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How to Buy Stocks: A Guide for Beginners

How to Buy Stocks: A Guide for Beginners

Investing in stocks is easy, but to make profit and avoid investing in bad stocks requires some knowledge of the market. Here are some tips for beginners.
Charlie S
The stock market is a place, where you can earn much more returns on your investments as compared to the conventional methods of investing such as bank deposits. However, knowledge of good companies to invest is essential to make money, as wrong investments can cause you to suffer huge losses.

Tips to Invest

Choosing the right stock is very important. You should study the fundamentals of the company, in which you wish to invest, before buying its shares. Study the quarterly, half-yearly, and annual financial results and try to arrive at some conclusion regarding the financial position of the company. You can buy shares of companies which post good results consistently. Ideally, you should choose the ones that have a sound business model, which helps them earn decent profits even during the times of recession. Also learn about the people in the senior management of the company, and their track record. Generally, you should purchase those stocks, which are available at cheaper valuations as compared to their competitors.

It has become simple for beginners to invest these days, because of the tips and suggestions given by stock brokerage firms and independent financial advisers. However, every investor should only buy stocks of those organizations, which he feels will have good growth over the years. Self-research coupled with tips from other experts, can help you become a successful investor.

The biggest mistake committed by retail investors is that, they enter the stocks at the wrong levels. Many people buy shares of a company, when they have already gone up considerably over the past few months. The problems arise when these stocks crash down heavily, causing heavy capital losses. So, the suggestion here would be to wait for them to bottom out and then invest. You can also adopt the strategy of averaging out your investment price, and bringing the average price down by purchasing shares at a lower price. Long-term investments always give good returns, and this has been endorsed by many technical analysts of the market. By being a long-term investor, you can beat the fluctuations and volatility quite easily. Here, long-term generally means an investment done over a period of one year.

The stock market also gives ample opportunities to earn by making short-term investments. Stock traders, making positions for a short-term trade, should have stop-losses at right prices to protect their wealth in the market. The advantage of fixing a stop-loss at a particular price is that, your shares automatically get sold off, when their price reaches the level of the stop-loss. Nowadays, stock transactions can be done both online and offline and many people prefer online option as it is handy.

Understanding how to play the stock market takes time and hence, you should keep updating your knowledge by visiting websites dedicated to the market and by reading financial newspapers.

DISCLAIMER: This article is just for reference purposes and does not recommend any stock market transactions.