Tips of Investing in the Stock Market
Do you want to invest in the stock market but do not know where to start? Our 12 practical and easy-to-implement tips will help you to invest well. Like all things, investing in the stock market market can be mastered of only one would dedicate his time and intellect to it.
There are different financial products for investing in the stock market for beginners, the different envelopes that allow you to do so, the characteristics of investment in the shares of SMEs and investment in responsible finance (SRI). The vocabulary to absolutely know to start on the stock market and our comparison of the best stock brokers will also allow you to see more clearly. Also discover our recommendations for investing your money in a period of crisis, the assets to consider for this year 2021, the solutions for investing in the stock market with little means and the different means of protecting your stock market portfolio, during your holidays in particular.
WHAT IS INVESTING IN THE STOCK MARKET?
Investing in the stock market means buying shares in listed companies, that is, acquiring ownership shares in companies. In fact, each share represents a part of the capital of the company. The share that a partner holds in the company is proportional to the number of shares in this company that he owns. When you buy a stock, you become what is called a shareholder, which means no more and no less that you become a partner of the company.
WHY INVESTING IN THE STOCK MARKET IS INTERESTING FOR INVESTORS
There are two main reasons for investing in stocks. First of all, investing in the stock market means investing in the real economy and participating in the development of societies . A company that issues shares sells shares of its capital to investors to raise funds to finance its growth. This money could be used, for example, to develop internationally, to launch research and development (R&D) projects to create new products or improve products already on the market, hire staff, etc.
Then, investing in the stock market also and above all means taking advantage of the very attractive long-term return provided by this class of assets . The performance of equities over 10 or 30 years makes them even the most profitable asset class over the long term. Thus, according to the Real Estate and Land Savings Institute (IEIF), at the end of 2018, equities on average each year returned 9.1% over 10 years and 6.5% over 15 years, performances which rise to 8.3% over 30 years and 13.7% over 40 years. Be careful, all the same, to succeed on the stock market and position yourself on the most attractive stocks, it is necessary to familiarize yourself with the financial markets and to follow some advice to hope to hold and manage a portfolio delivering a good return in relation to the market risk
TWELVE TIPS FOR INVESTING WELL IN THE STOCK MARKET
1. Invest in the stock market the money you are prepared to lose
With the risks associated with investing in the stock market, there is no question of investing in shares in the PEA or the securities account all your savings made in order to finance the studies of your eldest next year or your retirement which is fast approaching. Moreover, the longer the investment horizon, the more meaningful it makes sense to invest in the equity markets.
However, always keep in mind that investing in the stock market carries a risk of capital loss inherent in stocks. The primary objective is to earn money (via obtaining dividends or making capital gains ) but you can also lose money and, in the event of a loss, this should not impact your standard of living. . A novice stock investor should therefore not invest all his money in the stock market and respect the elementary rules of diversification, in particular by having safety savings on investments with guaranteed capital. Never invest all your assets in transferable securities presenting a risk of capital loss such as shares.
2. Inform yourself and train yourself before investing in the stock market
Investing in the stock market cannot be improvised. Knowledge of the stock market and of listed securities are essential elements. And monitoring economic and financial news is particularly important. To start on the stock market, you will also need to have solid notions in fundamental analysis and technical analysis to hope to carry out effective stock-picking and determine the best time to buy and sell the securities you have selected in your portfolio. You should also be aware of the stock market orders that it is possible to place, that is to say know the different stock market orders and their characteristics in order to identify the order most suited to the situation.
Are you far from mastering all of this? Do not panic, there are many books for this, such as Investing in the stock market for dummies, but above all, you will find on the Internet a wealth of information and training to understand the stock market: webinars, white papers or eBooks, educational articles, can help you to improve your knowledge of finance. You will also have very easy access to economic and financial news articles, most of the time free of charge, as well as to company annual reports. All you have to do is train yourself!
3. Keep your investor profile in mind before placing your money on the stock market.
“Know thyself” teaches Socrates. This maxim, far from being reserved for philosophy, has its place in finance. Before investing in the stock market, it is better to know whether you present a prudent, balanced or dynamic profile. By investing in derivatives on Asian stocks with a strong leverage effect while you have a prudent profile, disaster is not far away.
First you will panic. Then, the panic that would result from such a situation would undoubtedly push you to act hastily, and when it comes to investing, composure and reflection are much better advisers than feelings in general and fear in particular.
4. Define a stock market investment strategy
Before investing in the stock market, define an investment strategy. You will rely for this on your investor profile, your investment horizon (the duration of the investment) as well as your profit objectives, but also on the maximum amount of losses that you can bear.
All of these elements will help you determine an optimal risk-return ratio and should guide you in the composition of your stock market portfolio to get off to a good start on the stock market and invest in securities with full knowledge of the facts.
5. On the stock market: stay calm and keep it simple in all situations
Whoever wants to invest in the stock market should always stay calm and keep it simple. The hyperactive mice who place 20 stock market orders per day on the basis of complicated mathematical indicators, generally only enrich their broker or stock broker .
6. On the stock market, there is no miracle: making money is not systematic
If you have the idea of investing in stocks to get rich quickly, go your way. Unless you are extremely lucky, you won’t double your investment in the stock market the first year, or even the second. You will even have to get used to taking losses.
Nevertheless, according to the Allianz study Equities: True Medium-Term Potential , dating from January 2014 , US equities, since 1800, have generated positive real performance over each rolling thirty-year period.
By reducing the investment horizon to average rolling periods of ten years, we see that this asset class has on average generated a maximum real performance of + 16.84%. With regard to the French stock market, the CAC 40 dividends reinvested has increased by 8.5% on average per year since its creation in 1986.
According to the study Stimulating long-term investment in equities published by the AMF in july 2017, the “average annualized return” of “diversified equity investments” held for a minimum of 20 years, the initial investments thus having been made between 1988 and 1997 is approximately 5.3%. Difficult to find better!
But beware, while stocks are the best performing asset class over the long term, don’t expect crazy returns either. The stock market is not a miracle, even if investing in the stock market should allow you to significantly boost the return on your savings.
7. Be prepared to invest in the stock market for the long term
The performance of stocks is often accompanied by a certain volatility. Investing in the stock market must therefore be considered over a long period of time. If you have too short an investment horizon, you will be tempted to take disproportionate risks to make quick money. In the short term, stocks are volatile.
They react to all the mood swings in the market. Investing in the stock market therefore requires a long investment horizon. Seeing your stock market portfolio increase in value can indeed take a little time.
Ben Graham said on this subject: “in the short term, the market behaves like a voting machine, but in the long term, the market behaves like a balance”.
Unfortunately, far too many investors still see the stock market as a beauty contest. To invest in the stock market successfully, be patient and pay attention to the fundamentals of the company. The price always ends up reflecting intrinsic value.
8. Are you buying a share on the stock market? Think like an associate
Stocks aren’t just paper; they are a title deed on the assets of the company.
If you buy shares in a company, behave like a responsible partner. Follow the evolution of the offer of products and services as well as the results of the company closely, study its annual reports. Investing in the stock market requires real involvement on your part in the management of your stock market portfolio.
9. Look for quality stocks on the stock market
Focus your efforts on identifying companies with sustainable competitive advantages . A sustainable competitive advantage is a good guarantee that the company will maintain its profitability for many years to come, a challenge for those who want to invest in the stock market successfully. This competitive advantage can take the form of a strong brand, for example. Classic examples of such companies are Coca-Cola , McDonald’s , Hermès and Google .
10. Always take into account the intrinsic value of the listed company
The difference between a great business and a great investment is the price you pay. During the dot-com bubble, there were many good companies on the stock exchange, but it was almost impossible to find cheap stocks.
Finding quality securities is only half of your mission as a new investor in the stock market. The second half: wait for prices to drop enough to make the investment worthwhile.
To invest in the stock market effectively, you will therefore need to carry out numerous analyzes, but also arm yourself with patience.
11. When selecting a security, always reserve a margin of safety.
Unless you have clairvoyance skills, you cannot predict what will happen in the future. To guard against the inherent uncertainty of the future, be sure to buy your stocks at prices well below intrinsic value. This will give you a margin of safety in the event of a fall in the stock and will guarantee you to invest in the stock market while reducing the risks to a minimum.
12. On the stock market: think independently to invest well
Stay away from the crowds. You will be successful in your investments by reasoning correctly, not because others think the same. If you can keep a cool enough head to buy during price declines, you will be well positioned to take advantage of the upside when it comes.
As Warren Buffett says, “Be worried when others are greedy, and greedy when others are worried . “
Investing in the stock market is also a question of timing!