The Stock Market has the ability to outperform any other investment asset class in the longer-term. Even though the benefits may fluctuate in the shorts-term, in the longer-term stocks have been the most beneficial investment.
At the time of initial investment, it is advisable not to invest all your money at once. You should invest your money gradually in the market to minimize any market timing risk.Once you purchase shares of companies you are interested in, review them at least once a week and compare them with the initial investment
A person can engage in stock market investments as a long-term or short- term investment.
In this article we will discuss some tips to invest in the right way with the objective of creating wealth in the secondary market through the stock market.
Maintaining a diversified portfolio as in any other risk management technique, when investing in the stock market, it is best that you invest in diverse types of assets. For instance, make sure you do not invest all your money in one single sector. You can spread your investment across different sectors.
The companies listed on the Colombo Stock Exchange (CSE) are divided into 20 sectors comprising telecommunication, banking, finance and insurance, beverage food and tobacco, hotels and travels and manufacturing. You need to ensure that you understand each company’s business model and the exposure to business and financial risk before making an investment decision.
Once you’ve decided what your investment portfolio should look like, you can take the initial steps to invest. Approach a suitable stockbroker and open a Central Depository System (CDS) account for him/herself via the stockbroker.
At the time of initial investment, it is advisable not to invest all your money at once. You should invest your money gradually in the market to minimize any market timing risk.
Once you purchase shares of companies you are interested in, review them at least once a week and compare them with the initial investment.
Review the portfolio regularly and add any securities in the areas in which you want to increase exposure. These additional securities can either expand the number of securities you hold or be added to existing holdings. Short-term trading can be a high risk, high return option. You should clearly understand the risks and rewards of each transaction if attempting to profit in the short-term.
A moving average is the average price of a stock over a specific period of time. The most common time frames are 15, 20, 30, 50, 100 and 200 days.
The overall idea is to show whether a stock is moving upward or downward. Generally, a good candidate will have an increasing moving average that is sloping upward.
If you are looking for a good short term investment, you want to find an area where the moving average is flattening out or declining.
Usually the markets trade in a cycle, which makes it important to watch the calendar at particular times. Cycles can be used to traders’ advantage to determine good times to enter into long or short positions.
(Pic by Ravindra Dharmathilake)