The Golden Rules For Buying Shares
There are several reason to why people buy shares and invest in companies, it cn vary from building a good amount of capital, to earn from shares or it can be just for enjoyment.
No matter with what reason you go with it but there are few golden rules it pays to follow for investment.
Prices fluctuate so any share value that go up can come down
The most important rule is that the value of shares can sink or can even rise. There is no gauranty that any share if doing good from many years will continue doing so. Anything unexpected can happen anytime. The many events happened in past are the proof. The market can take sharp twist and turns to change any company’s fortune.
Another question arises that how much you can afford to loose.?
You shouldn’t invest any money more than you can afford to lose.
Understand your risk attitude
If you want bigger rewards you will have to take bigger risks. This type of attitude can make you big returns but same time you can also lose all your money. Most people want to minimize the risk factor in the share market. To achieve this don’t buy shares of one company only. Different types of investments across a range of different companies in different sectors of the market is good to safe guard you from the ups and downs in individual shares.
There are many ways to spread your risk. Choose to invest in companies in different sectors of the market, like banking, retail and technology, or it can also be done by picking some big companies along with the selection of some small companies.
Large ones can be safer. Big companies, with strong finances and a long history, are very much less risky than new small ones, newly formed company’s strength has not really been tested in the market.
These Large, safe companies are known as ‘blue chips’. (In gambling, blue chips traditionally have the highest value.). But these are also not completely safe. The demise of Marks & Spencer’s share price is testament to that. There’s no self satisfaction in investment.
The opposite side of ‘safety shares’ is that they do not to grow fast, so you could expect a slow continuous and, unspectacular return from this kind of shares.
So you have to be in it for the long time.
To protect yourself from falls or stock market crashes, many experts believe one should plan to keep the investments for a minimum of five years. This way, you’re more likely to overcome any downturn. If you think you will be needing your money before five years, you should be very clear of investing in the stock market.
If you face loss, Don’t panic and don’t sell.
The worst thing you can do is selling the shares at downfall. This crystallizes your losses. Be cool headed and see how shares prices changes for some more months or even years. If losses occur across all your shares and all were linked to a general share market downturn, there are chances that the market will recover as a whole in time. If your losses is because of any specific share, then you have to make a judgement call that whether the company’s fortunes will change or not. If you think the situation will remain same, it will be best to sell the shares.
It’s much easier to buy than to sell. Selling is the only way to with which to can make profit. A ‘paper profit’ is just that – worthless. Many people find it difficult to sell their shares, especially if they have made some earnings.
There is no room for sentiments in investment. It can often pay to accept that you will never sell your shares at the very top of the market. Waiting for the top you cn loose many good and valuable shares.
August 15, 2009 | Posted by admin
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