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3 Essential Tips for Investing in Stocks

Essential Tips for Investing in Stocks

If you invest in stocks I will give you some tips that will help you invest better. It is true that there are many more, but today I bring you these three fundamentals.

When I started investing in stocks I had many doubts. Not only about what stocks to buy, but also about the learning process that he was going through.

Today I see it much clearer, but I have had very hard moments in which I did not see improvements. And do you know why? Because I was confused. I believed that what would make me earn money would be to study every detail of each of my investments , but nothing could be further from the truth.

And, to be successful when investing in the stock market , it is very important to simplify. Investments are already complex enough that we make them even more complicated.

In this order of ideas, I will tell you three tips that will allow you to simplify your investment process and start investing with more security.

But first, remember that in order to start investing, the first thing you have to do is open an account with a broker. It is important to make sure it is a regulated broker, among other things. See guide to choosing a good broker.


1. Do not invest in what you do not understand
The first advice that I will give you when you go to invest in the stock market is very easy to carry out: do not invest in those that you do not understand.

The above is related to your circle of competence . And what does that mean about the circle of competence? Well, most likely there will be companies or sectors about which you have more knowledge.

For example, if you work as a fiber optic installer for an internet operator or you are a mobile lines salesperson, you probably have more knowledge about the telecommunications sector than someone who works as a civil engineer.

It may also happen that your hobby is researching renewable energy topics and that it is a topic that you enjoy reading. In that case, it will be a good idea to be interested in companies in this sector. Not only because you will understand the business better, but because you will start from a prior knowledge that will make the analysis process easier.

If you don't do this, you will get frustrated. For example, imagine that we do not even know what uranium is and we are going to invest in a company that is dedicated to the extraction of this chemical. Also, learning about it bores us.

The consequence will be that we will leave the analysis halfway. And if we decide to invest, we will be doing it with incomplete information.

Therefore, do not forget this first tip. Invest in what you understand. If you don't understand it, you will get more nervous when things don't go well and you will end up losing all your money.

2. Annual reports are like a beauty salon
The annual reports of the companies are public, so everyone can download and read them. In them you will find a good part of the relevant information of the company. For example, how much you earn, how much you spend, and what you are investing in.

But I'll tell you what, after reading hundreds of annual reports, I have come to the conclusion that there is no company that speaks ill of itself.

That is why you must learn to read between the lines and go beyond accounting . Annual reports and accounting always hide secrets, so relying on them blindly is usually not a smart choice.

To remedy this, ask customers about the products or services the company sells, go to job search pages to see what opinions the employees have, or even buy their product.

For example, if you decide to buy Netflix shares, in addition to analyzing their accounts and their future plans, it will be interesting for you to comment with friends, family or on social networks, if they are happy with the platform.

On a lot of occasions, you will realize things that you will never read in an annual report.

3. Create a system
I would need a book to tell you all the mistakes I have made by not having an investment system. And what is an investment system? A series of rules or criteria created by you that you must follow when investing in stocks.

To make it easier, I will give you several examples of rules that you could include in your investment system:

Do not buy shares of companies with a capitalization of less than 500 million dollars : The reason why we could establish this rule is that a company that capitalizes 500 million dollars is very small. Although it does not necessarily have to be this way, it is likely that the shares of this company are less liquid than the shares of Facebook. And, therefore, that when it comes to wanting to sell them, we cannot or have to accept a less advantageous price. Additionally, companies with lower capitalization are more exposed to volatility.

Buy only companies that have benefits : If you are starting, it will seem incredible that a company that does not generate profits can go up in the stock market, but it is. For example, Uber, the famous taxi company that has put the industry in check, had losses in 2020 and still its shares rose from $ 30 to $ 50 a share. Investors expect Uber to make a lot of money in the future and so they are willing to bear the losses for several years. However, we as investors may not want to take that risk and stay away from these types of companies.

Avoid investments in countries whose currency is very unstable : Another reason why it would make sense not to invest in shares of a certain company would be the currency in which it operates. For example, let's imagine that we buy shares in a company that sells in a country with high inflation . It could happen that everything we have gained, we lose due to the depreciation of the exchange rate . Although there are ways to hedge the currency, we will not go into that now.

As you may have seen, the examples of criteria that I have taught you have a negative meaning. That is, they focus more on what to avoid than what to buy.

The reason I do this is because I greatly admire and respect Warren Buffett, one of the best investors in history. Among his many investment tips, one of the ones I like the most says something like the following:
An investor needs to do very little right if he avoids big mistakes. You don't have to do extraordinary things to get extraordinary results.

Warren buffett

Despite this, I want you to be clear that your investments are your sole responsibility. What do I want to tell you with this? That you listen to the advice of great investors, but make the decision that you think will be best for you.

No two investors are the same in the world. Each of us has different ideas and goals. And therefore it is very likely that we have different investment rules.

To do this, train yourself, read a lot and, over time, you will be able to create your own investment system. And don't worry about the details. The important thing is to start. With caution, but start.

There is no perfect investment system, so assume it is a matter of probability. In fact, it is certain that your first investment system will not be the same as the one you will have in 10 years.

Sometimes you will fail and other times you will be right. But that's what it is all about, to tip the balance in our favor.

Hopefully these tips help you put the scales on the winning side.

see also finance and business knowledge

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