Subscribe Feed (RSS)This the second part of the series on the discussion of principles of investment in the stock market. This is the continuation of a four part series. We previously discussed the first principle. This involves realizing that the stock market is just another investment vehicle. You must realize that there are other vehicles of investments before you decide to invest in the stock market. In this article the next two principles will be discussed. Please visit my blog if you want to view the entire article.
2.) Investing in the stock market is a roller coaster ride – The advantage in the stock market is that when it goes up, big profits are often made. But when it drops fast, big losses are made also.
Bearing in mind that the stock market is a roller coaster ride it is generally best to sell when the market goes up and buy when the market goes down. When I started investing in the stock market about 2 years ago, the Philippine Stock exchange index was about 2000 + points. It went up to 2500 points and then down to the 2000 level in the middle of 2006. Slowly and steadily it climbed up to the 3200 level during the 1st quarter of 2007. It then went down in a very short period of time during the final days of the 1st quarter of 2007. It steadily climbed to a high of 3700+ points in July 2007 but went down below 3000 points a month after. It rose steadily to its highest at 3800+ points by October 2007, but after a month dropped to 3600 points.
The point here is that it is really a roller coaster ride. Profits and losses are made during those up and down moments of the market.
3.) Know what type of investor you want to become – There are two types of stock market investors, long term investors and short term investors. This is a very vital question that each serious new investor should ask himself. This will ultimately affect whether you should buy or sell a certain stock.
Long term investors hold their stocks for 5 to 10 years. This means that that they believe in the company that you are investing in. This also means that and that they have extra money for other things because they can afford to put in their money for a long period of time.
The advantages of long term investing is that they do not have to worry about the cumbersome day to day technical analysis that has to be monitored. There is no problem if the stock is held for a long period of time because long term investors believe in the fundamentals of the company. On the other hand a short term investor cashes in within a months time to 6 months time. If you are a short term investor, one thing that has to be considered is the monitoring of the day to day activities of the market.
Similar to the the long term investors, short term investors have to make sure that they can afford to put in their money for a long period of time. But such time is not as long as that of the long term investor. One of the main reasons for doing that is because during the short period wherein you plan to invest and pull out your stocks, it is possible that you might incur losses. With this in mind you might decide to wait a while.
When I started out I determined to be more of a long term investor. I do have stocks whom I consider as short term but I consider most of the stocks I hold to be invested in the medium and long term period.
Would you like to know more about investment strategies ? Visit the blog of Zigfred Diaz where he blogs about several interesting topics such as investments, financial management, business, making financial online and Stock market investing
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