Your Money: Four tips for novice stock market investors

by Jeremy

Many traders do not want to take this effort, which is why they underperform and lose money due to trading without research and analysis.

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By Gaurav Soni

Trading in the stock market is a high-risk game. New investors are many times disappointed when their purchase value drops. People’s common mistakes include averaging positions, trying to outsmart the market, over-trading to recover losses and focusing too much on hot tips, etc.

Here are some points that can help you when investing in the stock markets.

Learn to self-trade
It is pretty simple to get a relentless flow of tips on trading but very hard to make money on these tips. The best way to succeed in trading is by learning to self-trade. It is impossible to make money by listening to suggestions and titbits from friends or TV. You need to work on charts, understand structures and learn to put your trades independently. Many traders do not want to take this effort, which is why they underperform and lose money due to trading without research and analysis.

Diversify, but don’t over-diversify
The goal of a diversified portfolio is to include various industries and categories that react differently. This way, it helps reduce risk, especially long-term. Portfolio diversification is significant as it allows us to minimize our non-market risk.

Non-market risk is something that an investor can control, unlike market risk. Non-market risk is directly linked to the company’s performance, while the market risk is related to macro events like recessions, changes in interest rate, natural disasters, etc.

Invest in good companies
Invest in companies with a robust business model that preferably earn recurring profits and have a dominant market position. They make good returns on equity with little debt and generate strong cash flows that allow them to return the excess money to shareholders as dividends. Investing in a good company also depends a lot on getting a reasonable price. A good company can still be a bad investment if you pay too much for it — that’s one of the most common ways people keep losing money in the stock market. So never overpay for a stock.

Focus on being right
Showing your emotions and being human can be a great thing. But with investing, emotions tend to create costly mistakes that drive bad decisions. There is a subtle difference between being right and being in the money.

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