Three Tips for New Stock Investors to Make Better-informed Decisions

Stock graphs

Even experienced investors know that when it comes to the stock market, there are no guarantees. But newcomers to the world of stock investment can be especially prone to making decisions that are potentially risky or low on the upside.

While a novice investor could simply leave everything in the hands of fund managers, or follow what’s being written by specific analysts, we all have our unique profiles for risk tolerance and financial stability. You could easily end up following someone else’s aggressive strategy when you’d rather play things more conservatively. Here are some essential tips to help you align your stock investments with your personal preferences and circumstances.

Look at key indicators

Companies of any scale often use indicators to take calculated risks. For instance, they can tell it’s easy to raise capital through small business loans in Utah since the state has a good economic climate. You can do the same in stocks, but you need a good understanding of what to look at and how to interpret the numbers to make sound decisions.

Many analysts, including your broker of choice, will publish reports with their stock picks, but there can be a lot of disagreement even among experts. Not all financial talk is mumbo-jumbo; if you’re determined to get into stocks, you can take control of your investment by educating yourself on the terms and what key indicators mean for each company.

Examine the records

Individual stocks — and the stock market as a whole — can be volatile. When you’re new to stock investment, it can be hard to overcome the tendency to favor a short-term outlook. Making your first purchase of shares and seeing their price rise over the next few days can bring feelings of happiness, not unlike a first-time gambler’s lucky streak. But if you approach the stock market like a gambler, the house will always win — short-term gains can be easily undermined or offset by subsequent depreciation and losses.

To enjoy long-term success, you need to avoid being swayed by emotions. Instead, let a company’s historical record inform your decisions. Many investors bank on dividends as their fundamental investment strategy. So ask, does a company have an excellent track record of paying dividends? Is the dividend yield steady or fluctuating? Though there are always risks involved, a history of steady dividend payments can help you identify stock picks that will work out in the long haul.

Consider the big picture

Stock investor showing graph

The events of recent times — a global pandemic leading to lockdowns, mass unemployment, international political disputes, and volatility in terms of oil prices — should have effectively driven home the point that no one can predict the future or how it could affect investments.

But even in a recession, some companies thrive while others struggle. Consumers limit discretionary spending, but necessities such as utilities, healthcare, and telecommunications remain stable. Companies with low debt and good cash flow are more likely to survive a downturn. Even in a difficult and uncertain economic climate, you can still find solid strategies for making investments that will see out the recession and prove profitable over time.

Learning the ropes of stock investment can take more effort on the part of a first-time investor. But it will lead you to more informed decisions and personalized judgment when taking risks and playing the long game.

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