No matter how many books you’re reading, podcasts you’re listening to or websites you’re visiting to learn about stock market intricacies, investing is a risky business. It is not easy to earn a consistent return at a fair level of risk.
Predictions are based on market activity and human psychology, so no one can predict exactly what investors are going to be doing and how stocks will respond. And, while this question can not be solved by any amount of experience, what individuals can do is study past events in the stock market participation.
1. Stock Market Theory
The principles of asset allocation, arbitrage, short selling, buying and selling stock, and many other ideas and approaches are accurate, long term, and consistent. One major problem with financial markets, however, is that there are several unpredictable variables. Different factors play a role with each situation in stock trading. In addition, what worked or failed earlier may now do the opposite.
2. Skill or Luck?
Learning stock market theory is surely a good starting point for new investors; however, recognizing patterns of activity and behavior is also critical for buyers and sellers.
And with those skills, experienced investors don’t make the right decisions, or at the wrong time they find themselves in the wrong market. Hence, investment success is a mixture of knowledge , experience and chance.
3. Consider the Time Horizon
The economists have held contrasting views for a long time in the form of stock market index. Neoclassicists, for example, believe in leaving the markets alone while Keynesians prefer market intervention. There is no perfect solution to any functioning economic and financial problem.
The longer the time horizon however, the easier it is to apply the theory. Because of uncertainty, investment in the short term is more likely to be fraught with risk. It is risky than investing with a longer time period where the ups and downs balance out and term stocks.
4. Portfolio Diversification
Diversifying an investment portfolio is a prime concept for the new investor to buy stock. The portfolio should be periodically rebalanced, and an unreasonable fee charged by a portfolio manager should not be permitted.