When most people are interested in the world of the stock market, the first idea that comes to mind is the purchase – sale of shares, both for investment and trading. Buying stocks is a very important step in earning extra capital every day, yet many people ignore a number of issues before buying stocks. Thus, many always lose money. What should we look for when buying shares? What should I know before buying shares? Next, we tell you the most important keys.
Key issues if we do trading or investing in stocks
Having a basic plan, knowing how much we can invest, how long we must hold shares or look at some indicators are fundamental pillars if we want to buy securities. From here on, we break down all the details. Have a plan. Many of the people who invest buy the securities in the market without having any plan: they do not know how much they want to earn, nor how long they are willing to keep the shares in their portfolio. It should be clear:
- How much we want to earn. In this case, always and more in the short term, the ideal is if we are starting to earn between 5 and 8%.
- How long do we want to have the shares in the portfolio? Days ?, Weeks ?, Even months or years? If they do not increase in value and, in addition, they do not provide us with dividends, it is best to sell the shares as soon as possible
- How much are we willing to lose. It must be calculated as a percentage of the investment or in total money.
When to invest in stocks, find the right moment
The main thing is not to rush to buy stocks. When this purchase of securities is made, we must think that the ideal is not only to inform ourselves: also to look at graphs and value trends.
If you think about investing in stocks you must be clear about some things.
First, be aware that investing everything at once is not a good idea, even if it is done in the long term. Think that you will have to wait a long time to see results and many people do not take that long and liquidate their investments earlier than expected. Yes, waiting 15 years you may get benefits for sure, but almost no one has patience for that much or at least, they do not take comfort in that situation.
Another option is to try to be attentive to market fluctuations, and invest taking advantage of the best moments and analyze the situation of the companies or stocks that interest you to try to find out the course they will have in the short, medium and long term.
If we go, for example, to this year 2020, the year of the coronavirus pandemic, you will see, if you stop to investigate, those brutal changes have been unleashed in consumer trends and in business globally. This places us, facing 2021, in a quite profitable position if we know how to see what actions will be strengthened next year and why not say it, in the next decade.
You just have to analyze the transcendent changes that are occurring and study the direct consequences that it will have on different companies, markets, economic sectors, etc. Biden’s entry into the White House, the UK’s Brexit vis-à-vis Europe and its new relationships, the new business situation across Asia… There is a lot of juice that an investor with long-term vision and visualization ability can take advantage of.
How can you know how this new crisis is affecting the stock market?
Observe the behavior of investors. You will see that they have become much more selective when choosing companies and industries in which to put their capital. Find out which sectors are these and what their evolution is expected to be in the coming months / years. The new normal will involve many changes, also in companies and in consumption around the world, so start researching who will benefit the most and when they are most likely to start seeing those benefits.
In which company to invest in the stock market?
Never pay attention to coworkers or family members who have shares in X company and who tell us that the shares are going to rise. It’s a mistake. First of all, we must think for ourselves and bear in mind that there is manipulation in the market: there are interests of people or entities that recommend buying to sell their shares. Therefore, it is always recommended to carry out your own analysis.
As we told you before, for 2021 the opportunities can be very clear if you do a good research work.
Think, for example, of companies that can benefit from events such as the launch of a coronavirus vaccine, pharmaceutical companies, and laboratories. Or analyze the new commercial relationship between UK and Europe: transport, tariffs, customs. Or do a deep analysis of all the remodeling and perspectives that the new US president plans to carry out both in his country and in its relations with the rest of the world. The investment opportunities are really interesting!
We recommend that you analyze all the companies that this year 2020, have had an upward forecast for the future, of their products or services, both nationally (from your own country), and internationally. There are very good opportunities especially in the American and Asian markets. Europeans can also be interesting depending on the sector we are dealing with. A good research work will make things much easier for you and will clarify your ideas about what you should know before buying shares, especially in this year and the next.
Investment or speculation? How much to invest
Whether we want to invest or speculate, you should think about the amount you want to invest for several reasons:
- Have money outside the market for emergencies.
- Diversify the portfolio and not depend on a large amount in a company.
- Cover buying and selling commissions.
There are those who enter the investment world for the first time without thinking about all this and without wondering if they will need part of the capital invested in the coming years to cover basic needs. And that is a big mistake. Unforeseen events happen, and it’s never a good idea to use all of your saved capital just for investment.
In addition, these unforeseen events also affect companies and some may make you have to close your investments before they have paid off without generating any profitability or even losses.
For all this, it is convenient to reserve certain amounts so that you can come and use only the money that we will not need, yes or yes, for something important.
Classify your money
One of the simplest classifications you can make to know how much money to invest in stocks is the following:
- Cover your vital needs first: out of all your income, reserve a part that covers all your essential needs. Build a contingency cushion for the next 3-12 months. That money should always be available for anything that may happen that you have not had in mind before. The good thing about this is that, in case nothing unexpected happens in two or three years, you will have a not inconsiderable cushion to live with if you want to leave your job and dedicate yourself to another activity such as trading, for example. You will have immediate availability of it and the possibility of using a part, now, to invest.
- When your fundamental needs are covered, you can put an amount of money in long-term investments, which can be profitable in the future and which, if possible, are as diversified as possible. Avoid risk in these stretches of time to be calm. Training, activities that give you passive income, etc. are good options.
- Finally, and in the case of wanting to increase your standard of living or obtain extra income for savings and subsequent investment, you have the option of trading, operating on a recurring basis in the markets to seek higher investment returns.
Allocating more or less money depends directly on your priorities and the amount of money you have available.
How much to invest is a personal decision. In a single article we cannot give you all the possible options, but it is a good starting point that you can discover at least what are the most frequent and interesting options.
The most important thing is that you always have very clear what your objectives are and that you try not to squander your basic savings, which help you to survive day by day, with the savings that you will allocate to the activities you want to cover to meet aspirational objectives.
The importance of an investment plan, knowing how to sell and buy
It costs nothing to tell our bank or broker, also managing it ourselves, that if the value falls by a certain amount, sell the shares, which is known as a stop loss. To know where to place this stop, we must look at the quote charts to see if it has any support that, if it pierces it, can make the stock fall further. It is always recommended after buying the shares to automatically protect our investment.
Observe forecasts or indicators
Some investors look at some indicators before buying shares: with this they get to know if certain security is expensive, in debt or if it has the capacity to generate cash flow. These indicators are important to observe if the company is cheaper than the competition, what is its debt / ebitda ratio or if its price is collected in relation to the benefits it has. To carry out trading or investing in the stock market, it is very important to know when to enter the market and what we should look at before buying the securities.