There are lots of different ways to invest and so many companies to choose from. It can become overwhelming, especially for a new investor.
If you are new to investing or are thinking about getting into the stock market for the first time, there are three things I believe everyone should know.
The stock market can be confusing and overwhelming, even for experienced investors. That is why it’s best to try and keep things as simple as possible.
That means look for companies that are in your wheelhouse and easy to understand. The last thing you want to do is buy a company just because it’s a hot stock at the time.
Chances are, you don’t understand the company well enough to own it. It could be way overvalued.
An overvalued stock may look great at the time, but you could pay for it down the road if the valuations don’t hold up.
It can be easy to get sucked into the ebbs and flows of the stock market. You can even make a lot of money in a short period of time.
However, quick money shouldn’t be your strategy, especially if you are new to investing.
I believe the best way to think when looking at companies to buy is long-term. You aren’t looking to turn $1,000 into $10,000 overnight, although that would be great.
Intead, you want to think about how that $1,000 will look in 10 years, and even beyond that.
If you get great companies at good prices you will be reaping the rewards for years to come without the extreme risk and potential volatility that comes with trying to get rich quick using stocks.
Think the opposite
Just like humans, the market is emotional. One day the index can take off like a rocket and then the next it could drop like a rock.
However, if done correctly, you get to buy wonderful companies on sale while everyone else is selling and running for the hills.
The idea here is to sell when everyone is buying — and buy when everyone else is selling.
Think about it: If people are selling off a stock that means the price of that stock will start declining. If this is happening with a stock that you have been watching and want to own, this is good news.
On the flip side, if people are buying up a particular stock, then that price will go up.
This is great if this is happening for a stock that you currently own. That means you can sell, if you choose to do so, at a higher price than you bought it.
Buy low, sell high. That’s how you make money. Too many people fail by chasing the crowd the wrong way, over and over.