How bad would you like to own a piece of seasoned blue-chip companies such as Walmart, Amazon, General Electric, or Microsoft? Well, start by getting yourself a stockbroker (partner) if you don’t have one yet. A traditional stock-broking house will do, but it’s the technological age, and ticker tapes and stock certificates have since disappeared owing to dematerialization.
So, it would be great if you found a credible investment bank or savvy online broker. It’ll give you the ease of access to the lucrative stock exchange markets through your mobile phone or other hand-held devices of your choice. The New York Stock Exchange (NYSE) alone offers you over 2400 listed entities and nearly $21.3 trillion worth of stock float. How is that for market capitalization?
The NYSE is just the beginning. With the right online broker, you can trade stocks on the Johannesburg Stock Exchange and reap handsome returns from emerging economies in Sub-Saharan Africa. And don’t put a cap on your stock portfolio either. Expand and hold stock positions through bourses in Eurasia and South America, if possible. But first, check out the tips below. You don’t want to bring a knife to a gunfight!
Learn How to Pick Stocks
The stock market is estimated to have annual returns of 10 percent. Whether you’re a day trader or a buy-and-hold type of stock investor, you stand an excellent chance to make significant coin trading shares. You can even surpass that capital gains bar. Stock trading veterans such as Ray Dalio have done it time and again.
The best stock traders and securities analysts will attest, you must stay on top of the game. You can do that by reading reliable business editorials (Bloomberg, Yahoo Finance, or Google News). Make an effort to familiarize yourself with technical and fundamental analysis, or else all that stuff you look through in news sources won’t do you any good.
You need to know how to read candlestick patterns and stock price moving averages and compare current charts to those from a month back. That’s part of technical analysis. It can tell you a thing or two about the trend that a stock or the entire is taking.
Reinforce that information with industry updates and press releases. Peruse company financial reports and check the ‘vitals,’ for instance, profitability ratios, debt financing, and management stability of a stock that you’re thinking of buying. You needn’t use both methods of analysis, though there is no harm in doing so. Usually, the most promising stocks will check all the right boxes.
Talking of Stock Picking, Here Is How to Diversify, Reduce Unsystematic Risk, and Get More Returns
When it comes to investments, never put your eggs in one basket. While that may be a bit of a cliché, it’s about to make even more sense. You must have heard of the Lehman Brothers incident back in 2009 that was one of the triggers of the most recent financial crisis.
The unfortunate episode shook the world economy, prompting a government bailout in the US. Lots of individuals and businesses defaulted on their credit. All these events had a significant impact on stock markets, increasing downside risk. But diversified portfolios maintained a steady performance. What exactly is diversification, and how does it work?
For starters, it’s never a good idea to hold one stock. So, diversification is when you have a pool of stocks that forms a portfolio. You spread the risk on your stock investment by:
1. Casting a Wide Net
You can branch out of the US and buy part ownership in companies elsewhere—geographic diversification. For instance, a stagnation in stock prices of steel mills in the US doesn’t present a buying opportunity. But the gradual economic growth in Asia can mean price appreciation for steel mills in say, China or Russia. The same case can apply to oil and technology companies.
2. Investing in a Particular Sector or Combination of Industries
Advanced economies have hundreds of sectors and subsectors. For example, you can hold stock in the agricultural industry. Examples of agricultural sub-sectors can be agrochemical stocks, agricultural research firms, and agricultural equipment manufacturers, and so on.
Better yet, you can generate your portfolio from an index. For multi-sector stocks in the US, look no further than the Dow Jones Industrial and Transportation Average or Standard & Poor’s (S&P) 500/1000.
Alternatively, you can opt for an investment vehicle such as a mutual fund or exchange-traded funds (ETFs). Funds work pretty much the same as stock indexes—both in composition and how you trade them in the markets. The only difference is that they’re pulled resources: one fund can have cash injections from a multitude of investors.
3. Going for the Right “Market-Cap” Stock
You have three types of market-caps to expand your stock portfolio: large-cap ($10 billion and over), mid-cap ($2 to $10 billion), and small-cap (less than $2 billion). Small-cap stocks have huge growth potential with volatile prices that favor arbitrage.
Large-caps thrive modestly and exhibit stable prices. What’s your priority, growth, or value stocks? Mid-caps tend to be neutral. Considering all three when building your stock portfolio can make for a vibrant stock mix.
Choose the Right Stock Trading Strategy
Do you want daily returns or gradual returns over an extended period? The former makes you a day stock trader while the latter calls for long-term stock investing. The primary difference is the time horizon.
Returns are achievable in a matter of hours for hyperactive intraday stock traders who buy stocks low and sell high based on daily positions and price swings. They also bank on large volumes. Investors expect to earn rewards years after buying shares. As an investor, you should go for high dividend pay-out ratio stocks. That way, you can receive quarterly dividends as you patiently wait on capital gains.
The stock market is typically the first entry point for most people looking to make money in the financial markets. Bonds and certificates of deposit are popular too, but, historically, they have only yielded a measly 5-to-6 percent return per annum on the principal amount invested. Besides, stocks are highly liquid, which can come in handy when in the face of an emergency and what not. Unless your objective is to get long term fixed-income, bump up your risk appetite and dive into the stock markets.