Investing in the stock market: 8 tips for success in the short, medium and long term
Do you have capital and investing in the stock market makes you curious? It is difficult to open the door to the stock market, where the hours are seconds, where everything is jostling and where those who miss the train risk losing their feathers! Here are our 8 tips for successfully investing in the stock market.
Better understand stock markets
The Stock Exchange is a computerized place for the exchange of financial products, which will be called “financial instruments”, or transferable securities. The foundation of the stock market lies in a market of supply and demand, not material but financial. The primary function of the Stock Exchange is to allow and even guarantee investors the ability to sell the securities acquired before they devalue, or following a strong capital gain to make a profit. This is called liquidity.
On the supply side, we will find States and companies that have financing needs. The latter therefore issue financial securities, which may be shares or bonds.
- A share is a title of ownership issued by a capital company seeking financing. The holder of a share therefore holds a share of the capital of this company, which allows him to receive an annual dividend according to the result of the company.
- On the other hand, a bond is a debt security, which can be issued by a State or by a large company. In this case, the creditor investor lends money to the offeror, which allows him to collect annual interest called “coupons”.
These financial securities are purchased by investors, who have the financing capacity. These investors represent demand, and may be individuals, companies, States, or institutional investors such as banks, insurance companies, pension funds or even investment funds, which are the biggest investors in Sotck exchange. Note that we are talking about States in the plural since the Stock Exchange is an international market.
How stock markets work, in brief!
With regard to the functioning of the stock markets, which is largely complex, we will simplify the explanation with a summary valid for all the markets, whether they are stock markets or not, which consists of the interplay of supply and Requirement. When the supply exceeds the demand, the price decreases to reach equilibrium, and vice versa.
There are three types of market on the stock market:
- The primary market, where financial securities are issued for the first time. This is the case of business creations, for example, which are looking for investors that we will call “IPO”, such as capital increases or bond issues. We might colloquially call it the new market;
- The secondary market, where financial securities are traded. After being issued on the primary market and investors have financed them, the latter will then trade them on the secondary market to earn the capital gain. We will find there shares as shares of capital of a company, bonds as loans, or even monetary products. We might colloquially call it the second-hand market;
- Spot markets, dedicated mainly to individuals, where transactions between sellers and buyers are settled within a very short time. Spot markets include futures markets whose delivery is fixed at the time of the transaction, organized markets where the conditions of the transaction are fully planned and without surprises, and over-the-counter markets which are organized face to face between buyer and seller on their own terms.
Why is it worth investing in the stock market?
The Stock Exchange is both a place of financing for companies wishing to launch, evolve, which have the ambition of major projects, etc., but also a place of investment for investors. Individuals can thus find themselves associated with large private industrial or commercial companies, or creditors of companies or communities.
The objective is clear and legitimate: we invest in the stock market to make money. It offers the possibility of making your capital grow, provided you do it skillfully. Several billion euros are invested and traded every day on the Paris Stock Exchange, and each event that occurs in the world can have a direct impact on it, causing rates to fluctuate. Also, investing in the stock market is a very good form of investment, but be careful to be well prepared to enter a virtual financial world, in perpetual motion, which can quickly make your head spin (or lose it).
8 tips for investing in the stock market?
The two ways to make money on the stock market are by collecting dividends paid by the companies whose securities you hold, and by reselling on the secondary market securities held at a higher price than what they were acquired, which provides financial added value. Here are 8 tips for doing just that.
Tip n°1: Perfect your knowledge of the stock markets
Do not become a trader who wants! Without reaching an ultimate level of expertise, investing capital on the stock market and making it grow does not always work, and what’s more if you invest without knowing the basics of the stock market: the jargon, the influences, the more buoyant and more profitable sectors, etc. Without attaching a calculator to the left hand and the telephone live from Paris in the right hand, it will be necessary to follow economic and financial news, and to grasp solid notions of fundamental analysis and financial technical analysis. The Internet and the local cultural space will provide you with all the books and articles necessary for a good understanding of your subject!
Tip n°2: Know your investor profile
Your investments will depend on your profile. Depending on your capital to be invested, your ambition for short or long-term profitability, your appetites and your convictions which will form your choices and your stock market orientations are elements that should be clarified before committing, to stay the course. of your investment strategy.
Tip #3: Prepare for the idea of losing money
Some lucky people bet small and pay off big, like in the casino. But as a general rule, investing in the stock market is an approach that should be thought about more in the long term. Indeed, it will often be necessary to wait several years, if only to double its capital. And sometimes, investments will be impacted by elements that are not within the control of the investor, who will lose capital, sometimes all the money invested. It is, in a way, the play of the return-risk duo.
Tip #4: Focus on quality stocks
As a novice investor, it is good to bet on companies that have a sustainable competitive advantage, which is the guarantee of profitability over several years. This will notably be the case for McDonald’s, Google, Kering, LVMH, Coca-Cola, Amazon, Facebook, etc. Obviously, the action in these stock market giants will be expensive, but if you invest a capital so that it grows, the quality action is a guarantee of security.
Tip #5: Think solo!
Highly rated stocks bring together a crowd of investors, and of course you can hear it. However, the smart investor will prefer to buy a share during the fall in prices, which is therefore not favorable to him, but will allow him to then benefit from the rise when it comes back (and it always comes back!). In fact, it is advisable to take advantage of the weaknesses of novice investors who sell their shares in the panic of fluctuations.
Tip n°6: Prefer the long term
Investing in the stock market allows any type of investment, in the short, medium or long term. The choice made will depend on your investor profile. But be aware that the novice will have to prefer the long term. Short-term investment, such as scalping, day trading, or swing trading, are processes for the immediate purchase and resale of shares, during the same day, which induce a perfect knowledge of the stock market, and a permanent and daily follow-up. Investors who have capital that they want to make profitable rather than letting it sleep in a savings account that pays little, will prefer long-term investment, which is much safer. It will bring regular dividends if the company in which you own shares is doing well.
Tip #7: Trust innovation
The ambitions of tomorrow’s progress respond to changes in society, mentalities and consciences, consumer habits, etc. Promising innovation markets are those for 5G technology, photovoltaic panels, the design of electric vehicle batteries, wind power, LED energy, space tourism, etc. These multi-decade technological perspectives combined with limited production capacities highlight their uniqueness. When demand exceeds supply, supply increases in value, which makes investors happy.
Tip #8: Beginner, prefer ETFs
For a novice, the easiest and safest way to invest is to buy ETFs (Exchange-Traded Funds, translated Funds listed on the stock exchange) which are in fact baskets of stocks that follow a stock market index. They allow cost control and a diversified portfolio.
Investing in the stock market: rookie mistakes to avoid
It is a form of speculation in which investors very frequently buy and sell stocks to take advantage of price fluctuations. It is also called “active trading” as opposed to “passive trading” which represents long-term investment. In reality, this process is counterproductive and far less beneficial than a long-term investment. To be conclusive, you must have a perfect knowledge of trading, which is generally not the case for individuals. The trader who has made it his job is an expert who constantly follows the fluctuations of the stock market price by the CAC 40 in particular which is the stock market index of the Parisian market, the telephone grafted to the ear. In short, trading is accessible to everyone, but knowing how to trade is a job!
The influence of market fluctuations: do not rush!
The stock market is a fluctuating market by definition. You have to be aware of this when investing in the stock market, and aware of the fact that you can lose capital. But be careful not to be misled by the permanent movements which are very natural. Less experienced investors will often tend to quickly sell stocks and bonds when a cyclical element intervenes. It is a mistake. You have to be willing to take a risk when investing in the stock market. This is where it will often be wise to delegate the management of your investments to a financial professional: financial analyst, stock market adviser, portfolio management company (SGP), etc
Invest without thinking…
You have a financial nest egg and you say that after all, it would surely be good to make it grow. Well seen ! However, be careful not to invest blindly, in stocks that could seem attractive due to their low cost, for example. The lower the value, the more the market volatility needs to be studied. As much as it is inadvisable to rush to resell, generally downwards, its shares or bonds in the event of an economic event, it is also inadvisable to buy them in this same context. To simplify: keep them and get advice if you have any, but do not invest in economically fragile stock markets without knowing anything about them. As a novice, prefer areas where economic growth is doing well.