Under what conditions would you normally sell a stock? These factors come into consideration:. For most investors, the goal is to "buy low and sell high. That's why indexes track stock prices so closely -- they give investors the price other investors recently paid to buy a stock and provide a financial framework to ascertain a stock's worth and value. Stock market participants and investment industry professionals also use a stock price to mark the financial health of a publicly traded company.
There isn't actually a direct connection between a stock's price and the financial outlook for a company. But earnings releases and other financial news generally have a relatively direct impact on stock prices. So stock prices do paint a picture of how a company is doing financially, and are thus regarded as a big factor in evaluating a company when you're considering adding it to your portfolio. Stock prices are also an accurate gauge of investors' confidence in a company. When a stock is rising, that means investors have strong confidence in a company. When a stock price is in decline, that means investors are losing confidence in a company.
Stocks are a historically-proven way to make a financial profit, and rank well ahead of other securities in terms of performance returns. Yet like any other financial venture, the return you get on stocks is largely dependent on the work you put into researching stocks. Despite a summer of violent protests, it appears Hong Kong's talked-off demise as a market for initial public offerings may well be overstated.
The new permanent safety committee will be led by a former vice chairman of the Joint Chief's of Staff. Stocks rise as investors look beyond an 'official' impeachment probe of the president by Democrats in the House to focus on a strong earnings report from Nike. Philip Morris International surges after the world's biggest tobacco company said it had ended merger talks with Altria Group as the two groups re-think their smokeless tobacco strategies. Marathon Petroleum shares surged Wednesday after activist investors at Elliott Management said the independent oil refining group should be split into three separate companies.
All rights reserved. Log In. Account Preferences Newsletters Alerts. It's undeniable that Warren Buffett has built one of the strongest reputations in the investing world. And, most of the businesses Berkshire owns have excellent reputations of their own. Buffett considers reputation a priceless asset that should be protected at all times:. Buffett doesn't believe that you need to be particularly intelligent to be a successful investor, but you do need the right mentality.
Patience and a good temperament are far more important than IQ, according to these four Buffett gems:. To be clear, Buffett isn't necessarily opposed to investment fees that deliver value. On the other hand, Buffett has a tremendous dislike for excessive fees that make Wall Streeters rich at the expense of ordinary investors:. As I mentioned earlier, many investors look to Buffett's wisdom when it comes to investing in turbulent markets.
So, here are some excellent pieces of advice from Buffett that could help you through tough times:. When the market goes up and up, everyone looks like an investing genius. It's only when things go sour that you see who actually has a good long-term strategy. Market turbulence will happen. It's not an "if," but a "when. Mentally prepare yourself to not panic during downward moves, and to bargain-hunt for shares of your favorite companies on sale. Market crashes and market corrections should be thought of as buying opportunities, not as reasons to panic.
In fact, some of the most outstanding investments Buffett has ever made were during market crashes. Buffett wrote this in in regards to the financial crisis. In the wake of the crisis, Berkshire made some savvy investments in bank stocks, which Buffett wouldn't have done if he had been focused on what market commentators were saying.
These quotes help explain why:. Buffett never wants Berkshire to be in a position where it needs any type of bailout. No matter how bad economic conditions get, Buffett wants enough cash on hand to meet all of the company's ongoing requirements. On the other hand, Buffett doesn't like having too much cash sitting around like Berkshire does right now. He'd much rather deploy Berkshire's cash into assets that earn a return, and cautions investors against keeping too much of their assets in cash as well.
Bears Always Sound Smarter - The Scholarly Kitchen
Buffett openly acknowledges that not everyone should invest directly in stocks. If you have the desire and time to properly research stocks, there's nothing wrong with it, but most people don't. Buffett advises investors not to think of their investments as "stocks," but to think of buying a stock as buying an entire business. There's a reason you won't find a bunch of biotech or high-growth technology companies in Buffett's portfolio. He doesn't understand them, so he doesn't invest in them. Not only should you understand the businesses you invest in, but stick to companies with established track records of profitability, products consumers love, and that are among the top companies in their industries.
It's smarter to invest in large but fantastic companies than to buy a mediocre business just because it's cheap. Finally, these two tidbits are excellent advice to help evaluate investments. Historical data is always more accurate than future projections, so it should play a far larger role in your analysis. And, always know why you're investing in a company before putting your money in. Buffett believes that your mind is perhaps your most important asset as an investor.
So, it's important to spend time exercising your mind, as these five quotes explain:. Buffett is an avid reader. It often surprises people to learn that the bulk of Buffett's work day consists of sitting alone in his office and reading, but Buffett credits much of his success to his pursuit of as much knowledge as possible.
According to Buffett, one of the worst mistakes investors can make is to pay too much attention to commentators on TV, political drama, or market rumors. Despite the seemingly constant political headlines, many of which paint a rather negative picture of the future, Buffett insists that America's future is bright and that it remains an excellent place to invest. And, there's no reason to think that will change anytime soon. Buffett was an outspoken Hillary Clinton supporter in the presidential election. However, that doesn't mean that he threw in the towel because his candidate lost -- American business will do just fine over the long run no matter who is in the White House.
Avoiding bad investments can be even more important than finding good ones, and here are a few pieces of wisdom Buffett has picked up throughout his career. It is unsafe to either buy or sell during this period. Wait and let the market stabilize. Volatility generally remains for a short period of time.
You should save tax but also invest for growth and better return on your capital. Look at the post tax rate of return. This will meet your objective of achieving higher return. This ratio indicates how low-priced the stock is in relation to its earnings growth. Lower PEG means the stock is undervalued. Pick an undervalued stock with PEG ratio less than one. Check how efficiently the management is using its financial resources. This is reflected in Return on Equity and Return on Capital. They measure how efficiently a company uses its capital as well as reinvested earnings to generate earnings.
Invest in efficient companies. Look for companies with a reputation of high ethical business conduct. If companies are well governed, they will usually outperform other companies. You should see whether the company conforms to all the rules laid down by the corporate governance policy. The banks check your credit score while approving you a personal, car or home loan or a new credit card. Your credit rating scores are maintained and updated by Credit Information Companies. Your score depends on your credit history showing timely payment of loans, credit card dues, telephone bills etc. Late payments and defaults drag your score.
Use a free tool like Credit Sesame to monitor your credit. Many companies promote IPOs or new funds through aggressive marketing tactics.
Minimize Large Portfolio Drawdowns
Always do your own research before buying any financial products. Brokers and agents generally push higher-commission products. The mutual fund charges only an annual marketing or distribution fee as an operational expense 0. To get the most out of your investments look for no load mutual funds. If you use a financial advisor, make sure they are disclosing their fees. Many companies and funds come out with innovative financial products which are complex to understand.
Analyze them meticulously. Before you invest in anything, you need to understand the risk and reward involved. The money market securities mainly include short-term fixed income instruments, treasuries and money market funds. Although they do not offer high returns, you still earn more compared a savings account. You may keep your money parked here until you get better medium term or long-term investment options.
Here's our list of the best money market accounts. Buy companies with high sustainable growth rate. It is the reasonable growth rate that a firm can sustain and can finance using internally generated assets and without additional debt or equity. Its growth based on internal resource generation and the stock records consistent growth. Some of the smaller companies have the potential to turn into the large blue chips of tomorrow. The small-caps have had greater returns than large-caps. For example, small-cap stocks in the U.
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But you should still invest in small companies selectively. Investing is not trading. They are quite different ways of making gains from the market. They have different risk profile and need different strategies. If you are a long-term investor avoid trading. Technical analysis is based on the study of charts and graphs of trading patterns and prices to forecast the future movement of prices through the study of past market data.
They use current and past market data to indicate market trends and to estimate the future price, especially in the short term. Though current and past data are relevant for any meaningful analysis, your decision has to be based on future potential rather than on what has already happened in the past. You can accumulate a large number of penny stocks paying only a few dollars. But in investing, it is the quality and not quantity that matters. There is also a common misconception that there is less to lose in buying a low-priced stock and investment can multiply quickly.
But in reality, penny stocks carry more risk than shares priced higher. If you are working for a profit organization, use a k plan for retirement savings. Put the maximum savings allowed into a tax-deferred investment account. Be sure to contribute enough money to get the employer match if offered by your company. Allocate the money in your retirement plan depending on the amount of risk you are comfortable with. Make sure you stay up to date on the k contribution limits.
If you are working for a non-profit organization such as educational institution, church and charitable organization, use b plan for retirement savings. This is similar to a k plan. Allocate money in your plan depending on the amount of risk you wish to expose your retirement savings.
This is also known as a tax-sheltered annuity. These are not kept separate. If the company faces a financial crunch, your retirement fund would be at risk. Protect yourself and minimize investing in plans. It is a ratio between market price per equity share and earnings per share.
When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Money market mutual funds are an open-end mutual fund which invests only in money markets securities and other short-term securities, usually of less than 30 days maturity.
They are very liquid and provide good returns. Do not sell stocks after they have increased by a certain percentage. Instead, keep your top performing stocks forever. Peter Lynch says much of his overall success was due to a small number of stocks in his portfolio that returned big. But be honest when you realize that a stock is not performing as well as you expected it to and move on before your losses become even greater.
Sell losers. Buy a stock only if it qualifies criteria set under your investing strategy. Hefty discounts do not mean a good buy. But if you start early, the effects of compounding can be huge. By planning and investing early for retirement, you allow your investments more time to grow. Your savings will grow with the power of compounding. The sooner you start investing for retirement the better. If you are a long-term investor, your investment decisions should not be guided by short term forecasts. Stick with your chosen investment strategy and ignore short term predictions.
These crises create fear and uncertainty but only for a short period. The market crashes but recovers and continues to move on. The long-term trend has remained upward. The market has grown despite many crises in the past. Keep your patience during crises and avoid emotional behavior.
It is very difficult to predict and catch extreme peaks or troughs in the market. The investors who attempt to time the market are generally guided by emotion. If you want to be a successful investor, avoid emotional behavior. Make a retirement plan and stick to it. Avoid frequently reallocating the funds. Reallocating your retirement account frequently in an attempt to maximize yields may not only cause you to lose your way as it relates to retirement savings, but it can also cause you to unwittingly expose your savings to much higher risks than otherwise necessary.
Mutual Funds pool cash from investors and invest in securities. There are different types of mutual funds and they have different investment objectives and strategies. Read their documents before selecting any fund. Choose a fund consistent with your own investment objectives.
Sometimes your portfolio may pass through periods of under-performance compared to the overall market. It happens with great investors too! Practice patience. Build up your courage and stay. Rather, continue investing in a bear market. During the bearish phase of the market, invest in good quality companies for the long term. You can make the most of your money in the future.
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Historically, periods of low returns have been followed by periods of higher returns. Periods of market uncertainty provide wealth-building opportunities for the patient, diligent, long-term investors. Historically inflation is a reality and erodes your savings especially if invested in bonds and other fixed securities. Sharpen your investment strategy by educating yourself. Read about some outstanding investors such as Graham, Fisher, Buffet , Templeton and Lynch and how they made their fortunes. Each one has dramatically exceeded market performance.
Understand their innovative ways to analyze and pick up securities. And read and read, to be a successful investor. If you want some regular income and also capital appreciation along with safety, you may keep a Balanced Fund in your portfolio. To balance the fund, money is invested in both bonds and equities with the predetermined weights allotted to the asset class; say it could be for equities and bonds. It provides moderate returns with lower risk and lower volatility. Fixed Maturity Funds are closed-ended debt funds with a fixed maturity date.
The Fund is parked in corporate debts, government securities and money market instruments with matching duration. Your final returns are not impacted by fluctuations. Bond yields and its market price move in opposite directions. High inflation and a high interest rate pushes bond yields up and brings down the bond price in the market. Investments in Government Bonds are free from default and provide reasonable returns, especially if invested when Bond Yields are high.
A contrarian goes against prevailing market trends by buying good stocks that are presently performing poorly but have potential to perform well. A contrarian trading theory recommends making investments contrary to the apparent direction of the market or commonly accepted wisdom.
Some great investors such as Sir John Templeton and Jim Rogers adopted a contrarian trading strategy to achieve fantastic returns. The primary objective of the contrarian strategy is long term capital appreciation. OTC helps start-up new generation entrepreneurs to raise capital from investors without going through Stock Exchange. The trading is carried out by a market maker who provides both buy and sells quotes for a stock and is ready to take a position in the stock. Analyze to find great companies of tomorrow. A huge portfolio in size not in money shows that you are not following any clear investment strategy.
Try to cut down the portfolio to a manageable level by weeding out the losers or lowest gainers. A new entrant should start with stable and quality companies. Stick to blue-chip stocks that are known to be consistent performers. Blue-chip stocks are likely to fetch your capital appreciation with a steady stream of dividends. You should not adventure in volatile stocks at the beginning. Once you have acquired a feel for the market through blue chips, you can explore the mid-cap and small caps. Do your homework to pick up some good growth companies. Once you understand the investing process better, you can gradually expand your portfolio to include other categories.
If you have any employment income, you may contribute to an Individual Retirement Account. Your contributions are tax deductible under certain conditions. Understand their tax implications and contribution limits. Avail the available benefits. Investments in health savings accounts are generally tax deductible. Your money compounds without taxation. An HSA is one of the best ways to invest because it has a triple-tax benefit. You can pull the money out at any time tax free for medical expenses, but you can also use it like a traditional retirement account as well.
If you work for yourself, set up a retirement account on your own doing some paperwork. Select and design a plan which meets your post retirement needs. Your investment in self-employment retirement savings plans may be tax deductible upon fulfilling prescribed conditions. Here's the most popular individual k options. When you buy a stock, you are buying a participating interest in the company run by its management. Its performance depends on the people behind it. The commodity sector is cyclic in nature.
The business cycle is long. Pick up stocks when the industry is coming out of a weak phase. While investing in commodity companies, look for market leaders. Their performance depends on their capacity and the efficiency of their plants. Make a comparative analysis before investing. Avoid companies with large debt because during a weak cycle phase, they may find it difficult to service debt. No company can make significantly higher returns than its peers. Compare its market capitalization with the replacement capital cost for plants with matching capacity and buy as and when available with adequate margin of safety.
When there is overall panic, liquidity dries up. Information gaps between traders widen, spread and transaction costs go up. Since commodities are cyclical in nature, the holding period for commodity stocks are longer for reasonable gain. Buy the share only when it falls to the low end of the cycle. Having bought, wait until the turnaround happens. It could be a few years. Forecasting about an economy or market direction is like a shot in the dark and may go wrong. Invest in the company that provides consistently high returns on the invested money.
Their nominal yield provides you less purchasing power due to inflation. Bond payouts are fixed. Post tax returns are even worse. Stocks appreciate and stock dividends grow. Dividend growths give you some protection to your cash flows against inflation. While investing for your retirement fund, keep a mix of shares and cash equivalents.
Pay attention to your tax liabilities and avoid interest and penalties. Disclose all income earned from various sources. Save tax availing all admissible exemptions. Do proper tax planning. A dollar saved in tax is a dollar earned. If you owe taxes, make sure you take advantage of paying your taxes on a credit card to earn rewards. With rising longevity, plan for at least 25 years after retirement. Think of maintaining the pre- retirement standard of life that would be about three- fourth of pre-retirement annual expenses. Calculate the requirement of retirement corpus post tax and post inflation.
This will help you determine how much money you should be stashing away each month. There is neither dearth of financial products nor financial intermediaries. Miss-selling is common especially depending on the commission that brokers, distributors or financial agents get. Do your home-work carefully. A large number of financial products are available in the market. Each carries a different risk and return. You have to be selective. You have to understand the risk of each product, returns and their maturity.
Balance risk and return depending on your profile and needs. There are different routes to invest in stocks. You can invest in stocks directly or through equity funds or exchange traded funds. While selecting mutual funds or ETFs, look at their performance over the last 3 to 5 years on a monthly rolling basis, their fees structure and also ratings given by reputed rating agencies.
Investments in Treasuries are safe and free from default. Deposits with banks are also good for safety. There are wide variations in the performance of debt funds. There is also the possibility of losing part of your principle. Make sure you also understand the difference between a bond fund and individual bonds. Though corporate debt can offer higher interest than banks, they are not safe and not secured. They are not liquid and you may have to sell them at a discount. Government bonds are a better option than corporate bonds.
FMPs are close ended mutual funds with a fixed maturity date and the funds are parked in corporate debt, government securities and market instruments of matching duration. FMPs offer tax advantages. Always remember if something sounds too good to be true, avoid it. A pyramid scheme promises payment without any economic activity just by inducting new members. Pure pyramid schemes are banned in several countries.
But they emerge under dubious names with new formats. And their promoters would usually vanish with your money. Inflation erodes your wealth. This can be overcome by investing in blue chip companies and high-quality equity mutual funds for the long term. Keep your investments simple to monitor risks involved. Investing is risky. Prefer safety over return. Keep your money safe even if it earns a lower return.
The promise of high returns in short times may influence your decision to buy financial products, this may ultimately land you in financial loss. A financial advisor working for a percent-based commission has his interest ahead of yours. He gets commission driven by sales. He will push products on you. An advisor with a high standard of ethics will charge you a fee only and will give you honest advice.
Many financial advisors, through television and print media, provide advice which is not in the best interest of investors. Listen but critically analyze their advice before taking action. Technical analysis is based on interpretation of charts and graphs to find meaningful patterns. The estimates based on wrong interpretation may lead to the wrong forecast about the short-term price movements.
Depend on professional technical analysts only. For maximum effectiveness follow these three simple trading rules: keep your bets small, cut losers and ride winners. Set your cut off percent for loss and profit bookings. Keep emotions under control, especially when the market is volatile. Bullion such as Gold and Silver are safe and liquid investments. They are used as a hedge against inflation, currency devaluation and economic crisis.
Check out our Apmex review for a good company to purchase bullion at. The growth of business depends on the present stage of the product demand and chances of new substitute products coming into market. Select market leaders who can sustain their edge over time. Some products are short lived and replaced by new hi-tech products. Invest in companies with products unlikely to be replaced. Investing decisions should be based on long term goals and not on emotional reactions. Benjamin Graham, father of Value Investing, advises to maintain discipline with your own set of rules and keep patience.
When interest rates are low, yields on treasuries are also low and their prices are high. Yields and market price move in opposite directions. If interest rates increase in the future, the treasuries price will decline recording a loss for you. Your investing success depends on the correct selection of companies and buying them at the correct price. To be a successful investor, you do not need a large number of stocks. You need only a few outstanding companies. Keep your list of stocks short packed with the best companies.
Focus on investment quality, not quantity. Pick up the top ten dividend yielding companies out of the 30 listed on DJIA. These are known as Dogs of the Dow. Re-balance your portfolio every year. This strategy produces return better than DJIA over a long period. A savings account adds liquidity to your portfolio. You can withdraw the money anytime. Therefore, keep only a small amount of money in a savings account that meets your small and immediate needs.
Park your money elsewhere to earn more. Check out our list of the best high yield savings accounts. Gambling depends on pure luck. Your luck works for you. You put your money in well researched investment products where your money can grow. Investments are generally for longer term, for larger needs and future demands. Inflation causes money to lose value. Money will not buy the same amount of goods or services in the future as it does now. It is therefore important to consider inflation as a factor in any long-term investment strategy.
The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value. Sentiment can change overnight with an unexpected event or news, but not the ground realities. The market may react sharply and share price may move in either direction. Let the market cool. When interest rates are high, you can venture into the fixed-income market.
Lock your money in long term or medium-term bonds. Besides getting good regular income, your investment appreciates when the interest market goes down. Speculative stocks have a potential for huge profits, as well as the potential for substantial losses. Companies having businesses that are uncertain in their outcome fall under this category.
For example: Oil and Gas exploration company. Speculators in the stock markets trade in these stocks to earn quick money but these stocks are extremely risky. Junk bonds carry ratings that are below investment grade. These ratings indicate poor credit worthiness of the company issuing the junk bonds. Companies with below investment grade ratings offer a higher interest rate to attract investors. These bonds are very risky and you may even lose capital partially. Ratings indicate the investment grades and the risk associated with the issuer company and the bond issue.
The ratings are based on the credibility, stability and financial health of the company. The yield and rating grades have inverse relationship. Buy only bonds having higher ratings. Sector funds invest in sector specific ETFs and mutual funds. The performance of these funds primarily depends on the sector in coming years. If a particular sector does not perform then the fund will be affected negatively. Before investing, look at the microeconomics related to the sector. This is the simplest stock picking strategy.
A brand is created over a long period through high quality products and consistent growth. A successful brand has an intangible value attached with it and the market is always ready to pay for its brand value. Pick up the companies that offer strong brand names. If you notice a local company growing and performing well then research further. If it appears to be on an upward growth trend consider investing. You never know, it may turn out to be an acquisition target at a very high premium later. Arbitrage is a kind of deal to earn profit from the differences in price between the two markets.
You can buy securities in one market and at the same time sells them in another market at a differential price. You make profit through using arbitrage opportunities in two markets and by exploiting price gaps. This is hard to do, but a lot of investors take advantage of this strategy in currency and Forex trading by looking at the different values of two currencies and trading the difference. It is a crime and if you do it you will be put behind the bar. Even if you're a low-level employee, you can get busted for insider trading. Online trading is very fast.
You need a computer and high-speed internet to get started. Open an account with one of the best online brokers to get started. The broker software helps you to monitor you accounts also. You can buy a stock that trades on the stock exchanges through your broker.
You have to open an account with a stock brokerage firm before availing the trading related services. It is advisable to do some research on stock brokerage firms. Information on them can be found on the Internet. Compare various stock brokerage firms , their services and fees. Select the best. For trading shares, enter the name of company and the number of shares you want to buy or sell. Select the options for placing your order and put your instructions, such as the type of order and its validity period.
Passive investing is a buy and hold investment strategy. If you are a long-term investor, your main aim is capital appreciation and limited maintenance. Do limited buying and selling of securities. Under an active investing strategy, the investor engages in frequent buying and selling of securities. Active investing results into short-term investments. It is more of trading than investing.
It you are a long investor, adopt passive investing and not active investing. An Education IRA is a savings plan for education. Parents and guardians are allowed to make non-deductible contributions to an education IRA for a child under the age of The earnings are tax-free when used for education expenses. The funds in an education IRA can be withdrawn tax free when they are needed for educational purposes. You can find the best plans here.
The Plan is a savings plan for college education. The investment earnings grow to meet the higher costs of a future education. Another option lets you save money in a tax-deferred account for future tuition fees. Make sure you understand what the qualified educational expenses are before you start. Various Acts have been enacted by the Governments for regulating the stock markets.
Regulatory Authorities such as the Securities and Exchange Commission have been established for regulating markets and protecting the interests of investors and others. Read and understand the main provisions. Although a regulatory agency seeks to regulate the activities of the securities markets, this does not guarantee a safe investment.
You should always be careful while investing. The strategy rests upon the assumption that in the long run stock prices go up. The buy and hold approach minimizes costs and allows the investor to participate in the long-term growth of a company.