Entering the world of stock and bonds can be extremely intimidating and daunting. Generally, the stock market exists to make money for the brokerage houses that are channels to the market and the large asset managers.
For this reason, any individual investor without access to the assets of a large firm needs to be cunning and smart to turn a profit on the stock market. Large institutions control a very large portion of the money floating around the market, so you must act in an intelligent and calculated manner. In this article, you’ll find the best five tips for individual investors.
Don’t buy Into the Hype
Do not buy into the hype of the financial media. The majority of pundits in the financial media serve the interests of the large asset managers. The general strategy revolves around constant trading and portfolio turnover, which in the long-term, is a bad strategy unless you’re absolutely certain that the trades were beneficial. Blindly following the advice of discount brokers or financial pundits is generally a bad idea. It’s always a better idea to shirk a “hot tip” in favor of good research.
Have patience with your stocks. You’re not going to get rich overnight investing in stocks (unless something drastic occurs). Frequent trading of your stocks is usually a sign of someone adopting the “scratch off” approach, which is acquiring an asset and expecting an immediate loss or gain. This is flawed thinking. Always favor a calculated and patient approach over a hasty and ill-planned approach.
Focus on the Long Term
Focus on stocks with long-term potential. It’s estimated that the large asset managers control around 70% of the available money on the market. These large institutions specialize in short-term assets, as they have the required capital to cover the costs associated with frequent trading. It makes more sense for them to invest in short-term assets, as they can make more money quicker. As an individual investor, you need to do the opposite. Because you don’t have the bankroll to support frequent trading, focus on the long-term and stable stocks.
Purchase from Small Companies
You may choose to focus your purchases on stocks of companies that are relatively small. It is a bit of a gamble, but small companies generally do not receive a lot of play from the large asset managers. With the amount of money they have to play with, their potential gains are too small to justify the time and resources spent acquiring the stock. It is in your best interest to avoid the big players and find an untapped resource.
Find Discounted Stocks
Try to purchase stocks that are currently discounted due to volatility in the market. Because you’re looking for long-term stocks, you can afford to buy a discounted stock and attempt to wait it out. Once again, the large firms will not be interested in a long-term investment. Getting in on the ground level of a bottomed-out stock and riding it out can yield large benefits for a shrewd individual investor.