By Siddharth Gurnani | Friday, November 4, 2011
Let’s face it: the thought of investing is overwhelming. Luckily the Technique has some simple steps to help you invest wisely.
Buy low, sell high
This is the most basic advice, yet so many people seem to ignore it. Don’t buy impulsively because stocks are on the rise. Similarly, don’t allow greed to prevent you from selling a highly-priced stock.
Do your research
Look at the company’s annual report, and see what the Wall Street Journal has to say about them. Make sure you pay special attention to their earnings (which should be 10 percent higher than the previous year), sales and equity (both of which should be higher).
Make a plan
Make a plan. Without a long-term goal for your investments, you’re more likely to fall victim to acting irrationally at the slightest downturn in the market.
Know your options
There are several way to invest: stocks, bonds, mutual funds etc. Bonds are considered the safest, but have the lowest return. Stocks are risky, but have the highest potential return. If you’re interested in stocks, but new to the game, try a mutual fund. They have a professional pool money together and decide where to invest for you.
When you buy stock in a company, you’re actually buying part of that company. Care about the company, analyze their movements, read their financial statements; think like an owner.
Put your eggs in several baskets
Diversify your portfolio or spread your money out over several kinds of stocks and several companies in various industries.
Investing is not gambling. Unless you throw your money at every company you hear is “hot” you’ll be okay. Keep in mind that you should invest in companies that are making a profit, and whose debt is half (or less) of their assets to ensure a safe investment.
Think things through
Make sure you leave money aside for predictable emergency expenses. If you don’t, you could set yourself up for selling at a loss to get your money back quickly.
Watch your stocks closely, and place stop-loss or limit orders if needed. However, refrain from selling your stocks unless it’s absolutely necessary.
Investing is not a get quick rich scheme. It takes a lot of time and effort.