{"id":2687,"date":"2011-04-25T08:00:14","date_gmt":"2011-04-25T12:00:14","guid":{"rendered":"http:\/\/theamateurfinancier.com\/?p=2687"},"modified":"2012-04-23T14:45:31","modified_gmt":"2012-04-23T18:45:31","slug":"advice-individual-stock-investors","status":"publish","type":"post","link":"https:\/\/www.theamateurfinancier.com\/blog\/advice-individual-stock-investors\/","title":{"rendered":"Advice to Individual Stock Investors"},"content":{"rendered":"

If you’ve been following my blog for a while, you’re probably well aware that I don’t tend to invest in individual stocks.\u00a0 My Net Worth Updates<\/span><\/a> show a nice collection of mutual funds (as well as more debt, both credit card and student, than I would prefer), but no individual stocks.\u00a0 There’s quite a few reasons for this, from my lack of time to do the needed research in order to make intelligent investments to my generally conservative nature.\u00a0 For me, for now, investing in individual stocks just doesn’t make too much sense.<\/p>\n

But I’m not the only person in the world (which is probably for the best; as much as I like my alone time, I would probably go insane with absolutely nobody else around).\u00a0 I realize that some of my readers might want to invest in individual stocks, whether to expand their investing horizon, to help diversify their investment portfolio<\/a><\/span>, or simply for the fun of trying to pick winners.\u00a0 So, to provide you with what help I can, here are a few tips on how to go about investing in individual stocks that should hopefully help to keep you in the black:<\/p>\n

1. Don’t Invest Money You Can’t Afford to Lose in Stocks<\/strong>: This should be the first consideration you make when considering individual stock investing.\u00a0 Unlike mutual funds, which hold dozens, hundreds, or even thousands of stocks or other investments, and are thus unlikely to lose all their value for any reason short of the complete collapse of civilization as we know it, individual companies can and do sometimes declare bankruptcy, leaving your stock worthless.\u00a0 While this hopefully will not be the case, you should take care to avoid investing any money whose loss will materially affect your life, either now or in the future.\u00a0 When you have a solid emergency fund, have paid down your credit card debt, and are fully invested for retirement (using mutual funds or similar very safe investments), then you can consider investing in individual stocks.<\/p>\n

\"\"<\/a>
If you do it right, stock investing doesn't have to be a gamble.<\/figcaption><\/figure>\n

2. Decide How Much Risk You Want to Take:<\/strong> Even within the realm of individual stocks, there’s a range of risk levels depending on the type of stock that you decide to invest in.\u00a0 A giant, well-established company like Coca Cola (stock icon: KO) has a much lower chance of going bankrupt than does a small company just starting out.\u00a0 The larger company stocks, then, are much less risky than smaller stocks, and you can decrease the chance of serious money loses by sticking to more established companies. \u00a0 (Although, you still have some risk; there are any number of large, seemingly stable companies that end up going bankrupt, due either to poor luck, poor planning, or because they weren’t forthcoming about their true financial situation *Cough*Enron*Cough*.)<\/p>\n

3. Consider Your Investment Goals Carefully<\/strong>: To (over) simplify things, there are two basic ways to make money from stocks: dividends (regular payments from the company to its owners, that is, the stockholders) and capital gains (the increase in the stock price over time).\u00a0 These two goals require different approaches to investing.\u00a0 If you are investing for dividends, you’re going to want larger companies, ones that have a history of paying out dividends for quite a while, and have solid financial ability to keep doing so in the foreseeable future.\u00a0 On the other hand, for capital gains, particularly in the short term, you’ll likely need to look at smaller, still growing companies; the titans of their field have a tendency to be pretty stable in their stock prices.\u00a0 Finding the right combination of stocks to meet your needs is one of the trickier parts of stock investing.\u00a0 On a related note…<\/p>\n

4. Know What To Do When Circumstances Change:<\/strong> Things change; the great stock investment today could be a horrible mistake tomorrow.\u00a0 You need to know what your plans are for various situations that could arise.\u00a0 What will you do if your stock’s price drops by 20%?\u00a0 Will you sell and take what money you can get for it, thankful that you got out in time?\u00a0 Will you buy more shares, using the cheaper price as the opportunity to stock up (pun intended)?\u00a0 Will you do nothing and just ride out the lower price?\u00a0 What happens if the price goes up?\u00a0 Do you sell, and if so, how much?\u00a0 If you don’t have a plan for each stock you buy, you’re going to eventually run into trouble when an event arises that you weren’t considering and you have to make an uninformed decision.\u00a0 To avoid that, and make sure that you choose the right stocks, you need to do…<\/p>\n

5. Research, Research, Research:<\/strong> You’ve likely gotten the idea by now, but investing in individual stocks requires a lot of time and energy to put into research.\u00a0 Figuring out your priorities is only the start; then you need to find the stocks that meet your needs from the thousands that are available.\u00a0 It doesn’t end when you make the purchase either; you need to continue to track your stocks over time.\u00a0 Jim Cramer<\/span><\/a> recommends one hour per stock per week, a good metric to use to compare your own stock research.\u00a0 If you can’t (or won’t) put in that level of research, putting your money into mutual funds will enable you to get the stock market’s benefits without quite so much hassle.<\/p>\n

6. Be Wary When Investing:<\/strong> The unfortunate fact of life is that bad things happen, and bad people try to take advantage of you.\u00a0 If you keep up with your research, hopefully you won’t be blind-sided by an unexpected event that drops your stock’s price.\u00a0 You also need to watch out for unscrupulous people<\/span><\/a> who will try to feed you improper information in order to take advantage of you.\u00a0 Make sure that you get your information from a trusted source, and don’t put too much money into any one investment.\u00a0 (Particularly when investing in individual stocks, you need to diversify, making sure that no one stock makes up too great a portion of your portfolio.\u00a0 I would suggest no more than 20% of your individual stock investment money in each stock, and no more than 5-10% of your total investment money in each stock; that way, one or two bad stocks can’t sink your entire portfolio).<\/p>\n

There you have it, several tips to make individual stock investing easier.\u00a0 Here’s hoping you have success while investing in stocks, and success in investing, period!<\/p>\n","protected":false},"excerpt":{"rendered":"

If you’ve been following my blog for a while, you’re probably well aware that I don’t tend to invest in individual stocks.\u00a0 My Net Worth Updates show a nice collection of mutual funds (as well as more debt, both credit card and student, than I would prefer), but no individual stocks.\u00a0 There’s quite a few […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center 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