How to pick stocks for long term – cheat sheet for beginners

Since the stock market is bag full of highs and lows and in such a journey some tried and tested rules help investors and traders boost their individual chances for long-term. A focus on the future with an eye towards long-term investment helps to maximize profits for investors.

There are some investors who lock in profits by selling their most appreciated investments and holding onto some low performing stocks which they expect to bounce back. There might be some great stocks that might climb further and poor stocks risk focusing out totally.

To sort out the difference between stocks that deliver over medium to long term one needs to utilize a healthy mix of subjective, quantitative and qualitative elements that impact the return for investors in the long term. Here are some factors that should be kept in mind on to reap rich profits in the long term.

Ride your winners, Cut your losses

There is no guarantee that a particular stock will bounce back after a great fall and it is important to be realistic about the possibility of investments which are performing poorly. Recognizing losing stocks sometimes does mentally flag disappointment but you should not feel shame in accepting mistakes and selling off investments to block further losses. Winners give profits on paper but loosers involve real money.

Do not fall in love with your stock purchases

If you bought a stock and now it is performing poorly then you should sell it as soon as possible. Do not get emotionally attached with your stocks. While investing in stock markets it is important to master two E’s which are your “Ego” and “Emotions”. And always try to resist the temptation and stay away from the herd mentality.

Never ever lose more than 10% on any single trade

Everyone makes mistakes while guessing about the future of any stock. But it is always better to accept your mistakes and learn from it and retrive your mistakes before ending up in tons of losses. While investing make sure how much risk appetite you have and till what extend you can handle loss. For beginners and newbie it is advised not to suffer any loss which is more than 10% on any single trade.

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Diversification

Beginners should keep in mind that the money they are investing should be diversified among different sectors. Beginners or newbie should begin with atleast 10 stocks of different sectors. If one sector is not performing well or is not giving the promised returns then it does not mean that no sector will give such returns.

Do not chase a spicy trend or news

Never take up or trust any sort of stock tip as a piece of trustworthy valid information and do not put your money on risk by others recommendation. Always prepare your own analysis report and study every detail possible on any particular company before putting your hard earned money in risk. There might come tips that might profit you in some way but such tips will not always be true and there are possibilities that you might lose your money. So it is always preffered and advised that you should invest after your own deep research and always study before making investments.

Don’t over Overemphasize on the P/E Ratio

Many investors give great importance on the price-earnings ratios, but giving too much emphasis on a single metric is not advisable. P/E Ratios are best used when in conjuction with other analytical processes. However a lower P/E Ratio does not mean a security is undervalued and a higher P/E Ratio does not mean a company is overvalued.

Focus on the Future

Investing needs deciding on informed choices hooked in to things that presently canʹt seem to occur. Past data can show what could be on the horizon, yet itʹs never ensured. Always remember you are putting up this money for your future emergencies and the more you invest today in a disciplined manner the more return you are to expect.

Be open minded

There are many great companies that are household names, but many good investments lack the brand awareness. There are almost thousands of smaller companies which have the potential to become the blue-chip names of future. There have been times when small cap stocks have historically shown greater returns than their large cap counterparts. But this does not prove the point that you should devote your entire portfolio to small cap companies.

To sum up

You should not try and pretend to know and understand everything. If you have experienced people try and take advise from them about what all mistakes they did that should and need to avoid. These are some of the advices passed on by successful investors and traders and how they started their journey by keeping these points in their mind and not letting others advice affect them or their investments.