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10 Tips: Beginner Stock Market Investing Advice

beginner stock market investing

We live in a fast food world. We all want instant gratification. Unfortunately, most people have lost patience with activities that require concentration and dedication. When it comes to investing in the stock market, you need to slow it down to avoid “get-rich-quick” schemes. Patience in learning and investing are the keys to getting the results you want.

Stock market investing can improve your financial future or it can devastate it. Before you open an online trading account or move your retirement funds to a brokerage firm, do your research. Read, subscribe to experts, interview brokers, ask questions. And before you invest, evaluate your threshold for pain. There are no guarantees in the stock market and it certainly has a range of risk and reward. Ask yourself if you’ve got the emotional strength and psychological makeup to handle it.

Ready for your beginner stock market investing advice?

First, we need to clarify that BillCutterz is not a professional investment advisor and we are not licensed by the SEC. Everyone has their personal strategies, philosophies, and rules they invest by. These are 10 strategies we like that may help you on your investment research journey:

1. Diversify For Your Safety

Don’t put all your eggs in one basket. It’s basically rule number one as every investment advisor will tell you, and it just makes sense. Although we all think the investment we are making at the time is the greatest investment of all time, things can and do go wrong. When you invest in the stock of a company, many things may affect the performance of that stock which could be out of the company’s control.

Weather, technological breakthroughs, death of the CEO, competition, new government regulations, and so many more. Practice what a wealthy investor once called, “conservative recklessness.” He never put more than 50% of his liquid net worth into one idea. His philosophy was, if the idea went belly-up, he at least had left over 50% of his liquid net worth to rebuild his portfolio which afforded him the opportunity to live to fight another day. Fifty percent may be extreme, but the philosophy is sound.

2. Leg-in

Consider buying only 50% of what you ultimately want to own. You will never buy a stock at its bottom and sell it at its top. Basically, you just want to make some profit in-between the purchase and the sale. If the stock goes down, consider not buying more. If the stock moves up, you might consider paying more for the stock as it is likely making positive progress. The stock may get away from you on the upside and you may never buy the other 50%. But you will still have made some money. Basically, buy more on the way up and not on the way down.

3. Cut Your Losses Short and Let Your Profits Run

Set boundaries for any loss you may incur on a stock. A general rule is to cut your losses at 10% to 15% and that’s it. When we buy a stock, we all hope we bought it “right.” Inevitably, something you buy will certainly fall in price and you’ll need to remain disciplined to cut your loss. Use a “sell stop” to limit your downside risk. Just be aware that other investors may employ the opposite strategy. It all depends on the stock and the situation.

4. Before Investing, Get Good Advice

Rich people are not necessarily smarter than poor people. Rich people just got good advice. Many people have made millions on their own and probably worked very hard to get there, but many rich people made their money through the sound advice of someone who was smarter than they were.

5. Don’t Try to Catch a Falling Knife

We all want to buy at the bottom and sell at the top. Unfortunately, nobody has tomorrow’s Wall Street Journal today. When a stock has dropped in price, say 20%, 30%, or even 40% it still may not be the right time to buy. Be patient and wait for it to stabilize or rebound somewhat before you make your first purchase. The trend is your friend. Some investors buy a stock on the rise instead of on the fall; even if it means paying 10%, 15% or 20% more. Hindsight is always 20-20. Many times it will be better to miss an opportunity altogether than to buy a stock that just continues to fall.

6. Buy Value

Buy more established companies than those that are completely speculative and have not established themselves. Maybe one in fifteen pre-revenue companies work out, and that’s not great odds. When you buy stock, you are buying the ability of the management team to execute on a sound business plan.

Research the management team. Have they been involved with publicly traded companies before? Do they have a successful track record? Is their CFO seasoned and a veteran in the public markets? A company can have a great product or service, but if management is unable to understand or navigate its particular market niche, it could easily fail.

Many companies fall into this category so you may want to wait for a company to get some solid footing in its respective industry before buying in. Young companies always have growing pains unless their management team is seasoned and has proven itself.

7. Add Patience

Planning for the longer term is what your focus should be. Plan on holding a stock for at least one year and maybe three or more years. Many investors sell stocks too soon and leave a lot of money on the table.

Consider holding onto stocks longer and wait for them to mature even further. It takes a very stern discipline to manage your emotions and not sell a stock you already have a 20% profit in, and wait for that profit to grow another 20%, 40% or even 100%. As a general rule, you might want to wait for a company to stub its toe in revenues, earnings, or some other indicator before selling shares. Or insiders are selling their own stock, which should be a red flag.

8. Leg-out

When you have a profit in a stock, regardless of how long you’ve held it, you’re afforded several options on how you want to sell it or get out of your position. If you’re comfortable to get out of the stock and lock in your profit, you can just sell your position in its entirety. However, sometimes you may want to sell a percentage of your position and lock in some of the profits.

This strategy lowers the risk of losing monies on the position, but also lowers the opportunity to capitalize in full should the stock rise. Mathematically and hypothetically, if you have a 100% gain in a stock, you could sell 50% of your position and the remaining shares (or 50%) would represent your profit. Even if your remaining shares now go to zero, you have lost nothing except the opportunity to have capitalized on those gains. Should you execute as described above, the remaining shares you hold are at a zero cost basis to you; a very nice position to be in.

9. You Can Never Lose Taking a Profit

Never expect to buy at the bottom and sell at the top. However, if you have a gain in a stock and decide to sell it, you should never look back or second guess your decision. If you do, you will inevitably beat yourself up unnecessarily for pulling the trigger on something that is (for the most part) unpredictable.

We all make mistakes and the stock market is a gamble. If you set boundaries and rules on how you trade, you’ll minimize the risk and hopefully enhance your reward. It’s a cliché, but… “Bulls make money, Bears make money, and Hogs get slaughtered.”

10. If You Can’t Sleep at Night, You’re in the Wrong Investment

If you’re stressing about any investment you’re about to make or have made — whether it be the stock market or otherwise — get out!

Stress kills and any profits/gains you may have realized through a stressful holding period will be outweighed by the strain you’ve digested mentally and emotionally along the way.

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Final Words on Stock Market Investing for Beginners

The stock market can be compared to learning how to play poker. You will probably never master it, and it will certainly cost you money to learn the game — but there’s the opportunity to improve your skills quickly and increase your chances of success — and have fun.

Analogies aside, investing is a business. More importantly it’s your future. The more proficient you become, the more likely you will set the stage for a nice nest egg for retirement.

We’ve provided some stock market research, news, and analysis links we’ve found helpful, in no particular order:

Disclaimer: Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or suggested by BillCutterz, LLC, or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from BillCutterz, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BillCutterz, LLC is neither a law firm, a certified public accounting firm, or an investment advisory firm. No portion of the article content should be construed as legal, accounting or investment advice.

5 Responses

  • Posted by James on May 28, 2014

    Pretty good summary. One thing I think bears mentioning for your readers is that you’ll never be able to profit from the stock market if you aren’t in the market! So buy some stock today!

  • Posted by BillCutterz on May 29, 2014

    Amateur investors who are still trying to figure it out or who don’t have an investment adviser might consider buying a small amount of stock as a way to dip their toe into it. Having a little bit of stock keeps you focused on the market without much at stake. You find yourself leaving your TV on CNBC — which for any level of investor is very educational.

  • Posted by Dina J on Jun 30, 2014

    Great advice! I’m definitely an amateur when it comes to stocks!

  • Posted by BillCutterz on Jul 1, 2014

    Dina, let us know if you decide to take the plunge into stocks!

  • Posted by Jason Brown on Jan 13, 2015

    I would definitely say get a mentor and an accountability partner. The learning curve in this industry can be steep and cost you real dollars.

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