“Investing” is a fancy name for FINANCIAL RISK TAKING. You take risks when you engage in any form of investment. Investing is simply, buying “something” and hoping, it goes up in value. If that happens, you reap the rewards of watching your initial investment or cash outlay grow in value. If on the other hand it does not, you lose your initial investment. To make it worse, you can lose ALL of the money you invested in whatever the venture is.
For this reason, YOU SHOULD NEVER INVEST MONEY YOU CAN NOT AFFORD TO LOSE, NEVER! Truth is that, most real investors invest money they CAN afford to lose in an attempt to grow it. Investing in Stocks, comes with a lot of RISKS that are unpredictable.
This forum is all about financial investing in Equities, so our focus will be just that. Before you start investing, there are steps you should take. Before you start, ASK YOURSELF these questions.
• Understand and Determine your RISK Tolerance.
This is the key and one of the most important things to do. Failure to do this, means you never know where and when to cut your losses. Identify your Risk Tolerance before you start. What this means is that you set some guidelines. For example, you could say, if a stock I own drops more than 20%, I will cut my loses and sell at a loss.
• The next critical thing to do is to IDENTIFY who you are when it comes to investing in stocks: There are Three types of folks in the market.
o Investors – They tend to be long term. That is, they research the company and believe that in the future, the company in question will be worth more. They tend not to be overly worried about the ups and downs of the market because their views and goals are long term.
o Speculators – These are people who simply speculate that a company may be worth more short term. They tend not to be overly focused on financial fundamentals of the company. They buy, the shares and quickly sell on the news of any short-term downturn.
o Traders – They tend to buy and sell on a daily or weekly basis. They are simply not interested in anything other than the price movement of the Stock. Any profitable or unprofitable move is a sell signal.