Big vs Small: Guide to investment in stocks

Some people have made it a habit in timing the market in order to beat the market average. The human mentality plays a big role in market-timing. Fear is the main reason why investors try to time market. Market timing is a situation whereby market speculators buy and sell shares to make profit within the short run. They buy such shares at very low prices and sell them at a very high price. When a bill market starts having bear market tendencies, fear sets in. when such tendencies get pronounce, there is high adrenaline, and such investors sell their shares, never time market now supposing the bull market continues, how do you profit from it.

-              Forget Intuition in Investing. Buy with the professionals success in the stock market requires counter-intuitive thinking. People react to happenings in the stock market based on their emotions. They do what they intuitively think is right. People never take advantage of a bull market because they keep investing in beanish markets and get fed up with the thing. It is a well known fact that professionals such as fund managers are active in the stock market in opposite way to the public while the public buy wild over valued shares, the professionals are selling and when the public are selling professionals are buying. Professionals buy at the beginning of a bull market one of the public buy at the end of a bull market is that there are sharp rallies which look like the beginning of a new bull market. However they fall again and continue going down. Such rallies are called “Sucker rallies”. Because of this, people abandon hope in the stock market. Most people who time the market to get in, are always too late. The best investment strategy is to stay in the market at all times.

When stocks fall 10%, it is called a correction whereas a bear market is when stocks fall 28% or more. Corrections atimes result in a beanish market.

One of the worst mistake people make is market timing, because much money is lost in doing so than in being in the beanish market.

The easiest solution to combating bear markets is setting a schedule of buying stocks or mutual funds so that you put in a small amount of money every month or after quarter etc. this will remove you from the traumas of bullish and beanish markets.

If you want to be very successful in your investments, you must be able to view at the entire market vertically by size or market capitalization of horizontally by industry or market sector.

Atimes, some people are seared of investing on other peoples business. They do not trust other people with their money so what they do is they keep their money and continue labouring. Such money is in my own term “inactive” in that it is already enpended before it reaches such individual’s (i.e. before they are being paid).

Some people are always too anxious when they are first talked to about investment. Atimes they invest everything they earn without leaving part for their day to day expenditures. Such are the people who are sinking in poverty.

Remember poverty is not being without money, but being without hope. They do not have hope for their future. They fail to understand that by investing, they commit themselves to a risk. Study markets trend wisely before committing to a company’s stock. A company that pays dividend is of no difference with a company that retains its earnings. Companies that are labour intensive should be avoided.

Market timing should not be encouraged but it doesn/t mean when your stocks go far down you shouldn’t reclaim your money. If you are adamant, you could reap high losses. For the market timers who may want to still make money in the stock market, there is a simple rule to follow.

Speculators

I wouldn’t advise you to do what I am about to write. It is senseless, contradictory and irresponsible of you. nevertheless, many great people of old have followed its simple rules and have made a jackpot for themselves. Remember to follow the procedure you feel is suitable for you. to some people it is the safest way to make quick money in the market.

Being very reasonable, atimes you’ve got to out your losses. The secret of making a fortime in your partfolio in the stock market is not being right at all times but to lose a very little anytime you’re wrong. You’ve got to recognize your wrongs and sell immediately without any second thought to cut short your losses. The fact that the price of a stock in your portfolio has dropped a little doesn’t does not make it worth selling off. When a stock goes down below tan percent of its purchase value you’ve got to kiss such goodbye.

Do not be over attracted to your stocks. Stocks like teachers are derived demands, in that they are demanded not because of the satisfaction they bring but because of their services which are directed towards achieving other goals.

Like Napoleon, never hesitate on the battlefield of wealth. I wrote in one of the previous chapters that you never really lose until you sell your stocks. This is true but only in cases where the company in question shows a sign of redress.

Set roles limiting your losses or invested capital. Ten percent should be a good limit to sell stocks. All stocks are risky, irrespective of the fact that they are first tier securities or second tier securities. It is always good to take your losses quickly and your gains slowly. The ten percent should be below the value for which you bought such stocks. Some people are seared to sell because they feel their stocks are good stocks since they are still collecting their dividends. To be very successful in your portfolio management you must face facts and stop rationalizing and hoping. No one emotionally loves losses, but to be very successful you’ve got to get your emotions under control. You must be very disciplined to excel in the stock market. You are the another of your finances, never lose courage to take decisions with regards to your finances. It takes real hardwork to become very knowledgeable at stock selection, for folio management and taking right decisions regarding your finances.Never try arguing with the market and don.t let your emotions attach you psychologically to stocks even when they are failing in their responsibility of making more gains.

The aim of every portfolio is to show net profits. Atimes, when you are tired of managing a particular stock you’ve got to sell it and claim your profits. Your major objective is to buy the best stock with the best earning at the right time .Never buy stocks on tips and rumours. Most of this so called tips are originated from outsiders (people outside the stock market )whom have never got an experience in the stock market.

INITIAL PUBLIC OFFERS (IPOS)

An initial public offering is a company’s first offering of stock to the public. The Internet and discount brokerages has made easier, more accessible and a lot more convenient IPOs to individual investors. Acquiring IPO is acquiring a non liquid stock. This is very risky as you may not be able to sell your shares when you really want to: The best time to purchase an IPO is after it has had its foremost correction. If an IPO has been trading in the market for two or more months, you have a valuable data on which to ascertain the situation surrounding such stocks.

CONVERTIBLE BONDS.

A convertible bond is type of bond which can be exchanged for another category of investment such as common stocks, at a predetermined price. Convertible bond provides a little higher income than the common stock to the owner with some of the profits often associated with common stocks.

Convertible bonds are advantageous in that investors in them can borrow heavily and obtain more buying power. Nevertheless, this is also a risk because excessive leverage is dangerous.

INCOME STOCKS

These are stocks that produce high and regular dividend yields, providing taxable income for such who owns it.

If you wish to opt out with income stocks, don’t go for those with the highest dividends, doing contrary will entail entrusting your capital to greater losses. Do not rely on the dividend received from your investments, because a times companies do cot their dividends receivable on shares if they have a reduced earning per share. For the  best income program on your stocks, withdrawing a little percentage of your investment each year could pay off for your living expenses.

MERGER CANDIDATES

Companies that are about to merge should be shyed away from. Rumours triggers a sudden rise in price for stocks of such companies. Whenever such deals are not successful, they is a very steep decline in price of such stocks of such companies. It is a very risky venture for one to take. Such should be left to the professionals.

FOREIGN STOCKS

To invest in foreign stocks, a potential investor must knowledgeable in the general market of the particular country He must be conversant with the interest rates, currency, government policy etc. foreign stocks should be left to professionals who are specialized in such fields. If an individual wants to take the chance, I think it will be best for him to have a financial advisor from such countries;

OVER THE COUNTER MARKET

This is a market outside the stock exchange like the Nasdag is to the United States of America. It has no reserved centralized location where traders and professionals gather. The market is often termed “off board” or “unlisted” at which buyers and sellers are not physically present. The market is characterized by direct negotiation between the parties involved (buyers and sellers). Dealers/Brokers negotiate most transactions by telephone or computer networks. In the USA, investment such as bonds do not trade on organized exchange; hence bonds are traded over the counter. A party interested in bonds calls the banks that make bonds and request for quotes. Over the counter market involves bilateral negotiation between counter parties usually carried out via telephone or internet networks. Over the counter market unlike listed stocks (that) the law expects to make public their accounts on a quarterly basis) does not oblige their companies to publish their accounts on a quarterly basis. Nevertheless, OTC are not less profitable than their counterparts that are listed. OTC stocks are advantageous over the listed stocks in that auxiliary costs such as the Nigerian Stock Exchange (NSE) fees securities and exchance commission (SEC) fees, CSCS fees etc are always passed. OTC on the otherhand has its own disadvantages. Prices of quoted stocks are visible in that they are always published in the daily papers while the unquoted stocks are susceptible to the risk of either being overpriced or underpriced. The market forces (forces of demand and supply) may not apply strictly because, not marry may even know they can trade the stocks they are carrying because only limited opportunity exist for trading. Another risk factor is pricing of such stocks which a times may not be right. Price determination depends on bargaining powers. There is usually a delay to locate suitable parties that are even interested in investing in such stocks. The selection of an OTC stock follows the same criteria as that of quoted companies.

-              the accounts must be scrutinized carefully, sectional/industrial analysis visa vis the national economy needs to be evaluated alongside the structure of the company. Future prospects of such companies are very important also after scrutinizing carefully all these then you can arrive at a decision either to invest or not. Since these stocks have nocentral trading place, the trader (buyer/seller) has to make the effort to locate a dealer/broker of such stocks Also, the OTC stocks to be bought will depend on the recommendation of your broker who would have carried out the necessary analysis of such stocks. Let us look at an example of a company trading in this friesland foods Wamco Nigeria Plc, consolidated Breweries Plc, Ecobank Plc, Eco-Transnational Incorporation. Friesland foods Wamco Plc is the market leader in this venture more often than not, returns on investment of OTC stocks are higher that those of their counterparts which are quoted.

Why should you invest in portfolio?

Everyone has got financial needs which must one way or the other be met. Some of us wantto be very rich while others want financial security.  To achieve there, it takes time with great discipline. A major step now is the key to your financial security tomorrow.

-              Set your investment goals

Be sure of what you really wantto accomplish. Your goals must be specific and measurable. Your investment goals are always time oriented and should be classified as short term (0-3 years) medium term (4 – 6years) or long term (above 6 years).

-              Live within your means

After setting your goals, you should begin firstly by balancing your budget and live within your income. Avoid accumulation of debts. Avoid credit cards, they’re a major source of debts. After purchasing items via credit cards, you pay monthly instalments which often comes with interest charges and this reduces drastically our future income stop all credit purchases except in emergencies. This is always a very tortuous period in a person’s life but it is worth the sacrifice in order to reach your goals.

-              Have Adequate Insurance cover you need essential insurance such as life, health, home, motor etc before you start investing.

-              Start an emergency Fund

An emergency fund is the amount of money you can obtain quickly to meet immediate needs. This should be in a savings account or a mutual fund. You emergency funds should be able to sustain you even when you lose your job until you can get another.

-              Find the money you need to start maybe you need to work to gather this money to start your investment programme. This is normally by saving from your monthly pay, lump sum payments, obtaining cheap loans e.g. from your employers, etc.

-              Set your priorities

You need decide how earnest want you want your investment goals. If you want is earnestly, you will be willing to sacrifice some expenses to finance it.

No one can make you save money to invest. You have to cultivate the discipline to do it. To get the money to invest, firstly you must pay yourself at least a tenth of your monthly income. Elective saving programs is another advantageous was of getting the money – arrange with your bank and broker or a mutual fund to take a fixed sum of money  automatically from your account every month and invest it.

The sooner you start up your investment, the higher your eventual fund growth because of the time valve of money and the effect of compounding returns.