Buying stocks is now so accessible that you can theoretically invest in stocks in a matter of seconds. Fortunately, you already know that you shouldn’t just do this; Otherwise, you wouldn’t have clicked on this article. But what should you pay attention to before investing in something?
Anyway, ask yourself these five questions.
Of course, no one can fully predict what the stock will do. Not even the investment experts who actually work this job. However, you can reduce your risk of losing money, for example, by asking yourself these five questions.
1. Are you a fan of the company?
You may have heard the advice: only invest in companies you understand. American investment expert Jim Cramer goes further and recommends investing in companies that you already admire. Have you come across an innovative product that you see potential in? Then it might just be a good investment.
For example, Jim Kramer mentions his daughter who first rented a Tesla in 2019. She had nothing to do with cars, but she was a fan of it, and so she decided to invest in an electric car manufacturer. The value of the stock quickly increased ten times.
2. Am I not getting carried away with the hype?
Are you really passionate about a company or a product, or are you being carried away by what the media, your best friend, or your neighbor is saying? It’s not always a good idea to go with the crowd and just buy a stake. Just look at the dotcom bubble, where investors have invested in companies without research.
3. How is the business?
If you have an affinity with the company, it’s also easier to do a thorough research. A step that you should not skip in any case. This means not only researching the company by consulting news sites, but also diving into financial reports – annual and quarterly reports.
We could write a whole new article with things to watch out for, but think about earnings, sales growth, debt, the company’s balance sheet, and dividend payments in the past.
4. Is this stock worth the price?
Before buying shares, it is also important to look at the company’s price-earnings ratio. This allows you to see if the stock is overvalued or undervalued. In other words, whether the stock is worth the price or not. This ratio is calculated by dividing the share price by the earnings per share.
So you don’t just look at the price itself, but also how the price looks.
5. When do I want to sell this stock?
Ups and downs are an integral part of the stock market. It’s a shame you sell in a panic (and lose money) when nothing is really wrong. On the other hand, you also don’t want to cling to a sinking ship.
Therefore, also think about the point at which you want to sell the stock. How much loss are you bearing?
Additional question: Will I get a good spread if I buy these shares?
Finding a stock with potential is one thing, but you should never buy one. This is like betting on one horse. If he loses, you lose anyway. Instead, you want to bet on multiple horses. Because if one stock isn’t going well, maybe another.
You also spread by investing not only in companies in a particular sector (eg technology) or companies in the same region (eg the Netherlands). Also choose to invest in other products that fit your investor profile (for example, are you someone who takes a lot of risks, or not?), such as bonds or perhaps even cryptocurrencies.
This is the best stress-free advice for successful investing
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