Stocks & Options Tips
Read these 7 Stocks & Options Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Investing tips and hundreds of other topics.
Investing in Stocks
Benefit from a company's growth by investing in the company's stock. A stock is essentially a portion of a company. When a company wants to raise money, one option for them is to offer part ownership in the company in the form of stocks. These stocks can be bought through the company directly or through a stock broker. When you own a stock, you get the ability to vote for company officers and policies and attend shareholder meetings. You will get an annual report that gives you information about how the company is doing. If many people believe the company will do well in the future, they will want to buy into the stock and your stock value will go up. If more people believe the company will do poorly, they will sell their shares and your stock value will go down.
When to Sell a Stock
Each invester has a different idea about when to sell a stock - and that's how it should be. Selling your stock should depend on your personal investment goals and risk tolerance. If you're a smart investor, you have a "buy and hold" stock investing strategy, meaning that you won't be selling your stocks on a whim. Some investors choose to sell half of a stock each time the stock doubles. They then reinvest the money earned in a different stock. The benefits of this approach are that you lock in your earnings and avoid a portfolio that is weighted too heavily on your one or two top performing stocks. The downside is that you could lose out on the future growth of the company. Before selling a stock, consider the following questions. 1. What has changed with the company that makes you want to sell the stock? If everything is the same as when you bought the stock, what is it that made you buy the stock to begin with and why is that evaluation no longer valid? 2. 3. Where are you going to put the money? Is it going to benefit you more than the stock you have it in now?
Rebalancing a Stock Portfolio
Even the most diversified portfolio will get unbalanced after a while. Some stocks will inevitably outperform others until you have a few stocks dominating your portfolio. Despite your "buy and hold" investment strategy, it is a good idea to shift your stocks around every once in a while so that you don't expose yourself to too much risk from being overly invested in one or two stocks. One way to deal with this is to sell half of a stock each time the stock doubles. Reinvest the money in a different stock. The benefits of this approach are that you lock in your earnings and avoid a portfolio that is weighted too heavily on your one or two top performing stocks. The downside is that you could lose out on the future growth of the company. Keep these things in mind when you are re-balancing your stock portfolio.
Invest in Blue Chips
Although there is no "sure thing" when it comes to stocks, you can increase your chances of getting a solid return by investing in stable, long-standing companies. These stocks, called "blue chip" stocks, are from large companies with an unshakable presence in the business world. They pay dividends, have little debt, and have a high credit rating. Although investing in blue chips may not be as thrilling as investing in more obscure companies that have a chance for greater growth, buying and holding blue chip stocks is a great way to build a profitable stock portfolio.
Comparing Like Companies
When researching stocks for investing, compare them with the stocks of other companies in the same industry. A P/E ratio or debt amount that seems astronomical for one industry may be standard for another. The only way to know is to research several stocks from the same industry. When you find that a company has an unusual statistic, find out why. You may uncover the next big stock...or avoid the next big dud.
Take Your Time
Read a few books or articles about investing and you're sure to come across a chart showing you how much money you'll lose out on if you don't invest in the stock market right away. Don't let this rush you into investing before you're ready. Invest in the wrong stocks and your early investments will cost you. Before you take a leap into buying individual stocks, keep a trial portfolio. You can do this with a notebook or with a computer program like Quicken or Microsoft Money. Pick a few stocks that you are interested in and keep track of them as if you had bought shares in them. Take into consideration any broker fees that would apply to your transactions. Your trial portfolio will give you experience with tracking stocks and help you decide if those stocks are right for you. You may also discover that tracking individual stocks is too stressful for you. In that case, look into stock mutual funds instead.
P/E Ratio
Look at the Price to Earnings (P/E) ratio to get a general idea of how the market values a stock. The P/E ratio is a measurement of a stock's price in relationship to company earnings. A high P/E ratio means that the market is paying a lot compared to what the stock is earning. A low P/E ratio means that the market isn't paying much in comparison to earnings. Don't read too much into a P/E ratio. Although this number can help you find a great stock before it is discovered by the rest of the market, it is no guarantee that a stock's price will rise or fall.
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| Jennifer Mathes, Ph.D. |
