Inexperienced investors often fall prey to hot stock tips from email stock promotions and supposedly inside information from friends. This is how most beginning investors lose their money. As with so many things, the amount of homework you put into your investing activities, the greater your chance of success. The stock market is a constantly fluctuating field and each stock fluctuates on its own. It is possible to make excellent investments and book substantial profits, but the reality is that losses are just as likely. Knowledge is your best tool and best defense.
Open an account at a reputable online brokerage firm that has tutorials, paper trading programs and the ability to call a customer representative to ask questions. Take extensive advantage of the tutorials and practice tools.
Watch investment shows on television and take notes. Pick a few of the stocks suggested and research them by reading their quarterly and annual reports, news and analyst recommendations. These are all available online.
Select five stocks to paper trade. Continue paper trading until you understand how the securities markets work.
Confine your first actual investments to the most conservative stocks. A good list to choose from are the 30 stocks that make up the Dow Jones Industrial Average (DJIA).
Invest no more than half your investment money in your first transaction. Keep the rest in reserve in case you wish to buy more stock on a dip or see another stock you think would make a good investment.
- Only invest money that you will not need in the foreseeable future because you don't want to have to sell out a good stock position at a temporary market low because you need the money to pay bills.
- Do not borrow money to buy stocks. That includes buying stocks on margin. Highly-experienced stock traders avoid margin because it can greatly increase your losses if the stock market unexpectedly drops.
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