How can one make money in stock markets? Stocks are undoubtedly one of the most fascinating investments in financial markets.
While they have made millionaires out of ordinary folks, they have also made paupers After a long innings with stock investing, I strongly feel in favor of blue chip stocks and companies which have a long history.
The best thing in this market is not to be greedy.
Greed makes one to pick wrong stocks and trading at wrong time.
I have had very disastrous results after following advice of popular investment houses like Schaeffer's.
I would suggest not to listen to them.
Often times, their advisers are promoting stocks which have remote chances of success and which are in deep red.
Their speculative advice is a disaster most of the times.
One can follow a few things in order to be successful in stock markets.
If you are just starting or having limited capital and cannot afford to lose money, then it is best to pick up only blue chip companies which have been there for a pretty long time.
The beauty with these companies is that they have deep resources and experience.
Even after setbacks, they have the potential of striking back.
Most of them can have long term plans and are strategically well positioned.
These are also dividend paying companies.
The best time to buy a blue chip stock is when some of them have a series of setbacks or downturns.
For example, last summer eBay stock was almost cut to half in a matter of months, down from $48 to $24.
Buying the stock at $24 would have provided an excellent opportunity to make money.
There are numerous examples when once darlings of the market almost licked the dust, but made a remarkable come back.
One should always be on the lookout for these opportunities.
Even now there are stocks like Ford or Nortel which have the prospects of making up the lost ground and reward patient investors.
With limited funds, it is also no use spreading the money thinly over a large number of stocks.
So called diversification may be good for mutual companies or hedge funds, but is not suitable for individuals.
One should research companies well and concentrate on a few stocks only.
If selection is good, the chances of losing money will be greatly minimized.
Small investors should stay away from volatile stocks.
One may play a little with those, but they are mostly a money losing proposition.
Similarly penny stocks and so called hot stocks should also be avoided.
Though some of them may turn out to be growth stocks, it is hard to find them in thousands of stocks.
For most of time, they lose money.
Energy stocks will continue to be profitable for quite some time.
Medical stocks which are well established, profitable and dividend paying are also good.
One should definitely avoid all those medical stocks which are still in the experimentation stage.
Even though some of them have very good reviews, they should not be touched.
Vasogen is a terrible example.
Selection of a stock broker is also important.
These days they have so may hidden fees and one will be surprised.
It is hard to read all of their fine print.
Their fees may add up very quickly.
For example, some will penalize you if your total investments fall below a minimum amount or if there is no activity.
One should always book profits if stocks have gone up considerably.
At the same time losses should be booked much earlier than profits.
One should never wait for stocks to turn up.
One should be very careful about advisers.
Some times they are as ignorant as anybody.
Art other times, they are associated with their recommended stocks.
If their recommendations were true, they themselves could be rich in the first instance.