When you decide to invest your money in stocks you have to be careful. Many think that investing is either easy or monumentally difficult; it is neither. It takes a lot of learning about investing, finance, economics, etc. to really trust yourself when making stock investment decisions. Personally, I knew nothing about stocks until about 6 years ago when I began a job in the investment industry and since then I have been learning more and more. For the past several years I have felt confident in my investment strategies that I can easily sleep at night with my decisions.
Here are some tips to consider if you think you want to invest in individual stocks.
1) You need to have at least a basic understanding of Wall Street investing and the stock market as a whole. You need to know how to interpret financials of an individual company. You need to understand how the quantitative and qualitative data of company is important to investing. So if you do not have a good grasp of this information and more you should shy away from the equities market until you have a command of it.
2) I would recommend you start with a universe of large cap, S & P 500 stocks. These are very well-know and well-covered stocks so their will be a wealth of information available to research your choice. I stay with these stocks because they have less volatility than smaller company stocks, the ease of information gathering and real potential to make money investing with less risk (and reward) than smaller capitalization stocks.
3) Do your homework. In Jim Cramer’s book, radio and tv show he states that you must spend at least one hour per week, per stock, doing your homework on that stock. I believe this is a good rule of thumb because you need to keep current with your companies’ news. Many stick to the Buy and Hold theory of investing and this can be a losing proposition. Buy and Hold investors often do no homework and just thimk time will make them money. Jim Kramer does not know everything about investing, but he does have some provocative ideas that can help the average investor.
4) A corollary to number 3 is to bookmark the Investors Relation portion of your stock’s website. Here you can keep abreast of the important actions that your company is taking. Plus you can listen to conference calls that can give you essential insight to the health of the company you are investing.
5) Be disciplined. Personally, I follow many of the aspects of how Warren Buffet invests (Buy and Hold is the one aspect I do not subscribe). So come up with a discipline and stick to it. That means you can have certain criteria a company must meet to come onto your investing radar. Stick to that criteria.
6) Have an exit strategy. An obvious cycle evolves here: Discipline and criteria get you potential investments; doing your homework helps you pull the trigger on an investment and keeps you in the know; and know when to fold up the tent and get out of the stock.
These are simple guidelines to consider when you decide to take on Wall Street and invest in individual stocks.