As predicted on the last blog post published on this blog, The Best Companies to Invest in the Stock Market, I have decided to invest on MSFT and CSCO. On that post, we have listed top 10 best stocks to buy and best stocks to sell in November 2018. As of today, I have gained $506.40 and $130.20 respectively on those stocks I have invested for this month. It costed me $106.80 on MSFT and $46.16 on CSCO for each stock. Predicting for the best stocks to invest can never be that easy but thanks some apps that helped us easily determine which stocks to choose.
Microsoft Stock Review and Analysis
My Portfolio
Investing in the stock market can be so overwhelming and sometimes we tend to forget how to manage our strategies and plans. We get too emotional on our stock trading ventures especially in buying and selling stocks. It is very important to keep yourself calm and steady to have a clear mind in making decisions. This can be a big impact to your stock trading venture. Every stock trader knows these important things to avoid in stock trading.
Every success in stock trading is the result of determination and decipline. Never allow your emotions to make your decisions. Always stick with your plans you have set before you have made you investments. Here are some tips that might be useful for you to be successful in stock market trading.
One of the most common mistakes that beginners make is that they invest in companies they don't fully understand. Many people work in multiple industries before they begin investing in the stock market. However, most companies that operate business are still too complicated to understand. Not everyone can forecast the success of a biotechnology company or a drug pipeline except for those who have worked in there. So, if it takes more than 10 minutes for you to get a clue of how a company makes money and the people who worked for it, move on to something else. You'll be able to avoid a lot of mistakes by staying within your area of expertise.
An Advice from a Billionaire Stock Investor
Target High-Quality Businesses
Warren Buffet has learned this principle over the last 50 years. He focuses mostly on buying high-quality businesses which have promising chances of continued growth. At one time, Buffet bought a textile manufacturing company called Berkshire after being enticed by its low price. This, he says, is one of the worst investments he's ever made. In a difficult business, as soon as one problem is solved, another one crops up. This leads to low returns which erodes the value of the initial investment. One must consider these things before investing in the stock market.
After learning this, Warren Buffet said - "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Companies that have high returns have a higher potential of compounding their earnings faster than those of lower-returning businesses. This leads to the rise of their intrinsic value over time.
Hold On to the Stock that You Have
According to Warren Buffet, "If you aren't thinking about owning a stock for ten years, don't even think about owning it for ten minutes" and "Time is a friend of a wonderful business".
Quality businesses earn high returns thus increasing their value over time. These fundamentals take years to have an impact on a stock's price hence, only the patient investors are rewarded.
Constant buying and selling of stocks takes away a substantial amount of returns as a result of taxes and trading commissions. If you sit tight, you'll enjoy the long-term benefits of your stock investment.
Diversification Can be Dangerous
A little bit of diversification is alright and it serves an individual investor well. Less than 10 investments are fine. However, too much diversification is recipe for failure. "Diversification is a protection against ignorance. It makes little sense to those who know what they're doing."- Warren Buffet
Some investors diversify their portfolios too much to a point of having 100 stocks as a result of fear or ignorance. This makes it impossible for them to keep tabs on all the events affecting the companies they've invested in. If you own more than 50 different stocks, you should slim down your portfolio and focus on high-quality stocks.
Most News is Noise
All news outlets have a segment on financial news. However, the aim of these news outlets is to create unnecessary buzz around a particular topic. You can't trust what they say. Warren Buffet always warns investors about following the advice they listen to on the so-called news. Small matters are often magnified which temporarily affects the market prices. The named companies always get back on their feet after such minor drawbacks. Hence you should be selective of the news you hear or even act on.
Investing is Not Hard
Most people believe that only sophisticated people can invest in the stock market. Well, Warren Buffet says, "You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ." The hard part is consistently beating the market and sidestepping behavioral mistakes. There's no magical formula or rules that will help you with this. Mistakes have to be made but you have to learn from them. Stay away from self-proclaimed gurus who claim to have systems that offer a hands-off, rules-based investing system.
Investment Strategy for Beginners
Differentiate Between Price and Value
"Price is what you pay, value is what you get" - Warren Buffet. In most cases, stock prices vary depending on investor emotions but that doesn't change a company's future stream of cash. Investors should concentrate on high-quality companies which have the most reasonable prices in the present.
Excellent Investments are Boring
Investing in the stock market is not a get rich quick scheme. As a matter of fact, it aims to grow existing capital over a long period of time. Although it's boring to wait, always go for quality business that will compound over a long period of time. Don't try to invest people with impressive investment moves. As Warren Buffet puts it, "Beware the investment activity that produces applause; the great moves are usually greeted by yawns".
Only Listen to those You Trust
Warren Buffet often emphasizes on investing in competent and trustworthy management companies. He carefully selects his managers and business partners. This is because their actions are what make or break an investment in the years to come. Look out for "gurus" who prey on investors' fears and unrealistic expectations to make themselves some quick money. They usually apply normal stock-market standards while exhibiting a great deal of confidence. The best thing is to focus on facts, stay on course and set realistic expectations. Understand the technical analysis of stock market trading.
Day trading occurs when you buy and sell a security within one day. While it occurs in all marketplaces, it’s often seen in the Forex and stock markets. While day traders are often well-funded and highly-educated, it doesn’t mean that a regular person like yourself can’t get into and be successful. The important thing is to understand the terms and lay out strategies to ensure your success.
If you want to get involved in the day trading market, try to consider these 15 tips below to help you become successful:
You might want to watch this video first.
Keep a Journal of Trading Rules
Before you even get involved in the market, it’s imperative to develop a list of rules to abide by.
The biggest obstacle newbies face is the lack of discipline. After all, they’re excited about the prospect of making money. However, the rules will keep the emotions in check and fortify your resolve of sticking to them.
Be Mindful Of Your Emotions and Ego
It’s okay to leave a position when the fundamentals are clearly showing you’ve made a mistake in getting involved in it. It’s not uncommon to make mistakes, even by experienced traders.
The best thing you can do is think practically. It’s not uncommon for traders to throw caution to the wind when dealing with a losing streak. However, this often leads them to lose even more money. If they’re experiencing a good streak, they may take even bigger risks that are not supported by any statistics.
Avoid emotions and ego and stick to discipline and rational thinking if you’re going to be successful. You won’t be making impulsive decisions, and you’ll stick to the trading strategies and rules that ensure you can be successful.
Add A Stop Loss
When it comes to profiting and losing, you have to consider how much loss you’d be okay with losing before you leave the market. Once you decide this amount, keep with it. This keeps you from getting too greedy when the market spikes and mitigates the losses that can happen when the market suddenly downturns.
If you’re already trading in the market and have attained your targets, create new stop loss and profit levels.
Have A Maximum Daily Loss Set
This will be the amount of money you can financially and mentally withstand losing in a trading day. This is the time you need to exit the position and stop trading the rest of the day. Don’t go back into it, even if the urge is there to make up for the loss.
Day traders look at their performance by the amount of money they have and how well they abided by the trading strategies. If you stick with your strategies, you can recognize where the problems are. If you don’t, you won’t know where adjustments need to be made.
Have A Risk Reward Ratio
Novice traders should look for minute losses and big gains. A 3:1 risk reward is ideal for novices. What does a 3:1 ratio mean? It means for every three losses you have; you’ll have one good win. The more experience you get in the market, the higher your ratios can become.
Have A Simple Strategy
The easier your strategy is, the more successful you can be with trading. You’ll know when to get into the market and when to get out of it.
You Don’t Have To Trade Every Day
Many people are under the assumption that to be successful they need to trade every day. The only time you need to trade is when opportunities arise that meet your goals. If something doesn’t feel right, don’t trade. Listen to your gut and keep to the trading plan.
Spread The Risk
There’s an old saying, “don’t put all your eggs in one basket.” When it comes to trading, you don’t want to put a lot of capital into one stock. Set the trading amount to no more than 10 percent of your budget. The amount you invest depends on how much money you have and your personal preferences.
Make sure to invest only what you can comfortably lose. How the risk is spread needs to be determined by three things:
How much risk you want
Your short-term goals
Your long-term goals
Find A Niche and Stick To It
You can day trade in stock, options, futures and forex, but it’s better to learn a niche and stick by it. It doesn’t matter how good the other options are; until you’ve mastered it, you shouldn’t try the others.
Liquidity and Volatility
The two qualities you want in stock is volatility and liquidity. Stock liquidity lets you buy or sell stock at a decent price; volatility gauges the price variance for the day. When a stock is considered volatile, it could be a trader’s dreams come true or their worst nightmare.
Don’t Purchase More of a Losing Stock
When you buy more of a losing stock, you may only set yourself up for failure. You may think it will reverse its losing streak and earn you cash, but what if it doesn’t? There are many stocks on a bull run. Trade in those unless you have real experience in the stock market.
Avoid Putting Focus On A P&L Account
Your attention should be on your trading plan and chart. You will incur some losses, but sticking with the strategy means better wins that eliminate the losses. If you notice the account is suffering multiple losses, you may start making decisions on emotions – not common sense.
Don’t Act Impulsively
If you’re going to be a successful trader, you need to be disciplined. If you stay in one position too long or get out too early, you may feel aggravated with the results you’re getting. Learn what to avoid in stocks trading.
Conduct A Daily Review
There are four key questions to ask yourself after the day trading has ended:
Did you abide by the rules?
Were there any weaknesses?
Will you improve those weaknesses?
Was the trading strategy you came up with working?
Practice Various Situations
Practice makes perfect. To become a smart trader, you need to practice. Write down mistakes made and what went well. You’ll only make money if you repeat what has worked and avoided what didn’t. What do you need to do with your trades? Stick to the rules you’ve laid out such as pricing actions and when to enter and get out of a trade.
Before you know it, this will come naturally, and you can implement the strategies you’ve created in real-life.
Watch this video below as how day trading actually works!
Final Thoughts:
Your success at day trading boils down to one key thing - determination.
You must be determined enough to come up with a great investment strategy plan and maintain a level head throughout the process.
Don’t allow emotions to make your decisions. Instead, focus on the rules you have set for yourself and follow these tips to be successful in stock trading efforts.
Leverage refers to the use of borrowed money to buy stocks. Brokerage firms and banks offer loans for margin accounts to buy stocks. This works great if you sell the stocks at a profit but can prove to be detrimental when you encounter a loss. Leverage is neither good nor bad. However, it should be used when you gain years of confidence and experience in the stock market.
Mutual Funds
Mutual funds deliver inferior returns and have a hefty management fee. As a result, the fund must outperform the overall market significantly in order to pay off this fee which rarely happens. In addition, mutual funds are constrained by a set of governing rules that must be followed by managers, who often times don't put their clients interests first.
News
Try your best to ignore the news. They have a way of spinning stories about stocks just to get a conversation going. News, especially the negative ones tend to be misleading while in reality, they don't affect what is really going on in the stock market. Focus on the long haul and don't panic when buying or selling your stocks just because of something you saw on the news.
Financial Advisors
First, the management fee of financial advisors kills any added value. Second, those who can actually help you don't have the time to deal with small accounts. The best option is to learn how to invest in the stock market and take control of your own transactions.
Getting Emotional
It's important to always make sound judgment when it comes to buying and selling stocks. Keep your emotions aside for a moment. Don't get too connected to the company you've bought stocks in. This includes getting defensive when anyone tries to point out something alarming about your investment. Although you shouldn't take everyone's advice, make sure you keep your ears and eyes open and think objectively.
Margins
Margins can be very confusing even for experienced stock market investors. If you get greedy and want to earn larger profits using margins, things will get messed up very fast. Margins require patience and a little investment at a time. However, as a beginner or even advanced investor, you're better off not messing with margins.
