There are many stock market tips out there, and it seems that everybody you ask will give you a different answer on how to be profitable. Therefore, many people get confused and do not know whom to listen to. Here are 10 simple tips for stock market investors to help you become profitable now:
1. Do not trust others with your money
You will never become rich allowing a financial advisor or mutual fund manager to make your financial decisions for you. You can compile a decent retirement income, but that is about it. However, if you want to make a sizable income now, you need to learn how to find investments yourself. This will be the difference between getting a 10% annual ROI and a 20-25%.
2. Do not overtrade
Every transaction you make will cost you money in broker fees. Instead, take your time and look for legitimately good investment opportunities. The best trade is often the one you do not make.
3. Have stop losses in place
The key to investing is knowing when to get out. This is especially true for day trading because a large number of your investments will lose money. Therefore, you need to have a predetermined dollar that you will sell at.
4. Consider long term investing
There is nothing wrong with day trading. The problem is, it is not passive income, because it always requires you to be watching the market to make money. On other hand, when investing in a stock for the long term, you can go months and years without even looking at it. That is passive income.
5. Invest in solid companies
Assuming you have decided that long term investing is the way to go, then stable, large firms with a long history of profitability are the best firms to invest in. There is a myth that you need to invest in small, risky companies to make lots of money. This is simply not true. Instead, focus on firms that have been profitable for at least ten years, and have low amounts of short and long-term debt. This way, you know they have done well for a long time, and there is nothing on the horizon that will signal that should change.
6. Look for undervalued companies
While you should be looking for profitable companies, that does not mean you should invest in every company that is performing well. Instead, you want to go with firms that are performing well, and that has an undervalued stock price. This is determined by figuring out the company’s intrinsic value (there are a number of ways to achieve this) and then determining their market capitalization (stock price* a number of outstanding shares). If this is 70% or less than the company’s intrinsic value, the stock is going to go up significantly. This is how to see gains of 20-25% every year.
7. Invest when the market is low
The best investors actually wait until the market is plummeting to invest. This is because there are going to be more undervalued stock prices and more profit potential.
8. Avoid diversification
This is only a hedge against the risk for uneducated investors. When you use the above criteria (only going for undervalued profitable companies) you are essentially eliminating your risk, and thus there is no need for diversification.
9. Invest in bonds during bad times
When you cannot find any profitable investments (there will be times like this), do not just invest for the sake of investing. Instead, put your money in a risk-free government bond. The return on investment will not be more than 5-6%, but at least you are not losing money.
10. Educate yourself
Whether you decide on day trading or long term investing, the key to making money is learning from others doing it successfully. Therefore, make sure you are always reading and improving your knowledge.
The bottom line is, investing can be profitable when done right. The most important thing to remember is that you can always be more profitable investing yourself than trusting someone else to make your investments for you. Use these stock market tips, and you will start earning shortly.