A minority may have some form of financial education, but the vast majority is ‘novices’ who enter the world of active management of their money for the first time. Therefore, before taking the first purchase order should take into account a number of principles that can serve to avoid unpleasant experiences or repeat errors that have already committed other investors.
1- How much money do I invest? Only the one you do not need
This is perhaps the most important rule of all and is the question that any investor should ask before even starting to learn about the trading on the stock market. The market is not a pink world and it is more than possible to end up losing all the investment. We must be aware of that possibility and assume that it can happen, so we should never invest what we can or will need in case of an emergency.
2- Define your objectives
You cannot enter the market ‘to see them coming’. You must be clear about what you want to achieve beyond the obvious answer: ‘make money’. It is about calculating the profitability you want to obtain, the term in which you want to achieve it and the risk you are willing to assume. The three variables must be aligned, because you cannot expect a double-digit return, for example 20%, without taking risks. Obviously, it must be a reasonable goal and be able to be numerical, that is, a percentage of the money invested. The most diffuse objectives such as overcoming the Ibex They can lead to confusion, since; for starters, their profitability varies constantly. The important thing is to forget about the progress of the markets and focus on monetizing the money you have put into play.
3- Invest in the long-term
The term of the investment will be in accordance with your personality, but you must bear in mind that to operate in the short term, more knowledge and experience is necessary than to do it long. In this sense, it is convenient to set a long-term return, which is what you should have when carrying out your operations. Thus, you must buy companies that fit that goal. If for example, you have decided to obtain a 10% in two years, you will have to look for titles that adapt to that premise. In addition, operating in the short will increase the number of commissions that you have to face and therefore your benefit will be lower.
4- Learn to interpret information
Information is power and more in the case of the Stock Exchange, where the specific value of each company is at stake. Thus, the market is full of news, reports and all kinds of data about not only companies but also macroeconomic indicators, investor sentiments … It is vital to know how to interpret each of these information and for that there is usually no other remedy but read, read and read both annual accounts and bibliography to learn how to decipher an economic balance.
5- Buy companies that you know
You must invest in companies, not in securities, and for that, you have to have as much information as possible about the company. This involves both knowing the news that surrounds it and the sector in which it operates as well as knowing how to interpret its financial situation and its business, that is, why it makes money and why it can continue to do so in the future. Here, obviously, you must also take into account aspects such as competition or the perspectives of the entire sector.
This knowledge will allow you, for example, to buy good price shares. It is necessary to emphasize that the price must be irrelevant for the investor. That is, it does not matter that the action costs 100 Euros or 1 euro, it matters the profitability that we believe it will offer because in the end, the benefit will be the same. Generally, small investors tend to think that shares above 50 Euros have less growth potential and more risk, because they need to increase more in Euros to make the percentage relevant. You have to banish those ideas.
As a rule, it will always be easier (and generally also safer) to bet on large companies. In this sense it can also be positive to start with companies with a good dividend policy, which would be a way to advance part of the revaluation that we have set out to obtain.
6- Diversify your investment
Imbuirse in excess of a sector can lead you to want to invest in excess in it. One of the first premises that you should have clear is the need to diversify your portfolio to minimize the risks you assume. It is relatively easy for a sector or company to suffer falls, but not for three or four different companies to do so at the same time. However, we must diversify to the best of our ability. The blog Toros, Osos y Borricos explains it perfectly: “If you can know well 10 companies, buy 10 companies Ni 9 or 11. If you can know 20, buy 20. If you can know 5, buy 5. Normally, if you can know 20 you will end up with a portfolio formed by the 8 or 5 best investment opportunities “.
7- Do not trust the unique opportunities
On the stock market there is no chicken with the golden eggs. There is no investment that ensures a spectacular return without having to take any kind of risk. Therefore, before proposals on big profits above the market, the first thing that must be done is to act with caution, not to believe anything of what they have told us and to inform them. In the same way, if in your analysis of a company you only see strengths, doubt your conclusion. These types of companies only exist in stories. Nor is there a magic formula to determine if a value will rise or fail to do so. The PER , the dividend yield , other parameters of the fundamental analysis or the different systems of technical analysis They are indicators of the action, not an oracle that tells us without margin of error when to buy or sell or the future of the title.
8- Nobody knows anything, follow your own strategy
This is one of the maxims of the trading on the stock market. Thanks to the Internet there are many forums, specialized websites and blogs where information about values, possible “pelotazos” is shared and different types of advice are given. To these we must add the traditional media and the different financial analysts. The amount of recommendations and advice you will find is infinite and that is why you should keep in mind that it is always opinions, more or less interested, more or less substantiated, but opinions. After all, experts come to a series of conclusions through an analysis, fundamental or technical, it does not matter, and it does not have to be better than what you do yourself. That is, if your analysis tells you to buy do not stop doing it by the opinion of a certain expert.
9- Follow the trend, but not the mass
When it is time to effectively enter the market and start trading, it is advisable to invest in favor of the trend. Share prices always move in trends, some easy and others more difficult to identify, which can last for years and which it is advisable to follow. At this point, be patient before venturing to identify a change in trend. On the other hand, this does not mean that the indications of the market in general have to be strictly followed, since it is also necessary to have a sufficiently critical and independent spirit to avoid being carried away by moments of panic or euphoria. In addition, if you manage to keep safe from the so-called market sentiment it will be easier to identify investment opportunities precisely because of an excess or defect of feeling.
10 – Let the profits run and shorten your losses
It is one of the great premises for any investor. Investors are more likely to sell when we earn 10% than when we lose. That is to say, it costs us to assume the losses and we tend to wait until the disability is already too great. In this sense, we must be consistent with the objective set, especially with regard to the term and act accordingly. Anyway, the first thing you should learn as an investor is to put a brake on your losses, that is, establish a so-called ‘ stop-loss ‘ or level of losses that you are willing to take and from which you will automatically sell the shares.
Following these rules is not always as easy as it seems, because to begin with they require a good dose of patience, one of the characteristics that every investor should have. In any case, if you still do not see clear investment under your own criteria you can always leave your money in the hands of professional brokers or ‘foguearte’ in stock games where the investment is not real, of course neither will the profits you get.