How to make money in the stock market…
Investors buy stock for one simple reason: to make money. The surest way to earn money from investing is to create as di¬verse a portfolio as possible and hang on to it for a long time. To succeed at making money investors need good sources of infor¬mation.
Stockbrokers supply much information. They study market reports and get information on the forecasted financial performance of companies. Brokers usually recommend oppor¬tunities or provide special services such as newsletters. For this brokers charge additional fees.
Sometimes investors prefer to avoid high brokerage fees. They implement their own investment strategy. Serious investors sub¬scribe to investment newsletters and carefully study the stock market. Best investors become an expert in a particular industry.
A simpler investment strategy is to choose some reliable blue chip stocks and stick to them. This strategy is safe and can earn money over the long run. Investors should avoid making com¬mon mistakes, which are:
1) failure to diversify,
2) paying too much for a stock which would not go up,
3) not knowing when to sell a stock going down,
4) paying too much attention to ru¬mors and tips.
There are also several techniques of predicting the stock prices. Most investors begin with fundamental analysis, which is the process of comparing a company’s current financial position and future prospects with those of other firms in the same or different industries. Some investors usually called “chartists” try to identify a specific stock’s behavior charting it over time and then predicting its future price movement. Other investors be¬lieve that prices are random. The random walk theory is based on the assumption that future stock prices are independent of past stock prices. They choose stocks at random. A group of investors has adopted an unusual approach, contrarianism, which holds that the market will move in the direction opposite to that predicted by the general public. In other words, these investors do the opposite of what the general public does.