Principles Of Investments In The Stock Market – Part 2

December 20, 2009 by Zigfred Diaz
Filed under Stock Market

We are now on the second part of this series. This is a discussion on the principles of investment in the stock market. We have already discussed the first principle. The first principle dealt with realizing that the stock market is just another investment vehicles. Before deciding to invest in the stock market, you must know about other vehicles of investments. Let us proceed by discussing the next two principles. If you wish to view the article in its entirety, visit my blog.

2.) A roller coaster ride – It could be said that the biggest advantage in investing in the stock market is the huge profits that are made when the market goes up. However this is also conversely true because huge losses can also be made when the market goes down.

Bearing in mind that the stock market is a roller coaster ride it is generally best to sell when the market goes up and buy when the market goes down. When I started investing in the stock market about 2 years ago, the Philippine Stock exchange index was about 2000 + points. It went up to 2500 points and then down to the 2000 level in the middle of 2006. Slowly and steadily it climbed up to the 3200 level during the 1st quarter of 2007. It then went down in a very short period of time during the final days of the 1st quarter of 2007. It steadily climbed to a high of 3700+ points in July 2007 but went down below 3000 points a month after. It rose steadily to its highest at 3800+ points by October 2007, but after a month dropped to 3600 points.

The conclusion here is that it is really a roller coaster ride. During those up and down moments of the market, profits and losses are made

3.) You should determine what type of investor you are – Are you a long term investor or a short term investor? This is a very important question that each serious new investor should consider. This affects whether you should buy or sell a certain stock.

Take note that If you are a long term investor, this means means that you hold your stocks from 5 to 10 years or more. This actually means that you believe in the company that you are investing in. Since you are putting in your money for a long period of time, you must be certain that such money you put in is considered already as extra.

One of the main benefits of being long term investors is that you do not have to worry about monitoring the day to day technical analysis. There is no problem if the stock is held for a long period of time since what is considered is the strong fundamentals of the company. On the other hand, short term investor,who decide to cash in within a months time to 6 months time, will have to monitor the day to day market activities to ensure that they are making a profit.

Similar to the the long term investors, short term investors have to make sure that they can afford to put in their money for a long period of time. But such time is not as long as that of the long term investor. One of the main reasons for doing that is because during the short period wherein you plan to invest and pull out your stocks, it is possible that you might incur losses. With this in mind you might decide to wait a while.

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.

Are you willing to learn more about investment strategies ? Visit the blog of Zigfred Diaz where he blogs about several interesting topics such as investments, financial management, business, making financial online and Stock market investing