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Basic Investment Principles In The Stock Market – Part 2

This is part 2 of the four part series on the discussion of principles of investment in the stock market. In the first part, the first principle involved realizing that the stock market is just another investment vehicles and that before you start investing in the stock market, you must realize that there are other vehicles of investments. We continue by discussing the next two principles. If you wish to view the entire article, please visit my blog.

2.) You must know that investing in the stock market is a roller coaster ride – One of the advantages of the stock market is that there are times when it really climbs up then really big profits are made. However when it really goes down then really big losses are also made.

The general strategy is to sell when the market is up and to buy when the market goes down. About two years ago when I started investing, the Philippine Stock exchange index was only about 2000 + points. I’ve seen it go up to 2500 points and slide back to the 2000 level in the middle of 2006. It slowly and steadily climbed up to the 3200 level in the 1st quarter of 2007 and dropped in a very short period of time during the last days of the 1st quarter of 2007. It climbed steadily to a high of 3700+ points in July 2007 but slid back below 3000 points a month after. By October 2007 it climbed steadily to its highest at 3800+ points. A month after it dropped to 3600+ points.

There is only one conclusion that can be drawn here, that is it is really a roller coaster ride. Huge Profits and losses are made during those times that the market is up or down.

3.) Know what type of investor you want to become – There are two types of stock market investors, long term investors and short term investors. This is a very vital question that each serious new investor should ask himself. This will ultimately affect whether you should buy or sell a certain stock.

Long term investors hold their stocks for 5 to 10 years. This means that that they believe in the company that you are investing in. This also means that and that they have extra money for other things because they can afford to put in their money for a long period of time.

Long term investors also do not have to worry about the gruesome day to day technical analysis that has to be monitored. For as long as they believe in the fundamentals of the company there is no problem if the stock is held for a long period of time. But if you are a short term investor, that means you decide to cash in within a months time to 6 months time, then you should consider several things. You have to monitor the day to day activities of the market.

Short term investors have also to consider if they can afford to put in their money for a long period of time however the time element is not as long as that of the long term investor. This is so because during the short period wherein you buy and sell stocks, you might incur losses during this time so you may decide to wait longer a little bit more.

When I started out I determined to be more of a long term investor. I do have stocks whom I consider as short term but I consider most of the stocks I hold to be invested in the medium and long term period.

Would you like to know more about investment strategies ? Visit the blog of Zigfred Diaz where he blogs about several interesting topics such as investments, money management, business, making money online and Stock market investing

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