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Ten Basic Principles to Successful Investing


Here are a couple of key points to help you to invest.

1. Do your own research.
Collect and study as much information as you can about the company and investment before making your decisions. A good approach is to analyze a company’s investment prospectus. The investment prospectus is a written document that outlines the data relevant to the investment offered for sale. It includes a summary of the company’s business history, financial data showing assets and liability, past performance figures, fees that an investor will need to pay and a description of the company’s operations.

Another way is to study a company’s annual or quarterly reports. Some of their reports are available from their websites. If they are not available, you can always request for the company to post them to you as most of the companies do not charge a fee to prospective investors.

By reading the prospectus, reports and other important information you know what you are investing your money in and what to expect from your investment.

2. Prepare a strategy.
It is important to plan a strategy before you start investing. You should know which stock you are going to buy, when to buy it, its selling price and for how long will you hold the shares. Try to follow the principles of your strategy and not change it every day.

3. Don’t trade with money you cannot afford to lose.
Don’t invest with money that is supposed to be used for important aspects in your life such as money to pay for bills, mortgage, loans, or tuition fees. This means that you will be trading based on your emotions and feelings of fear. It will then be wise to adopt a more conservative approach to investing.

4. Diversify your investments.
Diversification can help reduce your investment risk. It is a good idea not to invest all your money in one stock. It is tempting to do so especially when you have found a hot stock but remember choose wisely as the odds might be against you.

It is also a good idea to invest in a couple of stocks from different industries and not just concentrate on one particular industry. Select industries that have shown growing and strong demand in the market.

Stocks may be a fantastic investment but there are many different asset classes in the market. Choose among bonds, mutual funds, treasury securities, real estate for your investment portfolio to complement it and protect you against the risk of significant loss.

5. Purchase stocks that you understand.
Identify your limitations and only invest in companies that you understand. You must be able to understand how these companies make their money and hence be able to make reasonable assumptions in forecasting their future performance. Many investors make the mistake of investing in a stock that they do not understand just because they fear missing out on a hot stock. The key is to avoid the lure of an attractive industry unless you really know the economics of that industry. By recognizing your strengths and weaknesses, you are able to prevent making major investment mistakes.

6. Market indicators
To help you follow the progress of a stock you have bought or are thinking of buying, it is a good to know how to read stock tables. However, if you are interested in tracking the progress of the market as a whole, market indicators will let you know how strong the markets are in general terms. To better understand this, you will want to take a look at a stock market index which is a listing of stock and a statistic reflecting the composite value of its components.

7. Read and understand price quotations
By reading price quotations in daily newspapers, on television or on the Internet, investors can keep track of the changes in prices of their investment. Investors will need to know a history of the investment’s prices and not just its current price. By understanding this, investors will be able to follow their investment without the help of a stockbroker or adviser.

8. Avoid buying stocks just because they have gone up.
It is unwise to rush into purchasing stocks that have gone up just because your friends tell you how much they’ve made on a stock. Often, momentums in stock prices attract investors who quickly purchase without doing any research on their own about the stock.

9. Choose companies with new styles, ideas and products or services.
Stocks that are the best to invest in are those that have something new to offer. Something new does not necessarily mean that it needs to be a high tech product or service.

10. Do a post-analysis of all your trades.
By posting on a daily chart of where you bought and sold your stock, which stocks you made money from compared to the stocks you lost money on, you will be able to evaluate and identify your mistakes and learn to become a better investor.

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