Determine the amount of your investment. It is important to ensure that any investment in shares is done only from excess funds available to you, as investment in stocks may continue for the long term. The rule of the thumb here is not to invest more than what you can lose.
Before choosing your portfolio, determine your investment goal. Are you looking for a somewhat regular flow of returns, or are you looking for a very short return based on capital gains in the short run? In other words, are you looking for growth stocks, value stocks or a combination of both?
Fundamentally, there is a trade off between risk and return. Therefore, determining risk tolerance will somehow determine the profitability of generating income. So, the higher the risk, the higher the return.
Understand the various ways in which you can make returns on your stocks. Returns may be generated from cash dividend, stock dividend or price appreciation.
Knowledge is power. You have to put the effort and time to get familiar with the market in general and the stocks you intend to buy. As an investor, you should be interested in any relevant information which may influence the performance of the company you have invested in. Always check the reliability of the information you obtain, and most importantly you should be able to analyze correctly the financial statements released by the company and understand the financial ratios. If you are unable to personally do that, then you have to access such information from professional financial experts in the field.
Be realistic. Stock markets fluctuate both ways, and returns do not usually happen overnight. Therefore go in for the longer term and remember: there is no way that you can buy a stock each time at the very bottom of the curve and sell it at the very top. When you have achieved your targets, or when it seems that your targets are not going to materialize in the foreseeable future, just get out of the stock before it is too late. Many people get greedy and lose many opportunities of making good returns!
Diversify. Do not put all your eggs in one basket. As an investor, you have to buy stocks in different sectors of the economy and in various companies. Such a diversification will reduce portfolio fluctuations. When it comes to choosing the right sectors in the economy, focus on the sectors that are expected to bullish in the short to medium term. As for choosing the right company, you will have to do your homework and choose the company with the most favorable financials and ratios.
A price of a share fluctuates as a result of its demand and supply. In general the price of a share is affected by:
- Financial performance of the individual share.
- International and regional financial markets that may affect the flow of funds at ASE.
- National economy and interest rates.
Know your rights. As an investor, it is important for you to know your rights under the law, and to be able to practice these rights, especially the right to attend and vote in the annual general assembly.