6 Stock Market Investing Tips & Guide for.

1. 6 Stock Market Investing Tips &
Guide for Beginners
By Secured Options Binary Options

2. Bernard Baruch, known as “The Lone Wolf of Wall Street,” owned his
own seat on the New York Stock Exchange by age 30 and became of
the country’s best known financiers by 1910. Mr. Baruch, while a
master of his profession, had no illusions about the difficulties of
successful stock market investing, saying, “The main purpose of the
stock market is to make fools of as many men as possible.” According
to Ken Little, author of 15 books on investing and personal finance
topics, “If you are an individual investor in the stock market, you
should know that the system stacks the deck in its favor.”
At the same time, there are literally hundreds of thousands of
individuals who buy and sell corporate securities on one of the
regulated stock exchanges or the NASDAQ regularly and are
successful. A profitable outcome is not the result of luck, but the
application of a few simple principles derived from the experiences of
millions of investors over countless stock market cycles.

3. While intelligence is an asset in any endeavor, a superior IQ is not
a prerequisite of investment success. Peter Lynch, renowned
portfolio investor of the Magellan Fund from 1977 to 1990,
claimed that everyone has the brainpower to follow the stock
market: “If you can make it through fifth-grade math, you can do
it.”

4. Tips for Stock Market Investing
Everyone is looking for a quick and easy way to riches and happiness.
It seems to be human nature to constantly search for a hidden key or
some esoteric bit of knowledge that suddenly leads to the end of the
rainbow or a winning lottery ticket.
While some people do buy winning tickets or a common stock that
quadruples or more in a year, it is extremely unlikely, since relying
upon luck is an investment strategy that only the foolish or most
desperate would choose to follow. In our quest for success, we often
overlook the most powerful tools available to us: time and the magic
of compounding interest. Investing regularly, avoiding unnecessary
financial risk, and letting your money work for you over a period of
years and decades is a certain way to amass significant assets.
Here are several tips that should be followed by beginning investors.

5. Set Long-Term Goals
Why are you considering investing in the stock market? Will you
need your cash back in six months, a year, five years or longer? Are
you saving for retirement, for future college expenses, to purchase a
home, or to build an estate to leave to your beneficiaries?
Before investing, you should know your purpose and the likely time
in the future you may have need of the funds. If you are likely to need
your investment returned within a few years, consider another
investment; the stock market with its volatility provides no certainty
that all of your capital will be available when you need it.
By knowing how much capital you will need and the future point in
time when you will need it, you can calculate how much you should
invest and what kind of return on your investment will be needed to
produce the desired result.

6. To estimate how much capital you are likely to need for retirement or
future college expenses, use one of the free financial calculators available
over the Internet.Retirement calculators, ranging from the simple to the
more complex including integration with future Social Security benefits,
are available at Kiplinger, Bankrate, and MSN Money. Similar college
cost calculators are available at CNNMoney and TimeValue. Many stock
brokerage firms offer similar calculators.
Remember that the growth of your portfolio depends upon three
interdependent factors:
•The capital you invest
•The amount of net annual earnings on your capital
•The number of years or period of your investment
Ideally, you should start saving as soon as possible, save as much as you
can, and receive the highest return possible consistent with your risk
philosophy.

7. Understand Your Risk Tolerance
Risk tolerance is a psychological trait that is genetically based, but
positively influenced by education, income, and wealth (as these
increase, risk tolerance appears to increase slightly) and negatively by
age (as one gets older, risk tolerance decreases). Your risk tolerance is
how you feel about risk and the degree of anxiety you feel when risk is
present. In psychological terms, risk tolerance is defined as “the extent
to which a person chooses to risk experiencing a less favorable outcome
in the pursuit of a more favorable outcome.” In other words, would you
risk $100 to win $1,000? Or $1,000 to win $1,000? All humans vary in
their risk tolerance, and there is no “right” balance. Risk tolerance is also
affected by one’s perception of the risk. For example, flying in an
airplane or riding in a car would have been perceived as very risky in the
early 1900s, but less so today as flight and automobile travel are
common occurrences.
Conversely, most people today would feel that riding a horse might be
dangerous with a good chance of falling or being bucked off because few
people are around horses.

8. The idea of perception is important, especially in investing. As you
gain more knowledge about investments – for example, how stocks
are bought and sold, how much volatility (price change) is usually
present, and the difficulty or ease of liquidating an investment – you
are likely to consider stock investments to have less risk than you
thought before making your first purchase. As a consequence, your
anxiety when investing is less intense, even though your risk
tolerance remains unchanged because your perception of the risk has
evolved.
By understanding your risk tolerance, you can avoid those
investments which are likely to make you anxious. Generally
speaking, you should never own an asset which keeps you from
sleeping in the night. Anxiety stimulates fear which triggers
emotional responses (rather than logical responses) to the stressor.
During periods of financial uncertainty, the investor who can retain a
cool head and follows an analytical decision process invariably comes
out ahead.

9. Control Your Emotions
The biggest obstacle to stock market profits is an inability to control
one’s emotions and make logical decisions. In the short-term, the
prices of companies reflect the combined emotions of the entire
investment community. When a majority of investors are worried
about a company, its stock price is likely to decline; when a majority
feel positive about the company’s future, its stock price tends to rise.
A person who feels negative about the market is called a “bear,” while
their positive counterpart is called a “bull.” During market hours, the
constant battle between the bulls and the bears is reflected in the
constantly changing price of securities. These short-term movements
are driven by rumors, speculations, and hopes – emotions – rather
than logic and a systematic analysis of the company’s assets,
management, and prospects. Stock prices moving contrary to our
expectations create tension and insecurity.

10. Should I sell my position and avoid a loss? Should I keep the stock,
hoping that the price will rebound? Should I buy more?
Even when the stock price has performed as expected, there are
questions: Should I take a profit now before the price falls? Should I
keep my position since the price is likely to go higher? Thoughts like
these will flood your mind, especially if you constantly watch the
price of a security, eventually building to a point that you will take
action. Since emotions are the primary driver of your action, it will
probably be wrong.
When you buy a stock, you should have a good reason for doing so
and an expectation of what the price will do if the reason is valid. At
the same time, you should establish the point at which you will
liquidate your holdings, especially if your reason is proven invalid or
if the stock doesn’t react as expected when your expectation has been
met. In other words, have an exit strategy before you buy the security
and execute that strategy unemotionally.

11. Handle Basics First
Before making your first investment, take the time to learn the basics
about the stock market and the individual securities composing the
market. There is an old adage: It is not a stock market, but a market
of stocks. Unless you are purchasing an exchange traded fund (ETF),
your focus will be upon individual securities, rather than the market
as a whole. There are few times when every stock moves in the same
direction; even when the averages fall by 100 points or more, the
securities of some companies will go higher in price. The areas with
which you should be familiar before making your first purchase
include:
• Financial Metrics and Definitions. Understand the definitions of
metrics such as the P/E ratio, earnings per share (EPS), return on
equity (ROE), and compound annual growth rate (CAGR). Knowing
how they are calculated and having the ability to compare different
companies using these metrics and others is critical.

12. • Popular Methods of Stock Selection and Timing. You should
understand how “fundamental” and “technical” analyses are
performed, how they differ, and where each is best suited in a
stock market strategy.
• Stock Market Order Types. Know the difference between
market orders, limit order, stop market orders, stop limit
orders, trailing stop loss orders, and other types commonly
used by investors.
• Different Types of Investment Accounts. While cash accounts
are the most common, margin accounts are required by
regulations for certain kinds of trades. You should understand
how margin is calculated and the difference between initial and
maintenance margin requirements.
• Knowledge and risk tolerance are linked. As Warren Buffett
said, “Risk comes from not knowing what you are doing.”

13. Diversify Your Investments
Experienced investors such as Buffett eschew stock diversification in
the confidence that they have performed all of the necessary research
to identify and quantify their risk. They are also comfortable that
they can identify any potential perils that will endanger their
position, and will be able to liquidate their investments before taking
a catastrophic loss. Andrew Carnegie is reputed to have said, “The
safest investment strategy is to put all of your eggs in one basket and
watch the basket.” That said, do not make the mistake of thinking
you are either Buffett or Carnegie – especially in your first years of
investing.
The popular way to manage risk is to diversify your exposure.
Prudent investors own stocks of different companies in different
industries, sometimes in different countries, with the expectation
that a single bad event will not affect all of their holdings or will
otherwise affect them to different degrees.

14. Imagine owning stocks in five different companies, each of which
you expect to continually grow profits. Unfortunately,
circumstances change. At the end of the year, you might have two
companies (A & B) that have performed well so their stocks are up
25% each. The stock of two other companies (C & D) in a different
industry are up 10% each, while the fifth company’s (E) assets
were liquidated to pay off a massive lawsuit.
Diversification allows you to recover from the loss of your total
investment (20% of your portfolio) by gains of 10% in the two best
companies (25% x 40%) and 4% in the remaining two companies
(10% x 40%). Even though your overall portfolio value dropped by
6% (20% loss minus 14% gain), it is considerably better than
having been invested solely in company E.

15. Avoid Leverage
Leverage simply means the use of borrowed money to execute
your stock market strategy. In a margin account, banks and
brokerage firms can loan you money to buy stocks, usually 50% of
the purchase value. In other words, if you wanted to buy 100
shares of a stock trading at $100 for a total cost of $10,000, your
brokerage firm could loan you $5,000 to complete the purchase.
The use of borrowed money “levers” or exaggerates the result of
price movement. Suppose the stock moves to $200 a share and
you sell it. If you had used your own money exclusively, your
return would be 100% on your investment [($20,000 -
$10,000)/$10,000]. If you had borrowed $5,000 to buy the stock
and sold at $200 per share, your return would be 300 % [(20,000-
$5,000)/$5,000] after repaying the $5,000 loan and excluding
the cost of interest paid to the broker.

16. It sounds great when the stock moves up, but consider the other
side. Suppose the stock fell to $50 per share rather than doubling
to $200, your loss would be 100% of your initial investment, plus
the cost of interest to the broker [($5,000-$5,000)/$5,000].
Leverage is a tool, neither good nor bad. However, it is a tool best
used after you gain experience and confidence in your decision-
making abilities. Limit your risk when you are starting out to
ensure you can profit over the long term.

17. Final Thoughts
Equity investments historically have enjoyed a return significantly
above other types investments while also proving easy liquidity,
total visibility, and active regulation to ensure a level playing field
for all. Investing in the stock market is a great opportunity to build
large asset value for those who are willing to be consistent savers,
make the necessary investment in time and energy to gain
experience, appropriately manage their risk, and are patient,
allowing the magic of compounding to work for them. The
younger you begin your investing avocation, the greater the final
results – just remember to walk before you begin to run.
What additional tips can you suggest for successful stock market
investing?