Strategies and Tips for Stock Market Investing

When deciding what road to take in your investment strategy, it is important to know what kind of an investor you really are. Can you handle being a little aggressive or are you a more conservative investor. Do you get nervous if your investment goes down 2% or can you deal with a downturn of over 10%. This will help determine what avenue you choose to go down with your investments. My premise in these postings has always been that you should find good strong investments and stick with them. However, you may be the type of person who prefers a little adventure and that is alright. You just need to know what you are getting yourself into. I thought I was the aggressive type until I pretty much lost my entire portfolio by trading on margin. My attitude has changed somewhat now.

There are two methods you can use to pick the stocks you are going to use in your trading system. The first is where you pick the sector you wish to invest in and then choose strong stocks within that sector. Another approach is to look for strong companies in the stock market regardless of the industries they are in and after analyzing their financial data, choosing some to invest in.

One method of selecting companies to invest in is to track what the different company's director's are doing. If they are buying stocks in their own companies, the company may be worth looking into. The University of Exeter School of Business did a study of stock purchases by directors from 1986 - 2003 and found a pretty impressive track record of successful investing.

The best returns came from investing in value stocks, i.e. stocks which are undervalued. Returns were 20 percent higher in companies in small, undervalued companies when directors bought their own shares. Director's trades in larger companies showed a 6% out performance return. Of course, this strategy may not always work. For example, new directors often feel the need to purchase shares in the company they just became a director of. Even though there is no guarantee, this strategy is certainly one to look into.

After purchasing your stocks, be patient. Stocks will often double-peak. That is, they may dip down a little then surge upward. If you exit too soon, you may miss out on the best part of the ride.

Another tip is to avoid penny stocks. They simply are not worth the time. They are extremely volatile and you have to buy a large amount of shares to make it worth it. Also there is not the volume available in the stock to provide a safe return. I was involved with a company who bought a large amount of a penny stock. The price of the stock went up 300% but the trading volumes were so low, they could never sell. If they sold any kind of quantity, the price would tank. It was a tough position to be in. Here they were sitting on a potentially valuable stock and they could not get their money out of it.

Another strategy is to let your gains compound. If a stock is doing well, sell off some of it and get your initial investment out of it. That way, the remainder is all profit. You should also be willing to admit when you were wrong. Take your losses early if you have made a bad decision. You can then put that money in a winner and get the losses back.

In summary then, choose your strategy carefully. Decide what methods you will use to invest and then do it. As my grandmother told me once, nothing ventured, nothing gained. She wasn't talking about stocks but it may fit.

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