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| Buy Low, Sell High |
By:
Doug Beavers |
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The most common mistake when investing in the stock market is buying high and selling low. The investor sees that a stocks price is rising and decides that he or she will get in on the sudden buzz. What they don't realize is by the time they purchase the stock, anybody who is going to make money on that stock has already done so. They buy this stock at a high price just as others are taking profits for this stock. As a result, the price falls and the investor who bought high now decides to sell for a loss so they can cut their losses. This happens more often than not in the stock market.
People hear all these stories about others getting rich over night in the stock market and about how you can double your money in a week. The truth is, the stock market works best if it is looked at as a long term investment. If you were to buy some shares of stock and sell them 20 years later, you would almost cerainly make a profit, provided it was a solid company that you invested in. It is good to take some risks with the stocks that may double in one day but you must always remember not to put too much of your portfolio on these stocks. If they can double in one day, their value can also be split in half in one day. It is good to be geared more towards the long term investment when it comes to the stock market. If you are ever in any question about how your portfolio should look, ask your broker. They are there to help you build a good future for yourself.
The investor must also remember that they must not stress over the day to day changes of the stocks that they invested for the long term. If they invested in them for the long term, why should they worry about what their price is until they plan to sell it. That said, I am not saying not to monitor your stocks, just do not become too stressed if a long term stock falls in value one day, or even one week. If it is a good solid company that you have invested in, Your shares will almost always be worth more in the long term than what you paid for them. Long term investments also allow your dividends to increase your shares if you chose for them to be reinvested which I would highly recommend. Also, a company may split sometime while you have shares with them which is usually beneficial for the stock holder. If you had 100 shares at 20 dollars per share, all the sudden that becomes 200 shares at 10 dollars a share but the stock becomes more desireable to people at the lesser price which will usually drive the price back up rather quickly.
Companies that do really well may split several times over the course of twenty years. Figuring in these splits and the reinvested dividents, someone who invested a modest amount in these companies twenty years earlier could have a small fortune by then. And had this been when they were 20 years old, they could consider retirement by the age of 40. This is all hypothetical of course but as you can see, long term investments are very important in the stock market. You don't need to get rich quick in the stock market, in fact, most people don't. Those who are not prepared for day trading will most likely only gain an empty wallet if they try to get rich in a week.
When looking to invest in a long term company, look for a good solid company that has a history. If a company has been around for a while and provide a product or service that people will always need. Then chances are these companies will be around for years to come. Take the automotive industry. People will always need cars until an alternate way of mass transportation is found. They are good companies for long term investment. Even though they may dip occasionally, for example Ford stock has been low for quite some time, they will almost always go back up. That would be a good stock to invest in. In fact, use those dips to your advantage to buy the stock. Remember, buy low sell high.
The bottom line is, most of your stock investments should be geared toward longer term investments than toward get rich quick investments. You will fair better with the long term investments and not face as much of a chance of losing money. Since long term investments are best, the sonner you begin to invest the better. Start as soon as you can afford to put some money away and discipline yourself to keep puting money away. That way, if you want an investment to go for 20 years, and you start at 20 rather than 30, you will have built your money 10 years sooner. This also leave great potential for that extra 10 years. Your best friend when investing is time, you cannot get time back and the longer an investment sits, the more money it will make. |
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