So, you have signed a contract with a broker and purchased securities. Now starts the most important part. You need to learn how to handle stocks in order to earn, rather than lose money.
How to ‘use’ shares in order to receive money?
Those not familiar with the stock market consider the shares to be something like a deposit, so that one may withdraw money at any time (albeit with a fee), to receive interest each month. In fact, shares ‘operate’ differently:
- Securities can be sold or bought at any time - at your request. Nobody, neither the emitent nor the broker, will oppose.
- Shares can only be ‘redeemed’ at the current market price. If you bought them at higher price, and the value sagged, you will not be able to return the money. It is better to wait for the quotes to rise.
- There is no strictly fixed annual interest here. There are dividends, which are a part of the profit distributed among all shareholders. Dividends are paid once in the reporting period (usually annually, sometimes semiannually or a quarterly). It is not obligatory to hold shares all year in order to receive interest, it is enough to make a purchase before the end of the reporting period.
- State ‘insurances’ you will not have, as with deposits. If the company that issued the shares goes bankrupt, you may count on receiving a part of its share capital. But in all likelihood you will receive much less than you invested.
- ‘Invest and think no more of it’ - this is not about shares. Yes, long-term investments are available, but you still have to monitor quotes and the company’s standing from time to time.
Before you start working with stocks, think about the amount you are willing to put at risk. The risk will always be there. Our joint task is to reduce this risk and increase the chances of profit.
How to handle shares?
Each investor comes up with his own strategy, and no one will tell you how to handle securities in order to secure a profit. But there are several one-size-fits-all recommendations calculated exactly for a stable income and minimum risks:
- Invest in blue chips. These are shares of large and long-established companies. They are unlikely to fall in value in the near future. It is the perfect time to invest in European and American stocks. Russian ‘blue chips’ are slouching through a recession, but things may change still.
- Diversify your risks. Invest in shares of different companies, build up an investment portfolio. Thus you will not lose all the money.
- Focus on one or two industrial sectors. It can be a commodity market, IT, food, etc. It is easier to keep tabs on one industry instead of a dozen. To diversify the risk, it is better to choose two completely different industries (for example, Coca-Cola Company and BP).
- Never succumb in to bouts of panic and take your time. Speculators thrive on panic and agiotage. If you are not a prominent gambler with millions to your name, do not try to follow their example. So, if the shares show a considerable plunge, wait: perhaps in a month or two their value will return to its normal.
It is not that complicated to handle shares, if you know how the broker and the stock exchange operate. Carefully select stocks, build up a portfolio of securities of various companies, sell them higher and here is your profit.