When you buy a company’s stock, you become a part owner of that company and enjoy certain benefits that accrue to shareholders like dividend payment, voting rights (this depends on the type of shares you buy). in my research, i put together some tips about investing in the stock market:
1. study a company before you invest: this is warren buffet’s mantra for investing. do proper research. read up about the company, their financial reports, debt profile, management team e.t.c. never invest in a company or business you don’t know.
2. decide if it will be a short (trade) or long term (hold) stock: are you buying a stock for your children (hold stock) or you want to buy a stock now and sell when the price goes up (trade stock)? follow a disciplined approach when investing in stocks and monitor the market especially if you are trading.
3. bin your emotions:
do not invest in a company because it’s your uncle’s friend’s brother’s company. look at the fundamentals before taking an informed investment decision. “be fearful when others are greedy and be greedy when others are fearful” – warren buffet
4. diversify your portfolio: avoid putting all your money into one particular stock no matter how attractive the price or past dividend payments are. build a well-diversified portfolio and spread your risk. if you lose money from one stock, you can gain from another. avoid over diversification as well, as your investment might not grow properly.
5. avoid leverage: invest with surplus cash. it is not advisable to use borrowed funds either from a bank, family or friends because the probability that the market will nosedive is very high.
1. investment in stocks can be very profitable if market is favorable.
2. some stocks pay dividends which gives extra income.
3. stocks are liquid – you can easily sell when you need cash.
1. it is a very risky investment especially in the short term.
2. analyzing a company can be time consuming.
ps: always consider the risk before investing in the stock market.
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