Stock market proven to be the goldmine to most sophisticated investors. However, not many beginners really know how to start investing in stock market. As a result, they end up losing their hard earned money. In this article, I’ll share with you my personal insight on how beginners should start their stock investing career.
How to Start Investing in Stock Market with Long Term Stock Investing
From my personal stock investing experience, invest for long term growth proven to be the most profitable money-making strategy. Most importantly, due to its nature that prone to short to medium term price volatility can offer the least downside risk for most beginners. After all the wealthiest people in the planet (Warren Buffet) make fortune from this exact same strategy!
Sound’s too good to be true?
However, if you have significant short term financial commitment (retirement, children’s education, medical expenses etc) for your investment sum, it’s better to avoid this strategy in the first place. Reason being, you might lose money to short term price volatility should you cash out on such situations.
In order to make thousands if not millions from this simple strategy, you must first start with short listing great stocks that have huge growth and profit potentials. You may use several key financial ratios to begin with; such as Return on Equity (ROE), Earnings per Share Growth Rate (EPSGR) and Debt to Equity Ratio (D/E).
Secondly, determine how much the company worth for. You can do this by calculating its intrinsic value. As there are various ways to calculate intrinsic value, evaluate each of them with grain of salt. The truth is nobody knows exactly the intrinsic value of the company; including the CEO of the company itself.
Therefore, you must consider margin of safety when investing in such stocks to reduce risk exposure. Depending on your risk tolerance, buying stock that is below 40 to 60 per cent of its intrinsic value should be good enough. This will not only reduce the risk of losing money, it will also reward you with more than 15 per cent return per year!
How to Start Investing in Stock Market with Momentum Stock Investing
Despite huge benefits of long term stock investing mentioned above, the real challenge to new stock investors are buying great stocks at discounted price. I said it is the real challenge because you might have to wait years before the opportunities come to you or you can be sceptical when the opportunity nicely presented to you.
The first one should not be a big deal, but the second one is.
Reason being, great stocks can only drop in price when most investors pessimistic of the overall future of the country, industry or the company itself. At that situation, you must be tough on yourself and proceed with your investment plan. Otherwise, you have to wait for years before it can come back to you.
While waiting for the opportunities come, you can ride on the bull market with momentum stock investing strategy. If investing for long term is about “buy-low-sell-high”, momentum investing is about “buy-high-sell-higher”. With this method, you are basically betting on the trend as the stock price rallies.
The real challenge of this investing method is you don’t want to buy the stock at its peak since you can be the ultimate prey when the trend reverses. There are two ways to overcome this; keep yourself informed on news that relates to your stock and implement stop lose strategy. This will not avoid the risk of losing money though, but at least, you can minimize the losses.
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