How to Avoid Rookie Mistakes in Investing
With stocks at multiyear highs, many folks are contemplating getting back into the market. The stock market is up again and that tempts more and more people to become stock investors. Folks who bought when the market was low love this scenario. Late arriving investors pour their money into the market just as fundamental analysis of stocks tells the pros that it may be time to take a little profit or get out altogether. The second half of this scenario is that the market turns and falls. Newly arrived investors hang on in the belief that if the market was going up it will surely go up again. Finally, in despair, they pull out of the market, licking their wounds, just as long term stock investors see opportunities and buy low priced stocks with good margins of safety and intrinsic stock value. How to avoid rookie mistakes in investing is to do a little homework before jumping into the market. Take a long term view of stocks that you purchase. Decide when it will be smart to buy and when it will wise to hold and when it will be time to sell. Learn about calculating intrinsic value and identifying a margin of safety in a stock. Learn how to invest in such a way as to avoid letting fear and greed drive your decisions.
Time, Risk, and Reward
Short term stock gains are possible in volatile markets. So are stock losses. How to avoid rookie mistakes when
investing in volatile markets is a four-fold task:
• Learn the fundamentals that drive the stock you want to buy
• Learn the trading skill of technical analysis so that you can read changes in market sentiment
• Decide if you are a short term trader or a long term investor
• Remember that many successful investors do not believe that you can reliably time the market and make profits again and again
If you want to put away money for retirement and you are not interested in sitting at a trade station all day buying and selling, pick stocks with a good margin of safety and high intrinsic stock value. Consider dividend stocks that pay you quarterly and consider reinvesting these dividends. Pick stocks with a reliable rate of return and low risk. Remember the power of compound returns.