We’ve all heard about the basic principle of investing: buy low and sell high. That sounds simple, but it can be harder than it looks, and some people seem to flout this wisdom and still make a profit, which can be confusing for a budding investor trying to hone their strategy.
There are many resources online that can help you find the right investment, including sites that will give you access to reports with global trade analyzed and that highlight the stocks that are ideal for investment, and it can be a good idea to look around to find hints and tips that suit your investment style. However, there are also some basic rules that you can apply for your financial advantage.
Buy low
The basic principle of buying low involves establishing a baseline figure that you feel reflects the value of an investment and waiting until the purchase price falls below that level before stepping in. Another rule to remember is that when the stock market begins to drop and other people are selling in a panic, it is often the best time to look for good buying opportunities – you should buy when the price of a stock has fallen significantly yet is expected to rise again.
Sell high
When it comes to selling, the opposite is true. The best time to consider selling any asset is shortly after it has risen dramatically in price. This often occurs at a time of growth in the stock market when people are keen to get involved in an expanding market. As soon as your investment starts to show big gains, sell and lock in a profit. You can then use this profit to invest in a safer option or look for another undervalued stock to repeat the feat.
Learn through failures
When you are learning how to invest, you are likely to make some mistakes, but one important part of improving as an investor and being able to spot good investments in the future is to learn from these mistakes. Instead of losing sleep over it or deciding to quit investing, analyze the mistake, and try to learn what lessons you can. Perhaps you didn’t properly study a stock before buying it, or perhaps you held onto it for too long before selling. Maybe you were just unlucky. It is important to fully understand what happened with every investment that goes wrong, in order to improve as an investor.
There is much to be gained by writing down what you have learned and setting out your investment strategy explicitly. Having a hard copy of your plan to hand can help you to avoid making snap investment decisions, and enable you to more reliably spot the stocks that are undervalued and those that are worth selling at their current price.
Spotting a good investment involves many different skills, including the ability to analyze financial data, assimilate financial news and understand the dynamics of the stock market. By combining these skills with adherence to the principles laid out above, you will put yourself in a good position to make profitable investments on a regular basis.