How To Create A Solid Investment Portfolio

November 7th, 2010 | Filed under: Trader Lessons

I’m sure you have seen them over and over again – awesome tips and techniques to make a fortune in the stock market. Often times these investment strategies are complex and make stock trading much harder than it needs to be.

While the potential to make a killing in the stock market is there, most of us just want to make a nice little return that is better than what the banks may offer.

Below are a few tips to help make sure your net worth gets a padded a little more each year, while minimizing the risk.

1. Know The Company You Invest In

Know what the company does and what it’s competitive advantage is. What makes it better than any of the 100 competitors out there? You should be able to sell other people on just how great the company is (after all you are part owner now).

Start with companies of products you like (i.e. Netflix) or just stay abreast with the latest financial news. Let the ideas come to you and don’t force yourself to learn about something you have no interest in.

2. Don’t Get Too Fancy On The Setup

So you found the perfect stock, but have no idea where to actually jump in at? Don’t worry yourself with the exact price when it comes to buying or selling. You are not going to time the stock perfectly and odds are your stock will go higher later down the road, so just pull the trigger with soft targets in mind.

The idea is to put your money in a stock when it is time for it to move and then move on when a better opportunity is there. Learn how to do that.

3. Create A Watch List

Although you will find a stock of a company you like, that doesn’t necessarily mean the best time to buy is right away. Instead add the stock to your watch list and continue tracking the stock. Not only will you know when your stock is prime to buy, but you will also learn more about the stock and what makes it tick.

4. What Can Impact The Stock Price

Following up on the last point – what makes the stock tick? What makes it go down? What makes it go up? Does the stock respond positively to increased prices of other components (i.e. oil)? Does the stock do better in a down market or up market? By learning what impacts a stock, it makes it easier to know when to pull the trigger and when not to. See unexpected events that can damage your portfolio.

5. Live To Invest Another Day

The most important tip to keep in mind when building your portfolio is that not every trade will be a home run. Continue to think of the big picture. Maybe you pick up a couple percents here and there, but when you add that all together you will be amaze by just how easy making some money in the stock market is.

If you try to squeeze every penny of profit, you will quickly see just how poor you become…

What is your best advice for solid investing?

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