After years of thinking about investing in stocks, you’re finally ready to get started. While this process can be very exciting, it can also be extremely stressful and come without the concrete assurances that you may want. Nobody can tell you which stock will be the most profitable, or which one can withstand the test of time. One of the most common complaints Mark Matson hears from new investors is that they really don’t know where to start, or that they aren’t sure that they’re doing things correctly. While there are no secret methods for always choosing the best stocks, there are ways to have more confidence in your investment choices.
Have the right expectations
A lot of the anxiety that first-time investors experience can stem from having unrealistic expectations. If you assume that investing in the right stock will get you rich fast, you’re most likely going to be very disappointed in the future. Returns on your investments can take a long time to see, and you need to be patient if you want to actually reap any benefits. Don’t assume that you need to focus all of your time and money on one stock; it’s usually good to diversify, even in the beginning of your investment career.
Think like a business owner
If you want to get a good handle on your new investments, then view your stocks like you’re the owner of a business. Stocks aren’t just things that people trade – they represent ownership interests in companies. Manage your stocks like you would manage a business yourself. Read and analyze financial statements, and pay special attention to every yearly update that you receive. Keep abreast of trends in the market, and try to keep an open mind and use some foresight when it comes to the future of your stocks.
Whether it’s because of media hype or general popularity, it seems like there’s a new hot stock every month that promises to bring its investors wild riches. It doesn’t take a market genius to see that some stocks can have their value seriously overestimated. So how do you determine which have real potential and which are going to flop? There’s no one answer to this question. Before making any decisions, take a close look at the industry and see how likely the company is to do well. Has their progress been slow and steady or very sudden? When in doubt, always choose steady climbers with a record of stability, even if on a regional scale. If you still aren’t sure, avoid the stocks entirely and go for something more secure.
The investment game isn’t for casual players, but it’s something that countless people try to get into because they see the substantial financial potential some stocks can have. When you’re first starting out and begin to see a modest return on your investments, it can be easy to think that you know everything. You may assume you’re ready to start taking bigger risks and putting in a bit more money, but you shouldn’t let your modest success trick you into making bad decisions.
If there’s one thing Mark Matson hears a lot of, it is complaints from investors who started off well, but now find themselves in a world of financial trouble. It can be difficult and a little embarrassing to find out that something you thought was going to bring in a lot of money is actually messing up your portfolio. Don’t make the same mistakes that many new investors make and avoid these common pitfalls:
Going for what’s hot instead of proven good stocks
You just heard that a hot-shot billionaire swears that they have the next big thing in the market, and people everywhere can’t stop talking about it. You end up investing the majority of your assets into the hot new stock, and end up losing a lot of money in a few months when things cools off. Everybody dreams of “getting in on the ground floor” of a stock and making it big, but a lot of these new “innovations” and ideas people are trying to invest in may not have staying power. Stocks in resources and transportation have been known to do well long-term, but new fads and gimmicks generally don’t.
Going “all in” on one stock
Despite what you may have heard from some of your fellow hot-shot investors, there is no such thing as a “sure thing” in the stock market world. When people start seeing their stock of choice rise, they often put more money in and assume that it’ll keep going up. Others may have heard rumors that a certain company is about to release some sort of groundbreaking product, and end up shifting all of their money and focus into that stock. The secret to making good investments isn’t to dump everything into one place; it’s to have a diverse stock portfolio so that you can keep earning from a variety of investments.
Ignoring plans for “potential profit”
You’ve been telling yourself that you will sell your stock as soon as it hits $100 a share. The day finally comes but, since it hit $100, you’re thinking that it could go up a bit higher; instead of selling, you decide to wait and see how far it can go. That may sound like a bold strategy, but sometimes your old plans are much better than your new ones. Don’t wait for a potential rise in value that may never end up happening. If your plan is to sell your stocks when they hit $100 or to buy certain stocks when they get cheaper, stick to it.
What small cap stocks should I buy?
It’s the question that causes level-headed, long-term-thinking financial advisors to take a step back.
That question carries a lot of underlying meaning that’s not necessarily positive for investors. It’s associated with words like “gamble,” “risk,” and “speculation” – dangerous words but words that attract investors nonetheless.
So when Cheryl Cason of Fox Business asked Mark Matson if smaller stocks were “a better bet” for investors, Mark Matson took a step back by saying, “I don’t ever want investors speculating with their money. What I want them to do is build a prudent portfolio, and part of that is adding diversification.”
… and part of that diversification is adding small cap stocks.
Matson, an advisor who’s well-reviewed by his clients and colleagues, elaborates on this in the video below.
Cason’s question came after she announced that total returns for small stocks were about 40% higher than S&P 500 returns from 2003 to 2013. Continue reading
Recently, Neil Cavuto of Fox Business Network spoke with Mark Matson (Matson Money, Inc.) and Lori Rothman (Fox Business) about Netflix’s gradual rise to the top that came about a year after its 50% price hike in 2011.
After Netflix changed its pricing structure in 2011, the online streaming and DVD-by-mail company experienced a year-long decline in stock prices until July 2012. Since then, it’s been experiencing a steady rise to the top. After the stock reached its lowest point in July 2012 at 53.91, it continued to rise until it peaked at 448.37 in March 2014. Continue reading