The stock market is indeed quite versatile, with ups and downs that would intimidate any person who is a beginner at investing.
Perhaps the scariest time of all for any beginner investor would be the moments following the 2008 market crisis, when the stock market plunged to an all-time low. Today, however, the stock market is more bullish than it’s ever been and the market average is even higher than it was before the market crush.
Such is the nature of the stock market and while it is not ideal, you will only succeed in your investments if you have the stomach to handle it and the ability to assess market movements based on facts.
What drop in stock prices should mean to you
When stock prices fall, this provides you with ample opportunity to buy more shares. Most people who have shares sell at the first sign of trouble. These are usually investors who want to make quick money, buying and selling shares as prices fluctuate.
Stock prices are about growth of revenue
If you take the view of stocks as your retirement security, you will appreciate the way they operate. One of the factors that influence stock prices is the revenue growth of a company. With this in mind, you should analyze the following:
- Financial stability
- Projected growth
- Gross profits
- Profits margin
- Management direction
- Industry trends
- Uniqueness of the product a company’s offering
If a company has projected it will grow exponentially and you find this fact to be plausible based on performance and strategy, then you can safely say that if you invest in that company’s shares, by the time you need your money a couple of years down the line, the company’s shares will be quite valuable.
There are many factors including news items and rumors that will cause ups and downs in stock prices in the short term. Use your discretion in such matters as doing otherwise could interfere with your investment strategy.
As a beginner in the stock market, you should adhere to the below:
You should be looking to diversify your investment while at the same time reducing risk. Index funds and also ETFs are a good place for you to start.
Your investment portfolio should protect you in case of market corrections or bearish markets. Design your portfolio such that you can take advantage of rises in stock prices and you still have room to buy stocks that have fallen in price.
- Be serious about your long term goals and you will see good returns.
If you are a couple of years from retirement, allow your stock portfolio to grow. Avoid the urge to sell any time you see a slight fluctuation.
- Take interest in your stocks
Stocks mean you own part of a company. You should therefore be interested in the progress of that company. This should however be done in moderation. You want to stay detached enough so that you make the right decisions for yourself, but not too detached as to be totally disconnected with your stocks.