company, check on the risk factors involved to make sure it is safe and acceptable.
- Don't aim at getting rich overnight, instead, plan for long term returns.
- Don't rely merely on luck for success. Do your share of homework before investing, make sure the company has a stable management, consistent profitability and long-term growth potential.
- To reduce the risk factor, it is advisable to invest in a number of growing companies, and keep a tab on their stock prices for an opportunity to buy more shares when there is a dip in stock prices. This will also add diversity to your investment portfolio.
- Do not sell stocks except when it is favorable to do so. You can sell the stocks when either the stocks you have are not fetching you any profits, or when the company is close to the end of its growth phase.
- Do not be impulsive in selling your stocks, merely because of the current market trends, or simply to achieve short-term gains. Do not allow short-term market fluctuations disturb you.
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