Category: Finance.
This the second part of the series on the discussion of principles of investment in the stock market. We previously discussed the first principle.
This is the continuation of a four part series. This involves realizing that the stock market is just another investment vehicle. In this article the next two principles will be discussed. You must realize that there are other vehicles of investments before you decide to invest in the stock market. Please visit my blog if you want to view the entire article. ) A roller coaster ride- It could be said that the biggest advantage in investing in the stock market is the huge profits that are made when the market goes up. Bearing in mind that the stock market is a roller coaster ride it is generally best to sell when the market goes up and buy when the market goes down. However this is also conversely true because huge losses can also be made when the market goes down.
When I started investing in the stock market about 2 years ago, the Philippine Stock exchange index was about 2000+ points. It rose steadily to its highest at 3800+ points by October 2007, but after a month dropped to 3600 points. It went up to 2500 points and then down to the 2000 level in the middle of 200Slowly and steadily it climbed up to the 3200 level during the 1st quarter of 200It then went down in a very short period of time during the final days of the 1st quarter of 200It steadily climbed to a high of 3700+ points in July 2007 but went down below 3000 points a month after. The point here is that it is really a roller coaster ride. This is a very vital question that each serious new investor should ask himself. Profits and losses are made during those up and down moments of the market. ) Know what type of investor you want to become- There are two types of stock market investors, long term investors and short term investors. This will ultimately affect whether you should buy or sell a certain stock.
Long term investors also do not have to worry about the gruesome day to day technical analysis that has to be monitored. If you are a long term investor, meaning that you hold your stocks for 5 to 10 years or more it means that you believe in the company that you are investing in and that you have extra money for other things because you can afford to put in your money for a long period of time. For as long as they believe in the fundamentals of the company there is no problem if the stock is held for a long period of time. You have to monitor the day to day activities of the market. But if you are a short term investor, that means you decide to cash in within a months time to 6 months time, then you should consider several things. Similair to the the long term investors, short term investors have to make sure that they can afford to put in their money for a long period of time.
One of the main reasons for doing that is because during the short period wherein you plan to invest and pull out your stocks, it is possible that you might incur losses. But such time is not as long as that of the long term investor. With this in mind you might decide to wait a while. I do have stocks whom I consider as short term but I consider most of the stocks I hold to be invested in the medium and long term period. When I started out I determined to be more of a long term investor.
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