It is common to come across people who buy winning tickets of the lottery by depending on luck completely. You would also find someone who invests in some common stocks that grow fourfold in a year’s time. In both cases, the beneficiaries ride the luck factor as whatever happens was never within their expectations. These examples of success by chance have no place in the dictionary of those who invest in stock markets.
Thousands of people keep buying and selling corporate securities in any of the stock markets across the world and taste success but not in the way as cited in the example. Instead of leaving anything to chance, they take a calculated approach to investing and reap the rewards of hard work. If you are interested in investing in the attractive equities of WOW, the renowned Woolworths Group of Australia listed with ASX; you should learn a few things from the tips below about investing in stock markets that could help you succeed.
Invest in long-term
The purpose of the investment is to enjoy the returns for which you need to work out the timeline for returns. When do you want a return on the investment is an essential consideration for any investment and equities of stock are no exception. Do you want the return in a few months, a year, five years, ten years or willing to wait even longer? When you need the return, and its quantum determines how much money you should invest to attain the target. Do you need the money to build a home after some years or would you be happy to get it in retirement? Is meeting any immediate financial needs the purpose of investing for quick returns?
Since stock markets are highly volatile, you are likely to experience a roller coaster ride. To ease the swings and attain some uniformity in returns, go for long-term investment that would help to stay very close to your target returns.
Keep emotions in check
To succeed in stock markets, you should have the ability to make logical decisions. But, it is often easier to say than demonstrate it because your emotions can come in the way and rob you of the powers of thinking logically. Collective emotions of investors affect stock prices, especially in the short term. If the majority of investors of any particular stock generate a negative vibe, it pushes down the prices and conversely, positive emotional reactions push the prices upward. The short-term movements in share prices are the result of speculations, rumours and hopes, which emanate from emotions and do not have any logical reasons behind it. It is essential to consider the reality based on logical inferences without any emotional attachment because the decision to buy or sell stocks could have a far-reaching impact on your portfolio.
Know your risk tolerance
Your genes would tell how much risk you could tolerate as you inherit the trait from the family. However, factors like income, wealth and education have a positive effect on it while aging reduces your ability to take risks. All of us take risks to varying degrees. How you perceive and feel about the risk elements determines the anxiety level you are likely to experience which in turn point to how well you would be able to tolerate the risk. In the share market, it translates into your ability to bear losses, which frequently happens due to the uncertain movements of share prices. For some, it is okay to absorb the loss of a few hundred dollars whereas for some others it might appear impossible to accept even a loss of $100. The better you know your risk tolerance, better decisions you can take in the stock market.
Diversify your portfolio
After you have identified the risks and even quantified it, you must diversify the investment in stocks that carry varying degree of risks. In the market parlance, people call it as stock diversification. Since good research backs the decision to diversify good research, you can foresee the dangers approaching and can take proper decision for liquidating stocks before experiencing heavy losses. When you spread the investment in diversified stocks even outside the country, you save yourself from cumulative losses arising from a single bad event at any one place. The overall effect of loss across your holdings in various stock exchanges will be minimal.
If you are a first-time investor in the stock market, you should prepare well before taking the plunge. No matter in which stock exchange of the world you would like to operate, learn the basics of the trade so that you become familiar with the market lingo. From financial definitions and metrics to stock market order types and from popular methods of selecting stocks and timing to different types of investment accounts, you should know what it all means for you.