Problems To Avoid When Buying Stocks

Trading the SPY


It seems that stock tips are all around us. Whether watching television, reading email, or simply talking to friends or family, it seems that everyone seems to know which stocks are going to be the next big hit. Select a stock, any stock, and chances are that at least one person will make an argument for why it is a good buy. One of the easiest ways to avoid costly problems when receiving these “tips” is to avoid the following:

Overpriced goods

Cost makes a difference. The buy price of each stock, even more than the sell price, establishes the return on each investment. Exercise caution when considering stocks that may be reaching the conclusion of their runs, especially if you choose to trade binary options. You could decide to invest in the top companies, but if pay too much for stocks you’re likely to lose money because the price currently displays the very reason you’re making the purchase.

Impulse Buys

Great companies don’t always equate to great stock stocks, and making decisions based on impulse is not a solid investment technique. Some investors are willing to make major investment decisions entirely based upon a little media hype. Others may be willing to act on just about any type of advice. There really is no room for impulse buying in the stock market. Patience is a must. Time provides you with an edge by allowing you to see the big picture.

Pump and Dump Ripoffs

The traditional “pump and dump” scams contain the exact same message: Purchase this stock right away, before everyone finds out about the company’s most recent gadget. The stock typically is lightly traded on the OTC (over-the-counter) market. When investors fall for such a pitch, demand increases the stock price, converting a nice profit for the investors who bought in before you, usually the same people who were recommending the stock. These people then sell their shares, decreasing the value and leaving rookies with losses. Don’t fall for it.

Falling Head Over Heels For Stocks

It’s easy to sometime fall hard for a stock. Do so can sometimes be rewarding, profitable, and have you envisioning a comfortable long-term partnership. The problem is that a stock isn’t going to return the sentiment. If shares start to drop in value, you must be willing to sell. Remain disciplined and diverse. Maintain a belief that you just as easily profit from other stock options. Consider having at least 20 stocks in your portfolio and don’t be afraid to turn to them when necessary.

Avoid the Bandwagon

Many individuals purchase stocks but aren’t actually stock investors. They simply want the one stock that is going to make them rich. While it is true that the next big thing is surely somewhere out there right now, the odds that you discover it before anyone else are extremely small. Instead of going for the long-short, invest in companies with a solid history of excellent earnings and a reputation for making smart capital-reinvestment judgments. Pay for reality and leave the fantasy for others.