Tag: Stock investing

All stock investing related articles are found here. Educative, informative and written clearly.

  • Lies About Stock Investing And Trading

    Lies About Stock Investing And Trading

    Lies About Stock Investing And Trading
    To know about stock investing is something that will pay you off for the rest of your life. 

    By Guy Avtalyon

    Several years ago Forbes published an interesting article on the topic lies about stock investing and trading. The headline wasn’t exactly like ours but something similar. If you’re interested to read the whole article try to find it in the archive.  

    Brokers, financial gurus, even governments lie to us about global warming, the national economy, giving us false promises, lie about the stock market, taxes, or the national debt. We are also faced with so many lies about stock investing and trading. What we really need is the truth even if it isn’t pleasant.

    Since the Traders-Paradise team thinks that an honest approach is necessary to this topic, we collected several unbelievable lies about stock investing and trading. Investing and trading are very serious jobs and any investor or trader doesn’t deserve to get lies instead of the whole truth. They have to survive this tough business. However, it’s impossible without telling the truth. 

    What are lies about stock investing and trading?

    The first lie is that we should beat the stock market! Why should anyone want that? Why is it such a big deal? Theoretically, when you pick the stock randomly you have 50/50 chances of beating the market. Your stock will perform better or worse compared to the overall market. Yes, we know! The point is to hold some stock with a better return than investing in, for example, some index fund. When you want to buy the stock that is advertised as winning one, count how much fees you have to pay when buying and later, when selling. This means the return on that stock has to be much higher than you can see it at first glance.

    Beating the market means the great risk involved. If we know that only 2% of stocks can match the market well, so your stock may not be able to beat the market all the time. So, be prepared to lose money most of the time. The main problem is in your capability to gather the true information about the company which stock you’re buying.

    Honestly, it is almost impossible unless you’re an insider. No matter if you’re buying a hot-stock. You’ll have zero guarantees that it’s able to beat the market. Past performances will not guarantee you a big future return. This led to the stock buying to the level of casino games. Meaning, you can beat the market from time to time but you’ll fail to do that in the long run. If nothing else, the transaction costs will get you. So, beating the market all the time is one of the lies about stock investing and trading.

    Investing and trading are risky, the stock market is volatile

    The stock market is fluctuating, it will go up and down. Investing is risky but there are so many strategies to reduce investment risks. The possibility to make money on the stock market is bigger than the possibility to lose. What you have to do is to follow some rules and avoid randomly picking the stock. Also, with a strongly created investment portfolio, diversification, and strong risk management, your chances to profit from stock market volatility are bigger. 

    We wrote about risk management so many times. Also, if you add new info for every trade in your trading journal, you’ll have the pattern in hand. Hence, you’ll be able to act on time and protect your investment if it is necessary or place the trade at the right time and exit in profit.

    If you hold a large portfolio of stocks over a long period, for example, 20 years, you’ll be able to significantly reduce the risk of losing your capital. There still will be some risk but reduced.

    Also, traders and investors should consider how realistic it is to ride out the ups and downs of the market over the long-run. What will you do when the economic downturn comes, for example? Will you sell your stocks to fulfill the gap made by a potential job loss? Some life events could make it difficult for some of you to stay invested. But if you have a trading plan and stick to it, everything is easier. So, stocks are risky investment is another lie from the corpus of lies about stock investing and trading. The stock market is volatile, also, it is a lie because that risk is part of your plan and you’re counting on that when trading or investing.

    In the stock market, you’ll lose all your money

    This is one of the biggest lies about stock investing and trading. Behind this lie stand incredible lack of knowledge and misunderstanding of where the money is going. The stock market is a zero-sum game. The total amount of money invested is what you have there. If you want to profit, someone else has to lose. That’s the whole wisdom. The truth is that you’re not going to lose your money there. Yes, from time to time the price of your stocks will change in value. The prices will go up and down, that’s the way the stock market operates based on supply and demand. 

    Also, the truth is that stocks can be a good way to earn an investment return over a longer time. If you take a look at historical data you’ll find that, for example, that market indexes, for instance, the S&P 500 have been better than average. When you look at long periods, there were fewer negative years than positive. 

    What investors have to do is to find a balance. This means understanding how the risk of investment works and how much risk you’re willing to take to earn a satisfying return.

    It’s difficult to invest

    This is also, one of the lies about stocks investing and trading. This is a story about Average Joe. Well, Average Joe is completely capable of managing his investment, and, for him, it isn’t difficult to invest. Moreover, he has done decent research and trade according to them. In the stock investing, you could have a lazy portfolio or any other that will never confuse you. But let’s go back to the first among many other lies about stock investing and trading. When you hear someone claiming that it is hard to invest in stocks, just recall the first lie mentioned above – beating the market. It’s hard to beat the market constantly if not impossible. But in a long-term investing or active trading you can easily cover your losses. 

    Yes, you can find some surveys out there that show the average investor has underperformed the market during the past two decades. But the point is that you can’t be a professional trader if you spend a few hours per week analyzing the market and stock performances. You’ll need more time to dedicate to it. You’ll have to be fully focused on your investments. 

    But you don’t need to beat the market. Keep in mind data. Data shows that the most successful investors are not right all the time, they are right below the 60% of the time. Isn’t it interesting when you know that Warren Buffet is wrong 40% of the time? So, why should you be right all the time and beat the market constantly? To be honest, it’s impossible. 

    Investing requires a lot of time – No!

    This is completely one of the greatest lies about stock investing and trading. This particular lie can be true if you look at professional traders, people whose job is to trade stocks every day. For the average investor as the majority is, one hour per week to start investing in the stock market is quite enough. Don’t even think that you don’t have that time. If anybody thinks that investing requires a lot of time it is due to a lack of knowledge about how the stock market works.  

    Yes, investing means engagement but your effort will be prized by profits. Actually, investing is a much better way to earn than savings. That was good news. The bad news is that you can’t learn to invest while sitting in the pub and drinking beer, for example. But here’s another good news. To learn how to trade or invest all you need is a little bit of time, basically, the rest is so simple. And the most important, investing could make you rich. Are you ready to drop it? 

    Did you ever catch yourself thinking:
    “I’m too old to learn new things.”
    “I’ll never reach my goals.”
    “I was born this way, I’ll never change?”

    The thing is, many people believe that once we hit a certain education, our personality becomes so rigid that it’s hard for us to grow and learn more. But this is nothing but a lie! When it comes to investing in stocks all you need is a bit of time and willingness. Investing doesn’t require a lot of time. Face these lies about investing.

    The biggest lie about stock investing and trading

    Maybe the biggest lie is that you have to know a lot about investing. Having in mind the way of investing today, you have to know nothing about it. Nothing at all. What you must have is an investing goal. The investing itself is actually automatic, you can find so many investment services available online. For example, start with some robo-advisor. You’ll pay the fee but not too much. Also, one of the lies about stock investing is that you need a lot of money to start. The truth is that today you can easily find a trustworthy investment platform that will allow you to start investing with a little money, for example, $100.

    Don’t let these lies about stock investing keep you from investing. The consequences of not investing are bigger.

  • Pure Play Method In Stock Investing

    Pure Play Method In Stock Investing

    Pure Play Method In Stock Investing
    Pure play method represents an approach practiced to estimate the beta coefficient of a company whose stock is not publicly traded. 

    What is a Pure Play method in investing? Have you ever heard about this? How do you estimate the companies when you want to invest your money in different stocks? What tools do you use? Do you make your investment decisions by looking at cash flow, dividends, the strength of the company? What are your criteria? Maybe it is easier for you to estimate the company that produces only one single product. If you do the latter mentioned, you already know what is a Pure Play method in investing. But do you know all Pure Play’s performances and risks?

    Before we explain them to you we’ll explain what is a Pure Play method.

    What is a Pure Play method?

    Investors use this method when estimating the beta coefficient of the company whose stock isn’t publicly traded.  

    A Pure Play company is focused on one type of product. It is different from the companies that are conglomerates, offering many products. Pure Plays are easier for investors to analyze. When investing in Pure Plays you’ll have maximum exposure to a distinct market part.  For example, if you want exposure to car makers stocks you might prefer buying Tesla stock. As compared to Yamaha Motor Co.which is engaged not only in making cars but also in many other industries. This company is producing motorcycles, boats, guitars, outboard motors, etc.

    A Pure Play method is a procedure that investors use to estimate the beta of such a company. But the Pure Play method is also a way to discover the cost of capital for a product or project that is different from the company’s principal business. 

    Many companies are pure plays. They are selling or producing one singular kind of product. So, you can understand that this kind of investing can be very risky because if interest in this particular product or service declines even a bit, such a company will be affected negatively. A Pure Play method is helpful to estimate a project’s beta or the risk of a project. For example, a Pure Play company could use this method to identify publically traded companies that are involved in projects similar to the one they want to develop. 

    Use it to estimate the cost of equity capital of a private company

    This involves examining the beta coefficient.

    When evaluating a private company’s equity beta coefficient, you’ll need a beta coefficient of a public company. The latter you can calculate when regressing the return on public company’s stock on the appropriate stock index. The resulting calculation is then applied to return the beta coefficient of a private company. Here is how to do that. Let’s mark the private company as P and public company as PB.

    In our equitation, we’ll mark debt to equity ratios as DEB and DEPB for the private and public company respectively.

    Unlevered Beta of PB = Equity Beta of PB / (1 + DEPB × (1 − Tax RatePB))

    Equity Beta P = Unlevered Beta of PB × (1 + DEP × (1 − Tax rate))

    Advantages and disadvantages of the Pure Play method 

    The stock of Pure play company is different than stocks of diversified ones. They are popular among investors who want to make a particular trade on particular products. In short, they are not interested in investing in a company that has different business lines. They found reasons to invest in Pure Play stocks and we’ll try to explain them. Firstly, these stocks are easier to analyze. Also, when you have to analyze a company with diversified businesses and several sources of income, you might have a problem evaluating the strength of the company. Its income is generated from many products, with different profit margins, and could be exposed to different growth benchmarks. 

    Further, despite the fact that investing in Pure Plays can be riskier, they can be a great opportunity for very high rewards when doing well. Should we mention Tesla? But wait! Pure Play method in investing has its disadvantages too. These companies are not diversified. What will happen if difficult times appear? When the company is focused on just one product and that one isn’t able to generate revenue, the stock price of such a company will drop, sometimes sharply. These companies don’t have other products to balance the poor production. That’s a great problem for investors.

    The risk of Pure Play method in investing

    First of all, the risk comes from some conditions that may affect the company badly. However, that isn’t the only reason. The additional risk might come from the type of investing style. Here is one example. Let’s assume the growth investors favor some Pure Play company. In periods of the bull market the company will perform well. Even more, its stock could easily outperform the market. But what will happen when the bear market appears? Well, we know that during the bear markets the value investing is a more successful strategy. The consequence is that the Pure Play method will have poor results if growth investors stick with it. 

    These companies depend on one product or one investing strategy. So they are often followed by higher risk. They are completely the opposite of diversified. However, the higher risk gives greater potential for higher profits. When circumstances are in their favor, Pure Play stocks can grow tremendously since the company is focused on a sole product with full strength. 

    Reasons to use it in investing

    We’ve been writing so many times about the importance of diversification in investing. Also, we pointed out that investing in a single company isn’t always the smartest idea. But when it comes to the Pure Play method in investing, things are a bit different. 

    There are really a few good reasons to invest in pure plays. Pure Play company is considerably easier to analyze. You have, as an investor, only one type of product or business line to analyze. Moreover, it is easier to understand the cash flow and revenue of one company than it is a case with several. Further, you can with a better result predict how it will perform in the future. 

    Pure play can be a very attractive investment. These companies work a strictly defined niche market. They are specialized for a particular one. That is a quality per se and could be extremely beneficial for investors. 

    Bottom line

    Pure play is a method used in stock trading and investing. It is all about companies with a focus on a specialized and particular product or service. The “Pure Play method” is also helpful when estimating a project’s beta, or the risk of a project.

  • Beginner Investment Portfolio- How Should It Look Like?

    Beginner Investment Portfolio- How Should It Look Like?

    Beginner Investment Portfolio
    These tips are kind of a guide to new investors for building a good stock portfolio. Selecting stocks needs analysis, time, and the ability to estimate different parameters for the stock, industry, and overall market.

    By Guy Avtalyon

    We are going to show you how a beginner investment portfolio should look like. Of course, if you think the stock market is getting crazy, you couldn’t be more right. DJIA is going up, going down, S&P 500 Index also. The graphs are looking like ECG of some very vulnerable hearts. Maybe you don’t believe it, but this is the right time to enter the stock market. A stock market is truly a wealth-building tool. Moreover, entering the stock market is easier than ever. But, as you are new in this field, you would like to know what to buy or, in other words, how a beginner investment portfolio should look like.

    There are so many ways to invest the money and can pick the level of risk you’re willing to take. So, it is obvious the first thing you have to decide – the level of risk you can tolerate.

    High-risk investments mean greater chances for high rewards. Wait, that also means bigger chances for losses. As a beginner investor, you should avoid high-risk investments if you don’t want your capital to throw through the window. Later, when you become more experienced and earn more cash, you’ll understand how to handle the risk, for now, here are some tips of how a beginner investment portfolio should look like

    We know that a lot of beginners think of investing as attempting to get a short-term gain in the stock market. But if you want to build wealth, you have to think about long-term investing. 

    Beginner investment portfolio in 2020

    ETFs

    The world of the stock market and investing can be confused for beginners. There are individual stocks, mutual funds, bonds, mutual funds, etc.

    Our first suggestion for you is some low-cost ETF. But there is a question: is it worth it? You’ll need time to build an individual stock portfolio.

    Exchange-traded funds (ETFs) can be an excellent investment way for small investors. You can trade these funds like stocks. They can give you to expand the diversity of your portfolio and to do that without spending too much time on it. 

    Here is how an ETF works. A fund provider holds the underlying assets. Such creates a fund to follow the performance of underlying assets. At some point, such a provider decides to sell shares in that fund to other investors. As a shareholder, you’ll own a part of an ETF, but you will not own the underlying assets in the fund. 

    ETF tracks a stock index. So, as a shareholder of the ETF, you’ll get dividends, which you can reinvest, for the stocks included to the index.

    ETFs are a passive approach to investing. Brokers will not charge you trading costs for ETFs. It is zero. Just make an automatic investment each week or month, it’s up to you.

    Include the gold

    Due to the coronavirus pandemic, the global economy is suffering. In the first quarter, only five main asset classes posted gains. Among them, apart from the US dollar and yen which are currencies, the list includes gold. Gold always was a great way to protect the portfolio and historically it was known as a safe-haven investment. It is the same nowadays. You can add some gold into your portfolio while you are waiting to come into stocks because today they can be too volatile for beginner investors. So, you should grow the exposure to gold. Gold works great when the dollar is flat-to-down. Also, gold can be a great hedge against inflation.

    Moreover, it performs best when investors are worried about low growth on other assets. Basically, if we take a look at its historical performances, we’ll notice that gold played best and rose fastest when other economic measures were falling quickly. We have such a situation today.

    We have negative interest rates, bond yields are almost zero, so gold could be a very good opportunity to hold it. Add it as very good protection to your portfolios.

    A beginner investment portfolio should include mutual funds

    Mutual funds are still amazingly popular. Especially target-date mutual funds in retirement plans, so add them in your beginner investment portfolio. Mutual funds are basically a basket of investments. When you buy a share in some mutual fund you are actually investing in all holdings included to the fund with just one step. 

    A target-date mutual fund usually is a mix of stocks and bonds. 

    How to invest in target-date mutual funds? 

    For example, you plan to retire in 20 years and everything you have to do is to pick the fund with 2045 in the name. But you have to know, so don’t be surprised, the fund you choose will hold stocks essentially. How is that possible? Your retirement is far away, and stocks have higher returns in the long run, higher than any other asset. As time goes by, the fund manager will shift part of your investment toward bonds because they are less risky. You wouldn’t like to take too much risk while you are approaching the date of your retirement.

    Add Index funds to the beginner investment portfolio

    If you don’t want to employ a manager to create and manage your beginner investment portfolio, index funds are a good choice for you since they track a market index. What is the market index? It is a collection of different investments that represent a part of the market. For example the S&P 500 Index. It is a market index that covers the stocks of about 500 biggest companies in the US. So, an S&P 500 index fund will reflect the performance of the S&P 500, by purchasing the stocks in that index.

    Index funds represent another passive approach to invest just like ETFs. They carry lower fees charged based on the sum you have invested. The advantage of these funds is that some brokerages offer a range of index funds without an established minimum. So you can start investing in some index fund at $100 or less.

    Help to create the portfolio

    For example a robo-advisor. Let’s assume you would like to invest but you’re not the DIY type. Well, we have some good news for you. You have a lot of robo-advisors out there. They will handle your investment by using very complex algorithms. But don’t be worried. It will cost you less than a human advisor, usually, it will be from 0.25% to 0.50% of your account per year. Also, robo-advisers will let you open an account without the minimum required.

    Robo-advisors are an excellent way for beginners to get started investing. Look, you are a beginner and you don’t have good knowledge about investing yet. So, robo-advisors will do all that hard work for you and you’ll need a little money for them. All you have to do is to check your portfolio from time to time. So to say, it’s your money invested. Also, they will give you a chance to learn more about investing since they’ll provide you tools and educational material.

    Investment apps are also extremely helpful. You can easily find some aimed at beginners.

    Traders-Paradise recommends

    For example, M1 Finance is excellent if you want to build a free portfolio for long-term investments. This app offers commission-free investing, automated deposit, buying fractional shares, and has many other features like free maintenance of a portfolio, diversified portfolio, etc.

    Fidelity is another great app that offers full service at zero trade prices. It allows you to invest for free, a variety of ETFs that it offers can help you to build a well-balanced portfolio, stocks, or options trades and all for free.

    TD Ameritrade offers free options trading. If you want to become a trader rather than an investor, it’s a really good pick for you. We already wrote about this app but we would like to point again how excellent it is. For example, its platform “Thinkorswim” is one of the best. It will not charge you a commission for trading stocks, options or ETFs.

    After deeper investigation, you might choose to invest in the companies that offer the chance for growth. Just keep in mind, your portfolio has to be diversified. Never expect that each stock can generate great returns. That is the reason for diversification. It appears especially when we are talking about a beginner investment portfolio. But that doesn’t mean you’ll need a large collection of investments. You’ll need just a few stocks but they have to run together in your favor.

    Today’s volatile stock market offers discounts on great stocks. So, this is a great time to start investing and create your beginner investment portfolio that will generate you amazing gains in the future. 

  • How to Invest In Stocks?

    How to Invest In Stocks?

    How to Invest In Stocks?
    Investing in stocks is an outstanding approach to grow wealth. But how to start? Follow the explanation below to learn how to invest in stocks.

    There is a difference between understanding that investing in stocks is a reasonable financial decision and understanding how to invest in stocks. If you are a beginner it can be very important. Yes, investing in stocks is a reasonable decision in any circumstances. But do you know how to invest in stocks? It isn’t just about picking some stock and putting the money. For many people, the stock market is a big enigma but it hasn’t to be. Also, many people are questioning how to invest in stocks and still, this is complicated for them. So many potential investors are scared to start investing. 

    But we have to say they are making maybe the biggest mistake in their lives. There are so many benefits of investing. The effort that it takes to learn how to invest in stocks, will result in great benefit. Anyway, the advantages of investing far outweigh the efforts spent to learn. One thing is for sure, investing in stocks isn’t frustrating at all. At least, it shouldn’t be. 

    So, let’s start. 

    We are going to explain how to start investing in stocks

    First of all, you can buy and sell shares in any public company at any time. The principle is almost the same as any other business. The point is to buy a share of stocks in the company when it is cheaper than its actual value. The next step is to hold on for some time until its value has risen to the position that you feel satisfied to sell it for a profit.

    So a successful investment could be (please keep that in mind this is a made-up example) as followed. Let’s say you bought a stock of a company and you paid $20 per share. And you hold on to this company for 3 years. After that period of time, your stock has grown at $50. You wouldn’t like to miss this opportunity for profit and earn 2.5 times more than your initial investment was. Even better is if you bought a dividend-pay stock so you can gain profits along the way without selling any of its shares.

    How really to invest in stocks

    You cannot start without any knowledge about it. Therefore, you have to know the fundamentals of investing. The main goal of investing is to make money. That will not be complicated if you have a plan and investment strategy. So, we already said that investing is simply buying assets that are supposed to grow in value. That can be stocks, bonds, ETFs, mutual funds. But keep in mind that you don’t have guarantees that your investment will increase in value over time.

    You are wary of taking risks now, aren’t you? Don’t be, we know your hard-earned money can be at risk. You may choose some low-risk investments, for example, bonds. But historically, stocks generated larger returns than bonds. And you are seeking wealth. You may ask why to invest and not put your money into a savings account. Well, investments will give you higher returns, particularly over a long time.

    But you have to decide where to invest, what are your financial goals. We are talking about how to invest in stocks. And if you follow some rules it can be safe and provide you high returns.

    Let’s buy our first stock

    As a beginner investor, you can invest for the long-term or invest in companies that mean something special to you personally. It is always easier to make a success with the long term-investing. Trying to make short-term profits can be a tricky part for new investors.
    So, in short-term investing, you have to know when to buy and sell. That requires great research, education, and a bit of luck. Yes, why not say that. If you choose a long-term investing, all you have to do is pick a great company at a fair price. Your stock will increase in value over time. The possible costly errors will be reduced as the longer your investing horizon is. Invest in companies that you are already familiar with.

    Okay, let’s assume you found a company you would like to invest in. So, you can buy shares in that company through a broker. Brokers provide you to easily do that. Remember, they are charging a fee for the services. Buying stocks is simple like you are picking something from the online catalog. Just pick the stock you want, the number of shares you want, and your purchase is completed when you put money. You have great options with online brokers but you have to check them before starting working with them. Also, online brokers will charge you lower fees. How to choose a broker you will find HERE.

    Follow three basic strategies when investing 

    Start investing earlier
    If you want your money to work for you, and you start investing as soon as you can, the more chances it will have for growth.
    Stay invested as long as you can
    This is something about compounding returns. The point is to stay invested, meaning don’t go in and out of the market. If you stay invested you’re able to earn more money than you have already earned.
    Risk management
    You’ll need to spread out your investments to be able to handle the risks. Never put all your money in just one investment. It is too risky and dangerous. Diversification is the recipe for successful investing. When you have several investments added to your portfolio, the risk of losing money is lower. Some of your investments will be winners, some will not. But over a long haul, you will profit.

    Stocks pay you dividends

    That will provide you a stream of income and without having to sell even one share. We know you’ve heard how investors are interested in the drop and rise of the value of stocks. But, trust us, they are very interested in the dividends paying stocks. To make clear what dividends are. They are amounts that the companies are paying to their stockholders for each share of stock they hold. It is commonly less than one dollar, for example. But…

    Let’s say you want to buy shares in the company at $10 per share. And you want to invest $2.000. So, you’ll have 200 shares of that company. That company pays a dividend of $0.10 quarterly. What does it mean? This means you will have $20 every three months, $0.10 x 200 = $20. It isn’t much, but for one year you will receive $80 and you can reinvest it or buy some other stake of shares in different companies. Anyway, it is an additional income from one stock. When you become a large investor, dividends only could provide you a nice life. For example, instead of $2.000 investment, you were able to invest $2.000.000. In this case, you would own 200.000 shares of the stock mentioned in our example. That would mean you could have a $20.000 per quarter or $80.000 per year just in dividends. Not bad, right? Moreover, you didn’t need to sell any of your stock. 

    The companies can change their dividends. It is normal. They can pay out a smaller dividend per share or raise them. You have to know that dividends are not guaranteed. They are just a nice bonus, particularly with a solid company with a long history of raising dividends.

    How to invest in stocks in four steps

    It is very important to estimate what some company means to you. If the company has some meaning to you, you’ll be more interested in it. You’ll be more inspired to research it and you can invest with confidence. So, that will be the first step before starting investing in stocks. Find and examine a company that means something to you. 

    The second step is to examine how the company prevents its rivals to take over the control over its market. In other words, it is a so-called moat. Big companies with famous brands have a moat, for example. They are unique in the market, well-recognized, and well-positioned. The competitors can stay on the coast and cry but you will have a safe investment. 

    Also, pay attention to management. Are the people who are the leaders of the company competent? You don’t want to invest in the company which is led by corrupted managers.  

    But maybe the most important part of how to invest in stocks is to find a company with a high safety margin. It is a financial ratio that estimates the number of sales that exceed the break-even point. In other words, that is the point where the company stops being profitable.

    Also, the safety margin represents the difference between the intrinsic value and the market price of stocks. To calculate the safety margin use this formula:

    Safety margin = sales – the break-even point

    Bottom line

    You may ask how much you should invest in stocks.
    The amount of money you should invest in stocks is up to you and your financial condition. Never invest more than you can afford to lose, that’s the rule. Even the smartest and most advanced investors sometimes can be dried. Never invest in something you can’t understand. Always calculate the risks. In that way, you’ll be able to recognize the potential reward and the probability of loss.  Does the stock have a history of giving returns, how losses could occur, are important questions and you have to find the answers. 

    Don’t jump into the stock market without knowing why. Do detailed research to avoid big losses and failures.  Your most important step should be to research the companies, though. The final step is to buy a stock and start getting rewards. 

    While this article isn’t meant to cover everything you need to know about investing in stocks or everything on how to invest in stocks. That is the no-end process. For more to know, participate in our Full Trading & Investing Course.

  • Risks Of Investing In The Stock Market And Strategies to Avoid Them

    Risks Of Investing In The Stock Market And Strategies to Avoid Them

    Risks Of Investing In The Stock Market
    Investing in stocks is a risky game. On some of them, you can have full or partial control.

    Risks of Investing in the stock market is a necessary part of investing. If investors want great returns, it is necessary to take great risks. However, the greater risks will not guarantee you will have greater returns. So, additional risks will not always bring you huge returns. But if you are long-term-type investors, you must understand that there will be some periods of underperformance in the investments. And you have to be prepared for that and not panic. If you cannot handle your emotions while investing you are likely to have a smaller chance in the stock market. Taking a risk means to have a higher tolerance for risk. Well, if you are not comfortable with it, you will probably make lower returns. But one thing is in your favor – you will never make great losses.  

    Anyway, you must understand that there is a necessary trade-off between investment and risk. Greater returns are linked with risks of price changes.

    So, it is crucial to decide what is your risk tolerance and you have to do so before you enter the stock market.

    What do you want: to protect your initial capital or you are ready for a wild ride with all the ups and downs in the stock market to reach higher returns?
    If you can take a low or zero portion of the risk, be prepared that your returns will also be very low. On the other hand, if some investment generates huge returns, think twice is there some high risk you cannot accept.

    High-risk investments require to hold a position for a long time, not less than 5 years. Do you have a stomach for that? Why the time matter? 

    As an investor, you must have the capacity to hold it longer to give shorter-term issues time to fix themselves. But remember,  higher levels of risks will not always result in high returns.

    There are special risks which investors should be aware of.

    What are the risks of investing in the stock market?

    We will point on some of them. The risk can be a capital loss. Let’s say you picked up some stock of the company with suddenly poor performing and the market recognizes it as negative. The consequence is that stock price could drop, a lot under the price you paid for them. The stock may even end up worthless. Zero! In such a case, the company’s stock will not trade. Moreover, the company may be delisted. 

    Further, there is always volatility risk. Stocks are volatile assets, their price may shift significantly in price in a short time. And, also, there is an exceptional market risk influenced by external factors. In such circumstances, the whole market could decline and the stock prices will be affected too. Also, not the whole market has to decline but the sector could. For example, a specific sector may experience downturns. Well, while some will catch the losses but at the same time, such periods are a great chance to buy stocks at a lower price. You see, the stock market is a zero-sum game. You can profit only when some others lose. 

    Also, the risks of investing in the stock market could come from the nature of the stock. To be honest, the stock price is extremely sensitive to bad news or investors’ sentiment toward some companies. For example, the company issued a poor earnings report or published management changes. The investors may disagree with that and could start selling the stocks. 

    Very specific risks of investing in the stock market may appear if you try to sell or buy stocks at the wrong time. You must have the right entry but more important, you must have a great exit. The last is the hardest part of the stock market but doesn’t have to be. Check HERE.

    As we said, these are just a few risks you can meet while investing in the stock market. The crucial part is to understand what kind of risks you may have with your investments and how you can handle them.

    Strategies to avoid risks of investing

    Frankly, it’s impossible to entirely avoid risks. What you as an investor can do is put them under control. Actually, you can control your exposure to risks to the agreeable level. The risk you can handle and want to take. For that to do you have to know exactly what are you investing in and identify the possible issues all of these before entering the market and buying a stock. When you identify the risks involved you’ll be able to handle them.

    How to manage the risks?

    Firstly, define your investment goals, risk tolerance, and limitations, and plan according to what you found. Invest only in a sector that carries a lower risk than you are prepared to take. Go below your possibilities when it comes to risks. 

    The other solution is a diversified investment portfolio. It will give you good support. Your investment portfolio must contain several different assets. Spread your investments on bonds, utilities, mutual funds, cash, along with the stocks. Never put your whole capital into one single investment.

    Combine them, long-term investment, short-term, but be careful about changes in your fundamental investment. 

    Also, a good decision could be to add derivatives to your portfolio. You can use them as a hedge against the risk. For example, the stock price is dropping, instead of selling them you can avoid losses by shorting futures. Of course, you have to choose futures of underlying assets that match your holdings. The hard part here is the value of futures compared to your stock portfolio. Exchange-traded futures have standard sizes of the contract. Hence, sometimes they will not give you a perfect hedge and you can over-hedge or under-hedge your stocks. 

    The other stock market risk management possibilities

    You can also adopt a maximum portfolio drawdown rule. What does it mean? You have to set limits to the size of the drop in your portfolio value you can allow. In other words, determine how much of your portfolio you can bear to lose. This will decrease your personal ability to make emotional changes at the wrong time.

    Keep your focus on stock price, and the value of an investment. Of course, plan ahead. The valuation is actually the heart of long term risk. Smart investors may have the advantage of volatility if they use tactical asset allocation. Follow their example. That will give you a chance to buy more assets when the prices are low but also, to hold fewer stocks when the prices are expensive.

    Historical data shows stocks purchased while valuations are low, provide higher returns in the long run. Contrary, buying while valuation is expensive, generates the returns below average.

    Bottom line

    Risks of investing are part of being in the stock market. Sometimes, you will need to take bigger risks to reach your goals.
    Learn the risks of investing in the stock market and do your homework. Make choices that will help you meet your investing plans.
    Examine the risk of your investments from time to time. You have to know they still satisfy your risk tolerance.
    Once some phrase appeared, we’ll paraphrase it: Be willing for the best, but act like the worst is coming soon.
    You must be able to shift fast if suddenly something wrong appears. And, never give up!

  • Buy More Stocks, And Here Is Why

    Buy More Stocks, And Here Is Why

    Buy More Stocks In 2020
    Your money should stay in stocks as bond yields and savings accounts interest rates are being held down

    by Guy Avtalyon

    Let’s explain why should you buy more stocks in 2020. The first stock market rally this year started with a lot of momentum. The S&P 500 index had its best year in 2019. The last such good year was 2013.

    2019 was really an active year. For all investors, the end of the year was a great opportunity to figure out what happened and how well they were doing. Well, it’s normal to make some mistakes but the point is to find any that has had a great influence on your investments. The most important is that these mistakes didn’t hurt your long-term investing goals and when you figure out what you did wrong you’re able to avoid repeating them. 

    So, you will be prepared for new investments which is very important.

    The beginning of the year is the right time to make plans on how to position your portfolio. Since no visible or specific cause could cause the stock market downturn it is the right time to buy more stocks in 2020.
    Actually, buying great stocks at reasonable prices should let us build our wealth firmly in the future.

    Let’s take a look ahead to 2020 for stock picks

    Many analysts are skeptical about the stock market’s gains will proceed with two-digits percentage, that’s true. So, we can conclude they are expecting volatility. This means the stock prices could go down. 

    And here is where the opportunity comes.

    Cheaper stocks represent a buying opportunity and some investors are waiting for that. Some companies are ready to outperform and continue to grow despite the economy slows.

    According to analysts from Wall Street, some well-known companies and brands could be the right choice.

    Buy more stocks in 2020 to get profit

    Picking stocks can be difficult so let’s see what is our choice for potential opportunities.

    Kohl’s (KSS)

    Kohl’s has over 1.100 stores and represents the largest U.S. department store chain. For some investors, its stock may look too cheap after the company posted the last quarterly results. KSS trades 20% under its five-year average and 25% below its average price-sales ratio. But the company is expected its revenue to grow 1.8% to $19.3 billion. The earnings would stay at $4.88 per share. But Kohl’s performed something else really great: it generated  $10.81 per share in free cash flow last year. Its annual dividend payout is $2.68 per share. Just compare these two figures. The current yield is 5.3%.

    Visa (V)

    It is one of the most powerful payment companies in the world. The company processed 180 billion in transactions worth $11.6 trillion. Net revenue was up 11% in 2019, and net income increased by 17% year-over-year and is about $12 billion. Remarkably, this large company reported two-digit growth both top and bottom line and a free cash flow yield of 3%.
    Some new initiatives should provide steady growth for Visa in the future and allow the company to take advantage of and beat competitors. This stock isn’t cheap but the high-quality is costly.

    Apple (AAPL)

    It is expected that the demand for Apple’s 5G iPhone will boost the company in 2020. AAPL stock price, according to some analysts could reach $300 in the next 12 months. Well, some are expecting the price to climb up to $440 in the year ahead and after 5 years to increase up to $1427.148. Even if you think the price is “overrated” Apple is confirmed as a good investment. Buy more stocks if you have enough capital to invest in. 

    Amazon (AMZN)

    Amazon’s stock could be a top bet fort he next year. Strong growth in its cloud-computing and advertising businesses is expecting. The analysts are rating the stock as a “buy”. The predicted price could pass a $2,000 target this year.  Shares could rise by 34% over the year, which is the experts’ opinion.

    Walmart (WMT)

    Walmart has been modifying. It has been investing in online. The company could take advantage of the growth in the middle class in China. Yes, Walmart’s market value is 40% of Amazon’s, but the difference is lowering. At the end of last year, the price of WMT stock was $120.440 but the price has been in an uptrend for the past 12 months. The future price of the stock could increase by 23%, said analysts, and predicted to be worth over $200 this year.

    Kronos Worldwide (KRO)

    This company from Dallas (Texas) produces and sells titanium dioxide pigments for broadly used in auto-industry, traffic paint, appliances, interiors, and exteriors. But the investors’ attention is focused on its revenue. It is expected to grow by 3.4% this year or to $1.8 billion. The earnings should rise $0.88 per share or by 14%.
    Despite this growth, Kronos shares trade nearly 40% under its five-year average P/E ratio. The quarterly dividend has increased by 20%. The stock yield is 5.4% at $0.18 per share.

    Tesla (TSLA)

    Tesla Inc will present its first Chinese made Model 3 sedans publically on January 7, reported Reuters. The deliveries came a year after Tesla build its only plant outside the US. The target is 250,000 vehicles a year. Tesla’s China General Manager Wang Hao said the plant had achieved a production target of 1,000 units a week, which is the production of around 280 per day, and that sales for the China-made vehicle had so far been “very good”. If Tesla’s earnings become firm, thenTesla’s stock could rise amazingly. Right now, Tesla stock trades at $418.33 but analysts are expecting to raise over $720 this year.

    Starbucks (SBUX)

    Starbucks has a great performance last year. Its shares increased by 37.5%. The company has reported revenue growth, an increase in total net revenues to $26.5 billion and net income grew to around $3 billion. Starbucks ended the past year with 31,256 stores in 82 markets. The company continues to grow in China as well as in the US. Starbucks has clear goals for its expansion. That provides a great level of certainty to investors and they could recognize Starbucks as favorable stock to buy.

    Why buy more stocks in 2020?

    For stock investors, this year already appears like a happy new year.
    Investors buy more stocks for many reasons. For example, capital appreciation could be one of them. Also, dividend payments or the ability to vote and control the company.
    Several reasons are behind choosing to buy more stocks in 2020. In this stock market condition, stocks provide the best potential for growth as always.
    The beginning of the year is an amazing time to decide where to invest. Since there is no 100% sure way to predict the stock market movements why not invest in assets with the greatest returns?

    What could we do instead?

    All we should do is to create diversified portfolios and adjust them to the market’s movements, to save a value in down markets. The general suggestion is to not look often at your portfolios. Take your time and read books about investing. You can find plenty of them packed with wisdom.  

    Traders-Paradise wishes you happy investing in the stock market this year.

     

  • Designer Brands A Value Stock To Watch

    Designer Brands A Value Stock To Watch

    Designer Brands A Value Stock To Watch
    Designer Brands Inc. is a US-based company, belongs to the Services sector and Apparel Stores industry. It has a market capitalization of $1.28B. 

    By Guy Avtalyon

    Designer Brands became the new name for DSW Inc.from May this year. At that time they announced they will add more other designers’ shoes and accessories. The company began trading under a new ticker, DBI, on the New York Stock Exchange on April 2.

    Let’s take a look at its potential as an investment. Actually, we’ll analyze its Return On Capital Employed (ROCE), because that will give us a sense of the quality of the business.

    ROCE will show the ‘return’ a company generates from its capital. When you see a company with higher ROCE it is a sign that you are dealing with a business with better quality.

    Here is the formula:

    Return on Capital Employed = Earnings Before Interest and Tax (EBIT) á (Total Assets – Current Liabilities)

    For Designer Brands based on data for the first eight months this year, it is calculated

    0.084 = $160m á ($2.6b – US$649m) or 8,4%

    Is it good or bad for Designers Brands?

    ROCE is helpful to see relations between related companies in the same industry. If we compare its ROCE, for example, with returns on bonds, we can see that this result wasn’t excellent. Designer Brands’s ROCE was average. And investors may find better opportunities in some other investment, right?

    ROCE of 8,4% is almost double less than what the company had 3 years ago when it was 15%. What does it mean? Well, several reasons can be in the play but it is obvious that the company has some problems.

    When you employ ROCE as a metric one thing you have to keep in your mind. It is a helpful tool, but it is not without disadvantages. You have to be cautious when examining the ROCE of different companies because there is no two or more companies that are precisely similar.

    ROCE isn’t necessarily a good metric due to the nature of the business. This kind of business usually has several sales peeks over the year but also the lower sales-rate periods. After the announcement of changing the name, Designer Brands’ revenue is constantly increasing.

    But what we can see is the Designer Brands has total liabilities of $649m and total assets of US$2.6b. So, its liabilities are approximately 25% of its assets which is a reasonable level and has a modest effect on ROCE.

    Designer Brands (DBI) is possible a good long-term investment. 

    The current price might go up to $20 in the next three months with a possible profit of up to 70% in 2 years.

    This stock has a strong buy signal since the short-term moving average is above the long-term moving average. It looks that further gains are very possible. But this stock is a risky one. It can move 3.40% between the high and low prices over one day as the historical data shows but last week’s average daily volatility was 3,37% which is medium. 

    If you are trading this stock maybe you should consider setting the stop-loss limit at -5,60%. It looks that this stock is currently well priced, it isn’t oversold and not overbought but the stock may be undervalued. That gives the space to raise more.

    Designer Brands (DBI) is a stock many investors are following right now. The stock forward P/E ratio is 7.76. Its industry’s average forward P/E is 10.72. Over the past 12 months, the highest forward P/E ratio was15.30 and the lowest was 6.84, which lead us to a median of 11.14.

    The price has been changed in four past weeks for 5.13% and for the last three months 18.80%. Considering the possibilities of its earnings, DBI stands out as one of the market’s hottest value stocks right now.

    What is Designer Brands?

    Designer Brands is one of the largest designers, producers, and retailers of footwear and accessories in the USA.

    Under the name, DSW (Designer Shoe Warehouse) the first store opened in 1991 in Dublin, Ohio. Today, DSW holds more than 500 stores in 44 states. Also, there is the Affiliated Business Group with almost 290 leased units for retailers, such as Stein Mart.

    The company also operates in Canada, in collaboration with The Shoe Company and Shoe Warehouse trough 150 locations. 

    In 2018, Designer Brands acquired Camuto Group, best known for the Vince CamutoÂŽ brand and the Jessica SimpsonÂŽ and Lucky BrandÂŽ. This partnership provides Designer Brands to be one of the largest footwear companies in North America. It opened global capabilities in product design, development, and production. The company seems to be moving to a long-term strategy for growth and relevance with customers.

    Since 2005, the company is traded on the NYSE under the ticker symbol DBI.

     

  • Real Return On Investment

    Real Return On Investment

    Return On Investment

    Return on Investment or ROI, measures the profitability of an investment, for every amount you put in, what profit can you expect.

    Return on investment is a measure practiced to estimate the efficiency of your investment. Also, you can use it to compare the efficiency of different investments. ROI seeks to measure the volume of return on investment in comparison to the costs. So, to calculate ROI, you have to divide the return of your investment by the cost. The result will be displayed in a percentage or a ratio.

    How to Calculate Return On Investment

    ROI formula is:

    ROI = (Current value of investment – the cost of investment)/cost of investment

    Compounding interest sounds like alchemy for many new investors, but ROI is true magic. Particularly when your money rises each year.
    Let’s say you invest $2,000 at 5% interest. You’ll have $3,500 in interest after 15 years. Your initial capital would be grown by $1,500 of interest. But if you invest at a 5% annual compound interest, you will have about $4,158.

    But where is the magic?
    The magic comes now. What if you can earn a higher rate of return?

    What if you invest at 8% or 10%? This can be really important because it is your money and you would like to watch it grow.

    True magic lies in math.

    Let’s say you have an investment goal and also, you know how long you want to hold your investment. For example, you would like to sell some of your stocks after 2 years. Assume you invested $2,000 in the stock. And you did that. You sold your stock for, let’s say, $3,000. Great! You made $1,000 in profit. That is 50% of return which is amazing if you want to calculate it quick and dirty,  and incorrectly. But, you need to factor in your liabilities and annual inflation rate to calculate the real return on investment. Okay, you have to pay a capital gain taxes, for example, it is $150, so you ended at $2,850 which is still good. Yes, your return will not be 50% it is 42.5% after you pay capital gain taxes. Oh, wait! Where is the inflation? Yes, you have to calculate the inflation over those two years. Let’s say the inflation rate is 2.5%.

    $2,850/(1.025×1.025) = $2,713

    Your real value return will be 35.65%.  It is less than 50% of return what you may be expected but it’s still good.
    It was a bit complicated but correct, which is the most important. And it is for two years. Do your own math for longer periods.

    Several things you have to keep in mind.

    A good return on stocks has to surpass inflation, taxes, and fees. Only in that way, you’ll be able to build your wealth.
    Use ROI to compare investments even if they’re not related. It isn’t the same if you are buying blue-chip stock or small-cap. In short, everything is different. But, if you compare only ROI may provide you a clear insight into where you want to direct.

    ROI can be used in combination with the rate of return, which takes into account the time frame, which we did. You can use a net present value or NPV, which we did to calculate the real rate of return.
    The usual return on investment for the majority of investors is about 2-3%. It isn’t great. But if you keep your money in a bank account you will have a negative return, after you factor and pay all taxes and inflation. 

    A  good return on investment is 10-12% per year

    You can beat the market. That is everyone’s goal, right?
    But if you expect to earn 15% or 20% – it’s not going to happen. Or it will happen very rare. Don’t believe in false promises, they are counting on your lack of experience. If you build your financial security on bad premises you will end in a risky field. You may lose all your capital. If you have a more conservative approach to investments you will have a less stressful experience. Investing should give you certainty.

    Bottom line

    ROI is a popular measure due to its simplicity and versatility. Typically, use ROI as a simple measure of your investment’s profitability. Use the ROI on a stock investment. The calculation isn’t difficult. It is easy to understand. If your investment’s ROI is net positive, it is good. Avoid negative ROI, it is a signal of a net loss.

  • Millennials’ Fears to Invest in the Stock Market

    Millennials’ Fears to Invest in the Stock Market

    Millennials' Fears to Invest in the Stock Market
    One of four millennials doesn’t think investing is a good idea.
    Holding on to cash is financial hara-kiri.
    The stock market isn’t out-of-reach and with a little amount, you can start investing.

     By G. Gligorijevic

    Millennials’ fears to invest in the stock market are shown in statistical data. Millennials are skeptical of the stock market at a great percentage. Yes, people! I can understand that. It isn’t easy to understand the stock market and when you don’t understand something, you are getting afraid. Moreover, you have heard a lot of scary stories. But take a look at your peers. Almost 1/4 think that a stock market is a great place to put their money. Are they braver than you? 

    Investing in the stock market has nothing to do with bravery it is all about common sense. 

    I know what you want to say: There are a lot of other ways of saving. Yes, that’s true. But is the return so great as with stock investing? Take a look at baby boomers! They stole cryptocurrencies from you, for example, not to mention other assets. Digital money should be yours. While you are hesitating to invest in the stock market, baby boomers and Gen X have an advantage. 

    Some of you may say: Yes, but they don’t have loans, they have homes, etc. 

    Sorry guys, but I have to disappoint you. They also have debts, mortgages, loans but don’t think the best way to earn more is to put cash in the savings account. 

    I’ll show you how wrong you are if you prefer to keep your cash in the savings account and how much you can lose over the years. Actually, I would like to show you how much you can earn if you invest in the stock market. So let’s make some comparisons. 

    Which are Millennials’ fears to invest?

    Do you really think you need a million dollars to retire? You’re going to be very discouraged. That amount isn’t even close to cover the cost of your bag of groceries. Inflation is what will make it tricky.

    To put it simpler, your parents needed much less money to cover the cost of their bag of groceries when you were born. The costs increased by about 300% over the past 30 years. Scary! But you can’t destroy the inflation. Inflation is good for some things but it is another subject. Let’s stay stick with this one. Having this on your mind, are you still convinced that one million dollars is enough for your retirement? I am not sure. It is more like you will need more. By keeping your extra money on your savings account you will never earn enough to beat inflation. 

    Holding on to cash is financial hara-kiri.

    If you don’t mind, I want to show you something.

    Over the last 90 years, the returns of the S&P 500 was 10%. This is one example but the same is with other stock markets. How much your savings accounts pay you? Let’s say it is a high-saving one so you may have 1,5% per year.

    Assume you have $50.000. If you put that amount on the savings account after 30 years you will have, without correcting for inflation, almost $80.000. This means your savings account could generate only $1.000 per year. But what would be your income if you invest your $50.000 in the stock market? After 30 years of investing in a nice portfolio, you could have almost one million dollars. 

    Can you notice the difference? Millennials’ fears to invest come from lack of knowledge about finances. 

    Why Millennials are afraid to put their money in the stock market?

    Investing has never been easier, but millennials are still afraid to start investing.
    You don’t need the fortune to get involved in the stock market. You are investing to make a fortune. Today we have online brokerages and robo-advisors. That makes investing pretty much easier than ever.

    Further, data is easy to access. You don’t need to read newspapers to gather the info about some stock. Yes, sometimes it can be fun and may bring a lot of entertainment, who likes it. But you have plenty of other ways out there to find the stock. Data is now easy to access and usually totally free.
    You can start at less than $1.000. No one will think you are a loser if you start with less than $1.000 or with just little as $100.

    Take profit of this, and take command of your future. 

    Investing has never been easier

    The stock market isn’t out-of-reach and with a little amount of, let’s say $500 you can start investing. That is an optimal amount that may provide you decently returns. Start with this, try your hand. Of course, for the first investment, you can use some robo-advisor. 

    Ask your bank advisor to create an investment portfolio for you. There is no need to do it yourself alone. 

    Millennials’ fears to invest are without a real reason. The money is like sand. If you squeeze it in your hand, it will go through your fingers. 

    Don’t do that. You can play better and become a real wealthy. Grab your chance to win! 

  • Stock Investing – The Pros and Drawbacks

    Stock Investing – The Pros and Drawbacks

    5 min read

    Stock Investing - The Pros and Drawbacks

    by G. Gligorijevic

    Stock investing isn’t just buy and sell stocks. It is the whole philosophy and math. Well, you have to learn more about the logic behind the stock market.

    When you want to buy a stock, that means someone else has to sell it. Be aware, that someone has worked on the numbers and concluded that the wise move is to get out of the position right now. Do you know why that one decided like that? How to be sure you are doing a good job if you pick that stock?

    Stock picking is a struggle against other investors.

    Maybe they know just like you, maybe more, maybe less. 

    The basic formula is easy: Pay a value that’s smaller than the long-term, per-share price of the underlying business. The philosophy of investing is in understanding how to determine that value.

    Maybe you prefer to be a “growth” investor. So, your focus should be on the analysis of a company’s potential for future profits. You should choose the one growing fastest. As a growth investor,  you are interested in great earnings. The P/E or price-to-earnings ratio is a popular metric for valuing stocks. Growth investors often are willing to pay P/Es of 20 or more.

    Value investors usually buy stocks with lower P/E ratios. This appears more traditionally. But buying cheap has some risks. Very often when some stock is cheap it is a sign that the company has some problems. Is this true? No! Simply NOT! There is no easy way or formula that helps you to pick a fabulous stock to deal with.  You have to research and make a decision.

    But maybe you should invest in funds than individual stocks.

    Stock investing demands time and intense analysis. It also needs notable cash to create a fully diversified portfolio. A choice is a mutual fund. That will spread your bets between hundreds of stocks.

    Stock investing is attractive and enjoyable for a lot of people. If you want to enter the market on your own, you can use funds as the essence of your portfolio. Later, just set aside a small account for your selection of the individual stocks.

    One of the main benefits of investing in the stock market is the chance to grow your money. Over time, the stock market performs a rise in value. Yes, the prices of individual stocks rise and fall daily. But, investments in solid companies that are able to grow, tend to make profits for investors. Moreover, investing in many different stocks will boost your wealth by leveraging growth in different areas of the economy. It will bring you a profit even if some of your individual stocks lose value.

    Stock investing gives a lot of benefits to investors.

    Owning stocks means to take advantage of a growing economy.
    How does it come?
    That is a kind of chain of good fortune. Everything is connected and logical.
    Assume you want to buy a stock you’ve been examining for some time. And finally, they announce a surprise bit of good news and the price rallies sharply higher and so you jump in.
    Let’s say, you have a sudden profit on your hands but, the stock reverses.  It has retracted back to your entry price. Actually, it has gone beyond your entry price and you are a loser!  You may think that it’s just market games and “shaking out weak hands”. So, you decided to hold on, knowing that patience is a trading power.  Finally, you’re down further than you expected to be in the stock.
    If you were ultra convinced of the upside potential, you may see this as an opportunity to buy more shares at a better price. On the other hand, you may panic and sell as you continue to watch the price trend further against you.  

    What happened?

    Experts developed the “Efficient Market Hypothesis” which states that stock prices instantly diminish all news. So, there’s no possible way for a trader to profit from news releases. That experts feel that strongly.

    Here is one example.

    Maybe two years ago,  Samsung announced it is expecting profits to hit record levels in the third quarter. And almost three times as much as the same period the year before.
    Following the announcement, their share price dropped.
    That might seem counter-intuitive. But there are other factors at play. At the same time as announcing this expected profit win, Samsung’s CEO quit. He told that the company was going through an “unprecedented crisis” and that “a new spirit and young leadership” was needed to respond to the challenges. In this case, the decline in stock price can be understood. You know, if the CEO is worried, perhaps investors should be too.

    But sometimes share prices drop on good news and it is really hard to understand why.

    Market expectations are always priced into the market price. Say, for example, a company has a forecasted earning per share of $1. They’ve never missed an earnings target. So investors expect the firm will actually earn $1.10 per share. They think it’s currently undervalued. The firm then announces an earnings report of $1.05 per share.

    Good news, right? They beat their forecast.

    But, crucially, because investors thought the firm should earn more than this $1.05 per share, the stock’s price was bid upwards to a price that reflected earnings expectations. Because the real earnings are less than the current market price, the stock price drops as investors sell off their shares.
    This effect can be intensified by investors who completely copy what everyone else is doing. In this case, selling off their shares. Every investor must have the bigger picture. That’s the point.

    What you have to do?

    If the stock is basically strong, hold the stock despite the stock price going down. It won’t matter much in the long term if the company. Most of the great companies focus on their long-term goals. This means that a few times, they might miss the short-term expectations.
    But, short-term interests shouldn’t be ignored completely by the company or investors. Nevertheless, if the company is overall performing good in the long run, then there’s no point of worry. In any business, there will be few difficulties in the short run.
    Additionally, do not get connected to short-term expectations. Analysts will keep on making expectations every quarter. It’s their job and this is what they are paid for. If a company keeps on working for the short-term goals, it might never be able to focus on long-term growth.
    Overall, if the temporary setbacks are not going to affect the long-term profitability of the company, then ignore the short-term fluctuations and hold your stock.Â