Beginners Guide - Stock Tips and Advise in NEW TO TRADING & INVESTMENTS? - Buying a stock after getting excited about the company's latest results Impact: The earning momentum could be short lived, leading ...
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Stock Tips and Advise

  1. 08-06-2011 01:36 AM
    rmani84
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    Stock Tips and Advise

    Buying a stock after getting excited about the company's latest results
    Impact: The earning momentum could be short lived, leading to a sharp fall in stock price in future
    Solution: Judge a company's performance in the last few years, say three to five years. Also, based on the facts and figures, try to judge whether the company will be able to maintain a good earning momentum, since that critically influences that price.

    Buying a good company stock despite high valuation
    Impact: Even if a company is fundamentally strong, chances are it will give a low return if you have bought at an expensive valuation.
    Solution: Always look at the valuation while buying a stock. If you are not able to intrinsic value, keep a margin of safety in case your calculations go wrong.

    Buying a stock on a "hot" tip
    Impact: As you are uncertain about the stock's performance, you increase the possibility of losing money.
    Solution: Buy a stock only if you understand the company and its business well. The biggest risk is of not knowing what you are doing.

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  2. 08-06-2011 01:40 AM
    rmani84
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    Following the herd mentality
    Impact: Investing without enough research or a well-defined plan can not only increase the risk of your investment going bad, but also affects your other long term goals.
    Solution: Invest in stocks with sound fundamentals for long term than on short term hot and most talked about stocks.

    Buying and Selling when the market rises or falls
    Impact: You are likely to lose out on possibilities of gains likely by staying invested for long term. You might also take a capital gains tax.
    Solution: Stay invested for the long term so that your portfolio returns adequately diversified of risks, take advantages that accrue over the long term and have tax-efficient gains.

    Investing too much or too little
    Impact: Portfolio returns are likely to suffer in periods when financial assets such as stocks, bonds, mutual funds among others dont do as well, as was the case in 2008.
    Solution: Have 10-15 percent of your portfolio in alternate investments, which include commodities like gold, whether its through exchange-traded funds, gold futures or simply physical gold. You can add other options, such as silver and other commodities, as the size of your portfolio and your investible savings increase

    Buying gold jewelry as an Investment
    Impact: Gold jewellery can't be considered as an investment since its value doesn't include just the price of gold but also other costs like making charges, wastage and so on. The jewellery, when sold, has lower resale value and making charges and wastage are not taken into account.
    Solution: Invest in gold through gold coins, bars and biscuits, gold exchange traded funds )ETFs), gold funds and e-gold.
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  3. 08-06-2011 01:58 AM
    rmani84
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    Your portfolio is concentrated in one sector
    Impact: If the outlook of that sector becomes bad, it significantly impacts the portfolio value
    Solution: Diversify stocks in different sectors that are largely unrelated so that your portfolio is diversified and its risks are reduced.

    You don't know when to sell
    Impact: You are left holding an expensive stock where the downside risk is higher
    Solution: Sell the stock if it has run past its justified value.

    Trying to average out cost every time the stock price falls
    Impact: You may be left holding a fundamentally weak stock
    Solution: If a stock has fallen because of good reasons, for example, the company is losing its competitive advantage or the industry has become unprofitable, its better to cut your losses. Don't get emotionally attached to stocks you have bought.
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