Investing in the stock market can be exciting and financially rewarding, but it also presents some real risks. Do not make the mistake of believing that stock market investing is like saving, where your returns are virtually guaranteed. With investing, every opportunity has the potential for gain and the potential for losses. The key is to do all you can to mitigate any possible losses and to maximize all potential rewards. Here are a few tips from Haim Toledano for investing profitably in the stock market.
- High Profitability – A stock is only as good as the company that issues that stock. The stocks of companies that are consistently profitable are more likely to give positive investment returns than poor performing companies. When choosing stocks, look for companies with consistently high net profit and gross profit ratios.
- Invest in a Variety of Stocks – One of the keys to profitable stock market investment is diversification. This involves building a portfolio of stocks that are negatively correlated and therefore the chances of making huge portfolio losses are minimized. Choose stocks from different industries and you can even diversify by region by investing in both domestic and global stocks. You want to spread the risk across a portfolio of stocks.
- Avoid Making Impulsive Decisions – While it may be difficult to see a particular stock decline, it is important to keep calm and to avoid making impulsive irrational decisions. Remember that the stock market can be volatile at times. Keep up to date on economic news, company data, and other information to help determine which direction stock prices are likely to move. Avoid following the crowd.