If the risk is high and the yield advantage only small, it means that we are wrong to apply the most basic financial strategies, higher risk higher profit or lower risk lower profit. This underlying why deposit rates quite low because the risk of deposits is also quite low.
Thus, when we decide to invest in stock, rather than bank deposits, it means that we have to obtain profits bugger than from the deposit. If the benefits derived from the deposit rate is lower, then there is something wrong in how you invest.
The following are the steps you need as a beginner to stock market. This article assumes that you have read the book enough to understand the mechanisms of stock market investing, as well as procedures to open accounts at securities companies.
General formulation:
1. You should have a big enough desire to invest or to learn how to invest or have a strong desire to make money by investing in the stock market. This should be embedded in you since the beginning. If not, you better purchase mutual funds only. Rule number one is: you must have a strong urge or desire for stock market investment and profit.
2. Invest in a fairly small amount first, such as USD 5000 since there is always a possibility of loss. If you start to feel comfortable and know how to generate a profit, then you can slowly increase the amount of money invested. When adding the amount invested, do not just remember that once you earn profit, but you must keep in mind that your investments can be reduced even total loss. You never know when an important event that negatively impacts the market place; and you did not get out of the market. The second rule: always remember that the money you invest can be decreased or even exhausted.
Technical formulation:
1. See the direction of the economy, estimate the national growth rate
It is important to know where the direction of economic growth. Is it booming? Or is it depressed? or in between? If the economy growth is increasing, then that's the perfect time to invest. Conversely, if economic growth is in negative circumstances, then you should exit the market, unless you already have experience as a trader.
2. Choice of industry and track record. Select the industry that you like the most and familiar with. Learn the history of the industry in depth and read the opinions of experts about the industry. Choose the industry that has a good track record in delivering profits.
3. Stock options and track record
Select one or two shares, not more, in the point 2 above. Choose the one that has a good track record.
4. Capitalization
Select stocks with large market capitalization. This means that the value in stock market is large enough. If the market capitalization of a stock is small, then the individual investor can easily move this stock price fluctuates with the amount of money he has.
5. Market sentiment
Note to the market sentiment. Although we have a stock with large capitalization, market sentiment has always been a determinant of stock prices. The most common sentiment is regional stock price index. The second sentiment is attracted influential events in the industry where our stock is invested. For example, prices of certain commodities and its influence on the profitability of the company we own the shares. Third sentiments are the figures of the economy in general, such as economic growth, interest rate fluctuations by the central bank, inflation, unemployment figures, the number of retail orders, consumer sentiment, or consumers' purchasing power.
Those are some guidelines for investing in the stock market for beginners. If you are disciplined in the steps mentioned above, it is unlikely you will not experience losses. There are still many lists or tricks that can be learned when you have already involved. But as a beginner, lest you become part of a 90% beginner who generally lose money before having a profit. You do not have to lose first, you can directly profit. Do the points above with full discipline.
Happy investing :)
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