20 stock market tips for beginners

Stock Market Tips for BeginnersGetting a return on cash deposits these days is virtually impossible, as I’m sure you know only too well dear reader. That’s certainly true if you’re looking for the value of your money to keep pace with inflation, at the very least.

So in today’s post I offer you some tips to consider if you’re thinking about investing in stocks and shares.

It’s not intended to be a definitive statement on all you need to know about investing. You cannot learn all you need to know about investing from a single blog post. That would require a comprehensive financial education.

This guide is simply a basic primer to get you started. It will provide you with some guiding principles to bear in mind, and in that sense it should help you to get started on the road to investment success.

So here are my 20 stock market tips for beginners.

Stock market tips for beginners:

  1. Buy low; Sell high.
  2. Don’t chase performance. If you judge a stock or fund to fit within your investment strategy, then buy on the dips.
  3. Run your winners. Let any profits roll up and don’t be in too much of a hurry to say goodbye to your best-performing investments.
  4. Cut your losses before they become excessive. When buying a stock you must establish a ‘stop loss’ figure beyond which you won’t let the price drop before you sell to minimise your loss. In my opinion if a stock loses 25% of its value, particularly in a rising market, then that’s a significant warning sign and I would seriously consider selling to avoid further loss at that point. Occasionally I might get it wrong but mostly that philosophy has stopped me losing even more money.
  5. Never get emotionally attached to any stocks and shares you own. You have to be very business-like and hard headed. If you judge it to be the right time to sell then act and act quickly.
  6. Think long term. As the great Warren Buffett once said, “Never buy a stock unless you would be happy with it even if the stock exchange closed down for the next ten years.
  7. Regularly review your stock portfolio. Make sure there are no ‘dogs’ and make sure that there is some balance in your portfolio too.
  8. Reinvest your dividends. The power of compounding will make an enormous difference to your overall returns.
  9. Don’t put all of your eggs in one basket. This is a simple idea but one which a surprising number of people ignore. Diversification will help you to limit your risk profile.
  10. Holding for the long term can be a good strategy. However that doesn’t mean you want to hold a stock forever. It’s not a good idea to buy a stock and then forget about it completely. Essentially stocks and shares are for buying and selling. At some point it might makes sense to sell. When you reach that point you must act.
  11. Remember; investing in stocks and shares is not just about buying. Occasionally it makes sense to sell. You need to know all about the companies you invest in and you need to follow them carefully. You need to spend as much time thinking about when to sell as you do about when to buy. Many investors neglect this discipline. Avoid over-trading of course but when you judge that it no longer makes sense for you to hold a particular stock then don’t be afraid to take action quickly.
  12. Make sensible use of any tax-privileged investment vehicles. In the United Kingdom these would include things like pension plans and ISAs. However never let the tax tail wag the investment dog.
  13. If you don’t understand how a particular investment works then it’s probably not a good idea to put any of your money into it.
  14. Don’t be afraid to ask “What if?” questions. For example a question relative to a particular company might be, “What would happen if an expected outcome failed to materialise or worse, performance were to fall off a cliff?” How might the answer to this question impact on the value of the stock?
  15. Be flexible and don’t back yourself into a corner. If you bought a stock for £5 and it’s now priced at 50p, don’t stubbornly hold on to it indefinitely in the misguided belief that it will recover its £5 price given time. It may never do so. The question you should ask is, “Would the money I currently have invested in this stock be better invested elsewhere?” What you’ve lost is what you’ve lost, you can’t change that. However you might get a much better return by putting that money somewhere else.
  16. Don’t be afraid to go against the crowd. As the great Warren Buffett once said, “Be greedy when others are fearful.” Some of the most successful investors have been contrarian investors.
  17. Never be influenced by special offers, such as discounts advertised by fund managers for purchasing funds within a certain deadline. It is far better to invest in the right fund at a fair price than to invest in the wrong fund at a discounted price.
  18. Ignore all stock market tips. The risk is that where there’s a tip there’s a tap. Before you buy a stock you should understand why it makes sense to buy it. You should have some sensible measure against which you are judging this stock in terms of how it represents good value.
  19. Never get too carried away by investment euphoria, whether it’s stocks and shares or property. Nothing keeps going up for ever. At some point there will be a correction in the market.
  20. REMEMBER: If something looks or sounds too good to be true then almost certainly it is. Don’t get so greedy that you fall for a Boiler Room scam with promises of untold riches by simply investing in companies which are completely unknown to you and everyone else. Just because someone tells you over the telephone that it’s a good idea, doesn’t make it a good idea. In fact alarm bells should start ringing in your head. These scams work by exploiting our greed and our gullibility.

I hope these tips have whetted your appetite for improving your financial education. The more you know the better the investor you’ll become. Investing can be interesting and it can be fun too, providing you know what you’re doing and you don’t throw all your money away on bad investments.

Further reading:

There are plenty of excellent books on the subject of investing and here are three which form the cornerstone of the financial section of my own personal library.

  1. Think and Grow Rich – Napoleon Hill
  2. The Intelligent Investor – Benjamin Graham
  3. The Zulu Principle – Jim Slater

You can take a look at all of these books on Amazon by just clicking on the links.

Reading these books really improved my own personal knowledge of investing techniques and I still refer to them all regularly.

I can recommend them all highly and you should seriously consider purchasing you own personal copies now.

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