The stock market generally refers to a public platform that investors purchase and sell stocks of publicly listed companies. These platforms have recently gone digital or electronic and exist as online markets. Demand and supply determine the prices of shares.
Investments in stock market instruments are excellent, time-tested avenues through which one can grow their wealth. There are millions of other market players eager to earn profit from the trading of shares. With hundreds of companies to invest in, the average investor will have a daunting task. Nonetheless, when deciding which stock to invest in to reap profit, a stockbroker will go a long way towards identifying the least risky stock and the pitfalls to avoid maximizing investor returns. Therefore, professional stockbrokers address all intricacies of stock market investments.
Such market information includes but is not limited to aspects such as diversification of stock options, dividend-paying stocks, the most appropriate time to buy or sell a particular stock, and the ideal portfolio to build. The following are some of the factors that a new investor should consider before embarking on stock market trading.
1. INSIDER TRADING
It is illegal trading in the stock exchange after accessing confidential information from the members of a particular company. It defines the health of a company in the stock exchange. Therefore, a new investor should know how to track insider trading, and they can do this by following the tips below:
Keep yourself abreast of current news
Search for the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) beneficial forms
Regularly log into the Securities and Exchange Commission (SEC) portal
Search the company in the EDGAR system of retrieval
2. BUY LOW AND SELL HIGH STRATEGY
As opposed to insider trading, this strategy allows investors to purchase stocks at a low price and sell them at a higher price. Timing the market to know the ideal time to buy and sell a particular stock is what the strategy entails. An investor should know the right time to buy and sell them off when their price peaks to generate maximum returns. The fluctuations of the stock market prices mean a herd instinct drives it. Most stock market participants usually react similarly to some areal or supposed risk factors.
Implementing this strategy is challenging given the constant price fluctuations occasioned by the emotions of market players, and predicting the exact stock price for the ideal buy or sale of stock requires additional tactics such as moving averages, consumer sentiment, and the business cycle.
3. THERE ARE NO ABSOLUTE GUARANTEES
As far as investing in stocks is concerned, things do not necessarily work out as planned or expected, and even the most finely tuned investment strategies run the risk of total failure. There are no risk-free stocks available for investment in the stock market, and a wise investor needs to take this into account and engage in measures to mitigate the risks involved. Even companies that historically post profits and pay dividends year in, year out run the risk of not doing so in the foreseeable future. The bigger the establishment, the lower the risk and the lower the returns. Conversely, if it is small, the higher the risk involved and the higher the returns.
The risk involved in an investment is the price paid by the investor to generate high returns. The best way for the investor to mitigate such risk lies with a diversification of the portfolio. The more stocks an investor owns, the more diversified the portfolio will be, but at the same time, there should be a balance so that you do not saturate the profits. The investor should aim to spread the investments across at least three industries and include other companies with a global outreach.
A diversified portfolio should vary to mitigate the risks involved and guarantee the investor some return in the long term.
4. COMPANY FILINGS
Investors need to go the extra mile of familiarizing themselves with the companies they intend to capitalize on by obtaining information from the filings made by the companies at the SEC. All publicly listed companies are mandated by the SEC to file regular 10-K’s. It is to keep potential investors and other market players abreast of their financial position. In turn, it allows them to make informed choices on whether to buy or sell their stocks. The SEC filings provide material information to any interested party in the public domain in the spirit of equal access and fairness.
Information that you can get from the 10-K includes the following:
a) Company growth opportunities.
b) Senior management changes any possible conflicts of interest.
c) Stock holdings by company executives and board members.
d) Financial performance figures.
This is just a small amount of information you should make yourself familiar with in the world of investing.