Buying Shares – Chapter 15: Buying Shares – The Rules

This is chapter number 15 out of 19. Read the rest:

Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1: Introduction
Read Buying Shares – Chapter 2: What are Stocks and Shares?
Read Buying Shares – Chapter 3: Different Classes of Stocks
Read Buying Shares – Chapter 4: What affects ‘Stock Prices’?
Read Buying Shares – Chapter 5: Stock Markets
Read Buying Shares – Chapter 6: Stock Exchanges, Why are companies listing on a stock exchange today?
Read Buying Shares – Chapter 7: Stock Indexes – What do they stand for?
Read Buying Shares – Chapter 8: How do I Trade Shares?
Read Buying Shares – Chapter 9: What kind of a Trader are you?
Read Buying Shares – Chapter 10: Investing Methodology: Planning Trades and Picking Stocks
Read Buying Shares – Chapter 11: Placing an order – The technicalities involved, Step 1 – Open a Share Dealing
Read Buying Shares – Chapter 12: Step 2 – Research the Stocks
Read Buying Shares – Chapter 13: How to Read Quotes of Shares
Read Buying Shares – Chapter 14: Buying and selling shares- how’s it done?

Whatever your reasons are for buying shares, there are some golden investment rules which you should follow:

Prices that go up can come down

The primary and most vital rule is that the price of shares can go down as well as up and just because a particular stock has been performing well for an extended period, there are no guarantees this will continue. Plan for the worst.

Can you afford to lose?

Don’t spend any more cash than you can afford to lose. Definitely don’t put life savings into stocks and shares.

Understand the nature of risk

High risk generally gives higher rewards. This can bring you bigger profits quicker but it can also make you lose your bankroll much quicker too. Hedge yourself across the market and don’t put everything into one company as if their share price plummets, well, you know the rest. This is called “hedging” or spreading the risk. Select to invest in companies across different industries ie. Financial, medical and banking.

Bigger can be safer

Big companies, who are well capitalized and who are well-known are not as risky to invest in then smaller, unknown companies. But still you are not completely covered look at the demise of the Lehmann’s bank and of the share price plummet of Marks and Spencer’s.

Generally your shares in these big, blue chip companies will yield smaller, steadier profit over a longer time.

Don’t panic and sell at a loss

Don’t panic-sell your shares at a bad time or when recession hits, this of course will increase your losses. Sometimes it’s just worth holding on to those shares for the coming months or even years. 

Read Buying Shares – Chapter 16: Tips for Stock Market Investing
Read Buying Shares – Chapter 17: The Difference between Stocks and Shares
Read Buying Shares – Chapter 18: Q & A session
Read Buying Shares – Chapter 19: Glossary words to learn