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Saturday, December 19, 2009

Basic Investment Principles In The Stock Market - Part 3

By Zigfred Diaz

This is part three on our discussion about the basic principles of investing in the stock market. Previously, the first three principles of investment was discussed. The first principle given was that you must realize that the stock market is just another vehicle of investment. The second principle dealt with realizing that investing in the stock market is a roller coaster ride. The third principle talks about determining what type of investor you are. In this article the next 4 principles will be discussed. Please visit my blog should you wish to view the entire article.

4.) More cash more profits, but you don't need a lot to start investing. - Investing in the stock market does not require you to have millions or hudreds of thousand of pesos. My personal estimate is that you need P 20,000.00 to start trading.This is what I started with. But even if you only have P 10,000.00, you can already start trading. However that amount may be too small in my opinion. To drive the point of the above principle lets say you bought shares of Jollibee (JFC). Jollibee shares cost only 51.50 today. The board lot (the minimum amount of stocks that you could invest in) is only 100. If you calculate, you only need P 5,150 (51.50 x 100) to be "part owner" of the Philippines' number fast food chain company. Lets pretend that after 1 year the per share value of the Jollibee stocks you bought already cost P 100.00 per share, you have gained P 5,000.00 more. Imagine the profits you are making ! How much more could you have made if you invested in 200 shares ?

5.) You must be consistent in investing - If you start small make sure you do not stay that way. Discipline yourself to invest a certain amount of your income to the stock market in order to pump in more capital so that your portfolio may grow. For the past month now I have slowly added to my investment, I did not just stop at P 20,000.00. Make investing a habit.

6.) Minimize your losses, Maximize your profits - The loss is only on paper if your stock goes down. The actual loss occurs when you sell your stock at the "losing" price. The best thing to do therefore is to never ever sell at a loss. This is the reason why it is very important that the money that you invest in the stock market is considered as surplus money, not your emergency fund. If you invest your savings or emergency fund, you will be forced to withdraw sell your stock at a loss if you desperately need the money. To maximize your profit you must utilize profits you gained from the sales of stocks and the dividends you receive to buy more shares of stocks.

7.) Want to get rich quick ? Don't even think about investing in the stock market. - The stock market is not a get rich quick scheme. You should never ever expect to get rich overnight here. Investments always takes time to grow. If you hear about investments that give you shocking rates of return in a very short length of time, beware of those ! In the stock market, especially the Philippine stock market, it may take you several months or even years before you could say that you have made it big time. On certain rare occasions, there will be a time that it will only take weeks or days perhaps wherein you can make a killing, but again these are only rare occasions. This might occur when there is a consistent bull run or when there is an unusual going up or going down of prices within a certain period. - 23208

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