With so many different stocks out there, when you’re taking your first steps into the market, it can feel extremely hard to know what to invest in. You may already have some clearly defined goals which will dictate your investment strategy, but even so following a few simple rules can be a huge help in the beginning. Here are a few to bear in mind…
Often, choosing stocks that are the best in their niche means targeting large, well-established brands, or those that are only just emerging, but show tremendous promise. Occasionally, it can mean choosing companies that have a very narrow product niche and target market, such as these: http://www.careismascrubs.com/fearless-collection/ . When you’re chewing over the options available to you, it’s important to remember that the word “brand” means different things in different industries. For example, branding counts for a lot more in a retail company than it does in the mining or construction sector. You should be aiming to spread your portfolio over niches that are dominated by prominent, highly-desired brands, as well as more industrial sectors where these brands are rare or don’t exist at all.
Take a History Lesson
While the way a stock has performed in the past does not necessarily guarantee how it will fare in the future, it’s important to take past performance into account when choosing where you’re going to invest your money. In order for a stock to be a wise choice in established investing strategies, strong past performance is an absolute must. That doesn’t necessarily mean that it has to have been booming over the last year or even the last five. However, the long-term curve of the stock’s performance certainly has to look good. Would you rather invest in a business, management team or brand that’s decimated shareholder value in the long term, or one that’s made a lot of people a lot of money? The answers obvious, I hope! You can read more about understanding past performance here: http://www.investopedia.com/financial-edge/0312/misconceptions-about-past-performance-and-future-returns.aspx
Try to Avoid Small-Cap Names
Okay, it’s not impossible to see some great returns from small-cap companies, and as your strategy develops you’ll probably want to include some promising underdogs in your investing framework. However, for people who are just starting out in stock trading, it’s a good rule of thumb to restrict your investments to mid and large-cap names. Generally, these stocks will be much less likely to undergo any sudden, erratic fluctuations, and the curve of their value will be much more predictable. This is especially true if you take my first point on board, and invest in companies that have a strong foothold in their niche. Yes, diversifying is important, and you may not have the means to invest a lot in upper-crust stocks. However, it’s much better to have a single stock that’s on its way up than many that could do anything.
There are countless ways to tackle the stock market and make good returns, but these rules will certainly get you off to a good start.