If you want to build wealth beyond what your ordinary income can furnish, learning to invest is one of the most important things you can possibly do. To be a successful investor, there are some basic concepts and tips that you should learn and apply whenever you plan to buy shares of a given stock. Here are three of the top investment tips you should always keep in mind.
Invest Based on Fundamentals:
Too many investors look at day-to-day gains or losses as the measure of whether a stock is a good buy or not. Historically, however, the best way to invest in stocks is to buy shares of companies that are likely to appreciate over time based on their own business performances. Stock fundamentals include both quantitative and qualitative factors. Some of the more important quantitative factors include the company’s debt-to-earnings ratio, the profitability of the company and whether the business is growing yearly. Qualitative evaluation should include factors such as whether the company is in a good business niche and whether the current management seems to be making sound decisions. If you can answer these questions, you can perform a much more useful analysis of the stock than simply looking at share price history will allow.
Don’t Try to Time the Market:
As appealing as the idea of perfectly timing the market to buy stocks at the lowest possible price and sell at the highest is, it’s virtually impossible to do with any consistency. Investors who try to time the market often end up holding shares they should sell for too long in an attempt to get a higher price for them. A better approach is to find basically good stocks, hold onto them for long periods of time and sell when it makes sense from your own financial perspective. If you try to time the market, you’ll almost certainly blunder into bad buying or selling decisions.
Be Skeptical of Predictions:
Market analysts and financial leaders are in the business of making predictions, but they’re not always right. Investing in a stock based on someone else’s prediction about it can work from time to time, but it can also lead you into bad investments that fail to pay off. A good way to use the expertise of others to your own advantage is to look at stock predictions and then perform your own analysis to see if the predictions seem sound. When they do, you may have a real opportunity to buy a good stock. When they don’t, though, you should avoid investing in stocks that don’t seem to make good sense to you as an investor.
These are just a few of the basic keys to investing successfully. Though none of them may seem glamorous or secretive, they are all important things to keep in mind to avoid making unwise investments. If you invest your money with these principles in mind, you’ll have a much higher chance of achieving success.