How to Invest in the Stock Exchange (with Pictures)

2024 Author: Samantha Chapman | [email protected]. Last modified: 2023-12-17 09:13

The fact that most rich people invest in the stock market is no coincidence. As money comes and goes, investing in stocks is one of the best ways to become financially free and create a stable and lasting state of wealth. Whether you are just starting out or have already created a fortune by the time your beloved retirement arrives, you should make sure that your savings work effectively and generate a profit. To be successful in the investment world it is important to start with a solid knowledge base regarding how the stock market works. This article aims to guide you through the decision-making process that underlies a financial investment, directing you on the path to success, focusing exclusively on how to invest in the stock market. If you want to invest in mutual funds you can consult the following article.

Steps

Part 1 of 3: Establish Investment Objectives

Step 1. Create a wish list

In order to establish your financial goals, you need to have a clear idea of the things or experiences you want to have or experience in your life, and for which you need to earn money. For example, what lifestyle would you like to have once you retire? Do you like traveling, sports cars and fine dining? Are your daily needs limited to the essentials? Use the list obtained to establish your goals.

Writing down your priorities is also helpful in ensuring a future for your children. Do you want your children to complete their studies? Do you want to give him a car? Instead of sending them to a private school, do you prefer the public one to use the money saved for other purposes? Recognizing what's important will help you set the monetary goals for your investments

Step 2. Set your investment goals

In order to create an investment plan, first, you need to fully understand why you want to invest. What level of wealth do you want to reach and how much do you want to invest to achieve this goal? To allow you to have clear ideas, your goals must be as specific as possible.

Common goals include buying a house, paying for college education for children, creating an emergency fund, and saving for retirement. Instead of setting a generic goal, such as "buying a house", be more specific: "Saving € 63,000 as an advance for the purchase of a house worth € 311,000" (most mortgages for buying a property require the payment of an advance that varies between 20 and 25% of the total value in order to guarantee you a subsidized interest rate).
Most financial advisors recommend saving an amount equal to at least 8 months in the period leading up to retirement. This way you should be able to save around 85% of your annual income. For example, if your annual income is € 80,000, you should be able to set aside an amount of at least € 64,000 for the early stages of your retirement.
Use an Excel spreadsheet or tool to calculate how much you will need to spend on completing your child's college studies. Based on your income, calculate the amount of the university installment and find out if your children are eligible to receive government grants. Remember that, essentially, the costs to be incurred depend on the type of university chosen (state, private, etc.). Also note that the costs to be incurred for your children's studies not only include university fees, but also taxes, food, accommodation, transport and materials (books and stationery).
Consider the time factor in setting investment goals. This is a fundamental concept especially in long-term projects, such as creating a personal pension fund. For example: J starts saving at age 20 using an individual retirement account that guarantees an annual interest of 8%. Over the next 10 years he manages to save € 3,000 per year, after which he stops feeding his account but keeps it active. Upon reaching the age of 65, J will find himself with a balance of € 642,000.
Many websites offer free tools that allow you to calculate how your "savings" grow over time, based on the number of years chosen and the interest rate indicated. These tools obviously cannot replace a financial advisor, but they represent a good starting point.
After setting your goals, you can use the amount generated by the difference between your current and future assets to calculate the interest rate needed to grow your savings.

Step 3. Determine your risk tolerance

Risk is the basis of the investments necessary to generate the financial income you need. Your risk tolerance depends on two factors: your ability and your willingness to take a risk. Here are some key questions you should ask yourself to define your risk attitude:

Where are you in your working life? Are you just starting out or have you already reached the maximum of your potential annual income?
To have a higher economic income, are you willing to risk more?
What is the time horizon of your financial goals?
How much liquidity (i.e. how many assets that can easily be converted into cash) do you need to achieve your short-term goals and create adequate assets? Don't start investing in stocks until you've created an emergency fund that can guarantee you can live with your current lifestyle for at least 6-12 months (in case you lose your job). If you need to liquidate your shares after buying them less than a year ago, it means that you are only speculating and not investing.
If the risk profile of a possible investment does not match your tolerance level, it means that it is not a suitable option for you, so do not consider it.
Asset allocation (i.e. the distribution of liquidity in the various investment instruments available) should vary according to the stage of life you are in. For example, if you are young, the percentage of your investment portfolio related to equities will need to be higher. If you have a solid, well-paid career, your job is like a bond - you can use it to secure a long-term income. This allows you to allocate the majority of your financial portfolio to stocks. Conversely, if you have a job whose payout is unpredictable, such as a financial advisor or trader, you should allocate the majority of your financial portfolio to more stable products, such as bonds. While stocks allow for faster growth of your invested assets, they carry greater risk. Over time, you can orient yourself on more stable and safer investments, such as bonds.

Step 4. Know the stock market

Use all the free time you have available to learn how the stock market works and the economic system that underlies the modern world. Listen to expert opinions and analysis to better understand the trend of the economy and be able to identify which stocks can pay the most. The "financial" literature is full of books that can help you along this path:

The Intelligent Investor and Security Analysis written by Benjamin Graham are two excellent investment texts.
The Interpretation of Financial Statements written by Benjamin Graham and Spencer B. Meredith is a short treatise on how to best read and understand financial statements.
Investing in Expectations written by Alfred Rappaport and Michael J. Mauboussin is an easy-to-read text that provides a new perspective on risk analysis and is also a great complement to Graham's books.
Common Stocks and Uncommon Profits (and other texts) written by Philip Fisher. Warren Buffett stated that his investment style is based 85% on Graham's notions and the remaining 15% on Fisher's (most likely underestimating the influence he had).
The Essays of Warren Buffett is a collection of the annual letters that Warren Buffett has written to his shareholders. Buffett has created his immense wealth thanks to investments, thus accumulating a large number of useful tips for all those who want to follow in his footsteps. Buffett has made this content available to anyone, free of charge: www.berkshirehathaway.com/letters/letters.html.
The Theory of Investment Value written by John Burr Williams is one of the best books on learning how to value stocks.
One Up on Wall Street and Beating the Street written by Peter Lynch, a very successful investor and fund manager, is an easy to read, full of information and very interesting book.
Extraordinary Popular Delusions and the Madness of Crowds written by Charles Mackay and Reminiscences of a Stock Operator written by William Lefevre use real-life examples to illustrate the dangers of the stock market when acting on emotion or greed.
If you wish, you can attend online training courses geared to beginners who want to start investing. Sometimes this type of content is offered for free by industry companies, such as Morningstar. Consult the websites of the Italian faculties of economics and commerce; these facilities could also provide training-oriented online content.
Regional or municipal adult education centers or training centers may offer financial training courses. Often this content comes at a low price and can be a great starting point. Search online to find the centers closest to your area of residence.
Start with simulation alone (what is called "paper trading"). Simulate buying and selling of shares using the daily closing price. Execute your transactions exclusively on the card. Alternatively, open a "demo" account at one of the many brokers present online. Practice will help you hone your strategy and broaden your knowledge without putting your money at risk.

Step 5. Run the stock market analysis

Whether you are a pro or a beginner, this will be the hardest step. It is in fact pure art applied to scientific instruments. In order to understand and analyze the market in order to formulate a plausible development scenario, you will need to accumulate an enormous amount of data and statistics regarding the performance of the securities and develop the "sensitivity" necessary to choose the truly relevant ones.

This is why many investors buy the shares of those companies that make products they know and use. Look at the products you have at home, starting from those you have in the living room up to the inside of the refrigerator. This process will lead you to understand that you have direct knowledge of many products and will allow you to perform a quick and intuitive analysis of the financial performance of the manufacturing companies, comparing them with those of their respective competitors.
Reflect on the products examined, try to imagine the economic conditions for which you could decide to stop buying them or to increase or decrease your stocks.
If market conditions push ordinary people to buy large quantities of a product you are familiar with, consider investing in the stock of the company that makes it.

Step 6. Focus your thinking

When you analyze the market trying to formulate a plausible development scenario and consequently identify good stocks to invest in, it is important to make forecasts on some specific areas:

Trends in interest rates and inflation and how these variables may affect the yield of fixed-rate financial products or other assets. When interest rates are low, consumers and businesses can access cash and credit more easily. This means that people have more money to use for their purchases and consequently tend to buy more. Companies, thanks to higher revenues, will therefore be able to invest in order to expand their activities. In the stock market, the opposite happens: low interest rates lead to a rise in the price of stocks. Conversely, high interest rates lead to a lowering of the value of the shares. When interest rates are high, accessing lines of credit, such as a mortgage, becomes more expensive. In the latter scenario, consumers spend less and consequently companies have less liquidity for investments. The primary effect is therefore a slowdown in economic growth or even a stall.
The business cycle of an economy combined with a broad spectrum analysis of macroeconomic data. Inflation is the rate of growth of prices over a given period of time. Moderate or "controlled" inflation is usually seen as a good sign for the economy and the stock market. Low interest rates combined with moderate inflation generally have a positive effect on financial markets. Conversely, high interest rates coupled with deflation usually result in a market crash.
Favorable conditions in certain sectors of the economy coupled with a more focused macroeconomic analysis. Some businesses, such as automotive, construction, and airline companies typically perform well when the economy is in a growth phase. In an area where the economy is strong, consumers are more confident about the future, so they tend to spend more and buy more. For this reason the industries of these sectors are called "cyclical".
Other companies manage to have excellent earnings in stagnant or declining economic phases. Normally these are companies that are not influenced by the economic trend. For example, insurance companies or companies that supply primary goods, such as water and electricity, are generally less influenced by consumer behavior. The reason is simple: people will always need water, electricity and insurance. Companies of this type are called "anti-cyclical".

Part 2 of 3: Processing Investments

Step 1. Determine your "asset allocation", ie the distribution of your assets among the various investments in the program

Decide how much money to invest in stocks, how much in bonds, how much in more aggressive financial products and what amount to leave liquid or invest in liquid instruments (such as certificates of deposit, treasury bills, etc.).
The goal is to determine a starting point based on your market analysis and risk tolerance.

Step 2. Choose investments

Your risk tolerance and its return will eliminate a large number of available options. As an investor, you can choose to buy stock in a single company, such as Apple or McDonalds. This is a classic choice and a prototype of the basic investment. A bottom-up approach involves buying or selling each stock independently, based on your forecast of future prices and dividends. Investing directly in stocks will allow you to avoid paying mutual fund fees, but will require more effort to achieve a good level of diversification of your portfolio.

Choose those stocks that best reflect your investment needs. For high income, high risk tolerance and low short- and medium-term economic needs, choose mostly stocks with an above-average expected growth rate and little or no dividends.
Index funds normally have lower commissions than normal managed funds. These products offer greater security as they are based on solid and safe equity indices. For example, an index fund could contain within it a selection of the same stocks present in the S&P 500 index. The fund in question will be composed of all or almost all of the shares included in the index, which will allow it to have its own return. Such an investment is considered relatively safe, but not very exciting, so stock market enthusiasts may not be interested. Index funds can prove to be a great starting point for those entering the financial world for the first time. Buying and holding the shares of an index fund with a low percentage of expenses and using an accumulation strategy (PAC) has proven, in the long term, to offer a return higher than that of a mutual fund. Choose an index fund with a low percentage of maintenance and handling fees for its constituent securities ("turnover"). For investors with less than € 100,000 cash, in the long run, index funds are difficult instruments to leverage. On the contrary, for those who have more than € 100,000 available, in general, shares are preferable to mutual funds, which provide commissions proportional to the size of the fund itself.

Even if an index fund provides only 0.05% of annual maintenance costs, projecting this cost over the long term, the amount still becomes considerable. Assuming an average annual return of the stock equal to 10%, a maintenance expense of 0.05% on an investment of € 1,000,000 represents € 236,385 over a 30-year period (compared to a final assets of € 31,500,000. after 30 years). Read this article for more information on how to choose the best stocks or funds, based on your investment needs.
ETFs (Exchange-Traded Funds) are a particular type of index fund, traded like shares. They are passively managed funds, so the securities that comprise them are not continuously bought and sold as is the case in an actively managed fund. ETFs are often traded without paying commissions. You can buy ETFs based on indices, stocks or commodities, such as gold. ETFs are also a great starting point for a novice investor.
You can also invest in actively managed mutual funds. This type of fund collects the liquidity of many investors and then distributes it mainly in stocks and bonds. In this case, by investing in the fund, you will buy the shares of its entire portfolio. The fund manager creates the portfolio with a specific investment objective, such as constant long-term growth. However, as these funds are actively managed (which means that there are one or more people who physically and constantly change the fund's asset allocation in order to achieve the investment objective), the fees charged can be very high. Mutual fund maintenance fees can negatively affect the rate of return and prevent your assets from growing over time.
Some companies offer customized products aimed at those investors who have reached retirement. These are funds that automatically vary the type of securities held by the investor based on age. For example, the investment portfolio of the youngest could be composed mostly of ordinary shares, which over time will automatically be replaced with fixed income securities. In other words, these products automate transactions that would compete with the investor over time. Be cautious because these funds often charge very high management fees compared to simple index funds and ETFs, while offering a more complete service.
When choosing, it is important to evaluate the amount of expenses and commissions relating to the transaction. Costs and fees can affect the percentage of return on your investment, effectively decreasing your earnings. It is essential that you know the details of the costs to be incurred when buying, holding or selling a particular stock. In relation to shares, transaction costs include commissions, the difference between the purchase and sale price ("spread"), "slippage" (ie the difference between the price entered in the buy or sell order and the real price at which it was executed), any taxation applied by the State to the individual transaction and the taxation applied to the yield of financial products (currently in Italy equal to 26%). In the case of funds, costs could include management fees, redemption fees or "sales loads", redemption fees, securities exchange fees, account maintenance fees and any operating expenses.

Step 3. Identify the intrinsic value and the real price you have to pay to buy each security of your interest

The intrinsic value of a share represents its real value which may differ from the current price at which the shares are traded. The actual price to pay is normally a fraction of the intrinsic value that guarantees a margin of safety ("MOS"). The MOS could vary between 20 and 60%, depending on the accuracy with which you calculated the intrinsic value of the security. There are many techniques with which to evaluate a stock:

"Dividend Discount Model": the value of a share is based on the discounting of all future dividends. Therefore, the value of a share is equal to the ratio of dividends per share to the difference between the "discount rate" and the growth rate of dividends. For example, let's assume that Company A pays an annual dividend of € 1 per share and that the growth rate of that value is 7% per annum. If the rate of the cost of capital is equal to 12%, the value of each single share of company A is given by 1 € / (0, 12-0, 07) that is 20 € per share.
"Discounted Cash Flow Model" (DCF): the value of a share is given by its present value plus all the expected future cash flows. Therefore the DCF = CF1 / (1 + r) ^ 1 + CF2 / (1 + r) ^ 2 +… + CFn / (1 + r) ^ n, where "CFn" is the expected cash flow over the time period "n" and "r" is the discount rate. The DCF calculation projects the annual growth rate of free cash flows (ie the cash flows to which the "Capex" has been subtracted) over the next 10 years and estimates the terminal growth rate later used to calculate the terminal value. The data obtained are then added together to obtain the DCF value. For example: if company A has an FCF of € 2 per share and the growth rate of the FCF is 7% for the next 10 years and 4% for the following years, assuming a discount rate of 12%, the A share's value will increase by € 15.69 reaching a terminal value of € 16.46 and its value per share will be € 32.15.
"Comparative Method": this approach values a stock based on the ratio of price to earnings (P / E), to equity (P / B), to sales (P / S) or to cash flow (P / CF). In this way, the current price of the stock is compared with an appropriate benchmark and with the average rate of growth of the share's value to determine the price at which it should be sold.

Step 4. Buy a title

After identifying the shares to buy, it is time to proceed. Find a broker who can fully meet your needs and allows you to place your buy or sell orders.

You can rely on a broker who will simply execute orders relating to the securities of your interest, or choose one that provides additional advisory and management services for your investments. In the latter case the costs will be higher. Perform your analysis with care and attention by checking the websites and reviews of each broker examined in order to identify the one that best suits your needs. The most important factor to consider is the percentage of commissions required to execute each individual order. Some brokers, when the client's investment portfolio meets certain requirements, offer commission-free transactions, while others provide a list of securities whose commissions are paid directly by the broker.
Some companies offer direct share purchase plans (DSPPs) that allow you to buy shares without having to use the brokerage services offered by brokers. If you are planning on buying and holding a stock or creating a capital accumulation plan (CAP), this may be the best option available to you. Search online, call or write to individual companies to find out if they offer such a service. Pay close attention to the expected fees and choose the participation program that offers the lowest costs.

Step 5. Create an investment portfolio that contains 5-20 different stocks to ensure the right level of diversification

Diversify by buying stocks from different sectors, companies, countries and types.

Step 6. Hold your investments for a long time:

5, 10 years or preferably longer. Avoid giving in to the temptation to liquidate your positions when the market inevitably goes down, which can last for days, months or years. The long-term trend of the stock market is always growing. Also avoid giving in to the temptation to take profits (by liquidating your positions) if the value of your securities has grown by 50% or more. As long as a company's fundamentals remain solid, don't sell its stock (unless you're in dire need of cash). It makes sense to liquidate a stock when its price is well above its true value (see step 3 of this section) or if fundamentals have changed dramatically indicating that the company is most likely doomed to inexorable decline.

Step 7. Invest regularly

Capital accumulation plans (CAPs) force you to buy low and sell high, which is a simple and solid investment strategy. Reserve a percentage of your monthly income for your investments.

Remember that a falling market is primarily a clear buy signal. If the stock market were to lose 20%, move more liquidity into the stocks. If the loss reaches 50%, invest all the cash and bonds you have in stocks. Such an approach may seem foolish, but the market always "bounces", even in the most critical phases during the two crashes of 1929 and 1932. Most successful investors have bought their shares when the relative price was very low

Part 3 of 3: Controlling and Managing Investments

Step 1. Choose a benchmark

In order to correctly measure the performance of your shares and to be able to compare them with your analysis it is very important to choose an appropriate benchmark. Develop a criterion by which to calculate the expected growth rate for each individual investment, in order to understand if certain shares are worth keeping or if it is better to liquidate them.

Benchmarks are typically based on the performance of indices from different markets, making it possible to determine whether or not an investment is reflecting the overall market trend.
It might seem counterintuitive, but the mere fact that a stock's value is rising does not imply that it is a good investment, especially if the growth rate is lower than that of similar stocks. Conversely, not all investments that are falling are a failure, especially if similar products are suffering greater losses.

Step 2. Compare actual performance to expected performance

To be able to decree its validity, you must compare the performance achieved by each individual investment with those initially established. This analysis will also help you determine if you need to vary the asset allocation of your portfolio.

Unless you have good reason to believe your goals will be met in the short term, investments that don't meet your initial analysis should be liquidated and money invested differently.
Give your investments time to develop. Evaluating the performance of a one- or three-year stock makes no sense if your time horizon is long-term. The stock market is unpredictable in the short run, while in the long run it has proven to have a steady upward trend.

Step 3. Check your investments and update your analysis

After purchasing the securities, periodically check their performance.

Evaluate the circumstances and opinions that dictate change. In the world of investing it is important to properly evaluate all new information and make the necessary changes to your initial analysis.
Evaluate the accuracy of your market analysis. Did your predictions come true? Did something go wrong? Use the resulting data to review the forecast on the future performance of your investments and adjust your portfolio accordingly.
Make sure your portfolio's return is meeting risk-related parameters. Even when your stock moves as expected, the market can still turn out to be much more volatile and risky than what you initially assumed. If a high-risk situation makes you uncomfortable, it may be time to change your investments.
Evaluate if you are able to achieve the goals you have set for yourself. Your investments may grow within the risk limits you have set yourself, but they may do so too slowly for you to reach your goals. In this case, consider new investment options.

Step 4. Don't give in to the temptation to do too many things

You are not a speculator, you are an investor. Remember that every profit you make involves the payment of taxes and commissions.

Don't listen to advice on what stocks to buy. Do your own research and don't pay attention to the advice of alleged experts, professionals, brokers, and banks. In this regard, Warren Buffett revealed that he has always thrown away all correspondence recommending the purchase of specific stocks or securities, stating that these recommendations come from people specially paid to favorably advertise certain stocks, so that the related company can raise more money..
Don't listen to media news about the stock market. Focus on long-term investments (at least 20 years) and don't get distracted by short-term speculations that can distort normal price movements.

Step 5. If you feel the need, consult a reputable broker, bank or financial advisor

Never stop learning, keep reading financial books and articles written by experts who have been successful thanks to their investments in the same markets and products you are interested in investing in. Also read books on the emotional and psychological side of the investment world. This is a very important topic that can help you overcome the inevitable ups and downs of the stock market. Knowledge will allow you to make the best possible decisions. Also remember that you will need to be prepared to accept a possible loss, sometimes resulting from a choice that seemed very wise to you.

Advice

Buy shares in companies that have no "competitors" on the market. Airlines, retailers and automakers generally are not considered good long-term investments. In fact, these are commercial sectors in which competition is very high, which, by examining the respective balance sheets, translates into very low profits. In general, do not invest in companies that generate a large part of their turnover in specific periods of the year, such as airlines and those related to retail, unless they have shown constant profits and revenues even over a long period of weather.
Look for opportunities to buy shares in companies that are solid and at a price momentarily below their real value. This concept is the essence behind investing.
Information is the lifeblood of a successful stock market investment. The key is to be disciplined in carrying out research and related market analysis and in evaluating the return on an investment by constantly monitoring it and making the necessary changes.
Companies with a great brand can be a good investment option. Coca-Cola, Johnson & Johnson, Procter & Gamble, 3M and Exxon are all great examples.
Don't analyze the portfolio value of your investments more than once a month. Markets are volatile, so if you get swayed by global stock market trends, you may be tempted to liquidate your positions too soon, losing an excellent long-term investment. Before buying shares in a stock, ask yourself this simple question: "If the value of my shares were to fall, would I be more likely to liquidate them or buy more?" In case you decide to liquidate them, do not buy any more shares.
Consider opening an individual retirement fund or joining your company's retirement fund. They are two great forms of long-term investment.
Be aware of your prejudices and don't allow emotions to influence your decisions. You strongly believe in yourself and in the strategy behind your investments, in this way you will be well on your way to becoming a successful investor.
Stock exchanges like Wall Street are focused on short-term investments. This is why it is difficult to predict possible future profits, especially if projected over the long term. To calculate the objective of your investment (the price at which to liquidate your positions), make forecasts with a time horizon of more than 10 years and update them over time using the DCF. The only way to make money from the stock market is to invest for the long term.
Understand why stocks related to so-called "blue chips" companies are a great investment. These are historical companies with a very high capitalization, characterized by a constant growth in profits and annuities. Being able to spot these companies ahead of other investors will ensure that you make bigger profits. Learn to be a successful bottom-up investor.
The goal of your broker or financial advisor is to be able to retain customer loyalty, so that you can continue to earn from your commissions. They will advise you to diversify your investments so that the performance of your stock portfolio follows indices such as the Dow Jones and the S&P 500. By doing so, they can easily justify those moments when your assets will decline. The "average" financial advisor has very limited technical and economic knowledge relating to the financial world. Warren Buffett is famous for the following phrase: "Risk is the prerogative of those people who don't know what they are doing."
Invest in those companies that hold equity partners in high regard. Most companies prefer to spend the profits on the purchase of a new personal jet for the CEO instead of paying dividends to shareholders. A long-term oriented management remuneration system, "stock-option expensing", a prudent capital investment policy, a reliable dividend policy, growing earnings per share and the BVPS ("Book-Value-Per-Share") they are all indicators of a company oriented towards its shareholders.
Before actually buying stock, experiment with what's known as "paper trading". It is simply an investment simulation, which tracks the stock price and all your buy and sell transactions, as if you were actually trading. You can then check whether your investments have generated a profit. Once you have identified a reliable and profitable strategy and you are comfortable with the natural functioning of the market, you can move on to the real operational phase.
Remember that you are not buying and selling worthless pieces of paper, the price of which goes up and down over time, you are buying stock shares of real companies. Your decision to buy the shares of a particular company should only be influenced by two factors: the financial strength of the company and the price of its shares.

Warnings

When it comes to money, people often lie out of pride. When someone offers you advice, remember that it's just an opinion.
Do not use technical analysis, because it deals with strategies used by speculators and not by investors. There has been a long and bitter debate about its effectiveness.
Do not try to predict the market trend. Predicting exactly when a security will reach its minimum or maximum value is impossible. If someone claims they can, they are most likely lying.
Don't buy stocks on the sidelines. In short periods of time, the price of the shares can change widely without notice. If so, using leverage can clear your investment account in moments. Scenarios where the price of a stock loses 50% of its value, zeroing an account, and then "bouncing" to the initial price are very common, so don't use leverage. Buying shares using this tool is mere speculation and not an investment.
When you decide to invest, do not blindly trust the suggestions of others, especially if they come from those who could profit from your operations. Be cautious about following the advice of brokers, financial advisors and market analysts.
Do not focus your operations on day-trading, speculation or those operations that promise a short-term profit. Remember that the greater the number of transactions performed, the greater the commissions you will have to pay to your intermediary, negatively affecting your profits. Compared to long-term gains, gains from short-term transactions are also taxed much more heavily. Mainly short-term (daily) trading is to be avoided because it requires considerable experience of the financial world, extensive knowledge and a lot of courage (as well as a large dose of luck). In other words, it is an investment method not suitable for beginners.
Do not execute operations on the basis of "momentum investing", that is, buying those stocks that have given excellent profits in the last period. In addition to being a technique that does not always work, it is pure speculation and not an investment. To dispel any doubts, ask a few questions of those who used this strategy to invest in the shares of companies in the technology sector at the end of the last century.
Always invest only the money you are willing to lose and make sure you can afford it. Equities can depreciate a lot and quickly. While an investment may seem smart and have good prospects for earnings, there is always the possibility that it can go wrong.
Invest only in stocks and never trade options and derivatives. They are speculative financial instruments, not investment ones. By investing in stocks you will have a better chance of achieving your financial goals. Conversely, the use of options and derivatives will expose you to a greater risk of loss.
Do not invest in stocks that have had a modest return and are low priced. There is always a reason why a stock is cheap. The fact that a stock that was worth € 100 is now worth € 1 does not guarantee that it cannot depreciate further. Remember that, as history has already shown, a stock's value can go as low as 0.
Don't get involved in insider trading. Making an investment exploiting confidential financial information, before it is made public, is a crime punishable by law. No matter how many profits you may make from such an operation, they will in no way counterbalance the legal problems you may face.