- Investing in stock market might be a tricky thing, especially for the first-timers.
- Few tips can help prospective investors to have a smooth ride throughout the volatile situations.
- Emotional control, learning how to sail through volatile times, risk diversification, staying positive and choosing to invest in a business with strong fundamentals are among the few things that investors would want to consider while investing.
For amateur investors, trading on a stock exchange is an activity with endless things to explore. On the one hand, New Zealand’s Exchange (NZX) offers various investment options for potential investors; however, there are few things that amateur investors would want to consider before setting on this adventurous ride.
Here, we discuss five tips for amateur investors who are looking to trade on NZX for the first time.
Leave Emotions at The Door
For amateurs looking to start trading on NZX, the first thing to understand is that emotions play a significant role when it comes to investing in stock markets. This is something you will hear from everyone and anyone in stock trading. It has been very commonly seen that trading activity that is triggered by emotional decisions can hurt the overall investment portfolio.
Also, it is quite evident that the investments made by different investors offer a different level of returns. It has also been seen that investors tend to follow other investors’ advice and, as a result, lose control of their emotions only to end up making wrong decisions. Investors, especially amateurs, need to understand that investment in the market requires control on one’s emotions.
So, the first tip for amateur as well as experienced investors is to take control of emotions like greed, impatience, etc. even in the long term throughout their trading and investment experience.
Be Prepared in Advance for Panic Situations
Investors are advised to be prepared for the situations that are out of their control. Investing in stock markets can be risky and amateurs need to focus on strategies which can help them to sail through the volatile situations.
The environment around markets is highly volatile, and the only thing constant in the present scenario is the changing scenario across markets. Issues of economic interest, both domestic as well as global, are driving the volatility in the stock market.
An investor betting a farm on his choice of investment needs to be extra careful with events that are likely to impact the market. Having a positive attitude and thinking about your investment is a true thing to do.
For example, a lot of investors could not anticipate the dislocation caused by the COVID-19 in the stock market across the planet. As a result, several investors ended up losing their investment amount.
Choose Sound Businesses with Strong Fundamentals
Often amateurs make wrong investment decisions as they just consider the graph showing an upward trend in the price of the stock. This might just be due to short term market forces shaping a good short-term picture for certain stocks. However, there is much more for an investor to focus on.
A noteworthy observation for an investor is that as soon as he/she invests in a certain stock, he/she becomes the owner of the business. Developing this feeling of ownership is important as this shall bring more seriousness while choosing a stock to invest in. It is but obvious that you, as an investor, would invest in a stable business with a good track record of profits and dividends and strong fundamentals.
Therefore, an investor needs to be careful about the nature and fundamentals of the business before choosing to invest in a stock. For this purpose, an investor would want to learn the overall industry performance, long-term as well as the short-term outlook for the same, its management team etc.
These factors can keep changing, so investors need to keep track of the developments related to the business.
Grow Your Investment Portfolio
Timing and endurance are precious things owned by any investor that can help him/her to build a suitable investment portfolio. Firstly, it is okay to not be able to figure out the best combination of assets for investment in one go. However, taking time to research and find investment vehicles that let you fulfil your personal, as well as investment objectives, can help to draw a suitable investment portfolio.
Investment objectives can vary from person to person and time to time. Also, external factors can prove to be highly influential in this regard.
Risk diversification is another important element to consider while devising the investment portfolio. As agreed by prominent investors as well as experts, risk diversification is a way to spread the risk over numerous areas to limit the exposure to potential negative effects arising from any one investment vehicle.
As per conventional wisdom, gold is a safe haven. This makes gold a favourable choice for investors to diversify their portfolios against significant volatility in the stock market.
Stay Positive and Avoid Reacting to Every Short-Term Event of Disruption
For people looking to begin investing, and the ones who are already investing, staying positive about your choice of investment is a key element to draw benefits from your choice of investment. Making an investment decision with shaky belief can prove to be fatal, and you might end up losing significantly.
Since you invest in a stock with a belief of being the owner of the business, you need to focus on the long-term growth.
When you choose to invest for long-term, you are likely to witness events which can cause huge volatility in the stock price. Your focus should not be on short-term events that may impact the stock price. However, events with long-term impact should be taken care of, and investors can also choose to revise their investment strategy.
Perception around gold has been undergoing a paradigm shift and is now seen as a crucial strategic asset, with changing macroeconomic conditions. A vibrant gold market has a positive impact on companies that are involved in the exploration and mining activities.