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How to Invest on the Share Market

written by: Steve McFarlane•edited by: John Garger•updated: 3/29/2011

Trading stocks can be both enticing and intimidating. Learn how to invest on the share market/stock market.

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    Introduction to Investing on the Share Market

    With many wealthy persons making their fortunes through buying and holding shares in publicly-traded companies, it is quite understandable that many find the stock market both appealing and inviting. Though many fortunes have been made from trading stocks, this investment vehicle can be treacherous to the new investor if he/she is not sufficiently educated and prepared to trade on the share market.

    To profitably trade on any financial market - the stock market in particular - one has to be knowledgeable about basic economic principles (fundamental analysis), know how to interpret financial statements, have an ability to read price charts and properly interpret financial ratios (technical analysis).

    In the absence of these technical competencies, the investor can use the services of a financial advisor. A good financial adviser can help even a novice investor profit from the market, but it is the responsibility of the investor to choose a competent financial advisor/portfolio manager. While a portfolio manager’s past performance gives no guarantee to how well he/she will do in the future, it can indicate how competent the manager is. It is, therefore, a good idea to look at the financial advisor's track record before deciding on whom to use.

    One of the first steps you must take in starting to invest in stocks, is to find a good and cost effective broker. Your stockbroker is the one who will facilitate your buy and sell orders and give you investment advice. In some cases, your broker may assign to you a personal portfolio manager. Whether or not you can get a personal portfolio manager will depend in part on the services that the broker offers and the size of your trading account. In any case, ensure that you understand the fees that the broker charges and shop around for the best deal.

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    How to Invest on the Share Market - Options for New Investors

    How to invest on share market/stock market 

    Investing in mutual funds is an excellent way to enter the market without having to handpick individual stocks to add to your portfolio. Mutual funds are a portfolio of stocks, bonds, securities and money market instruments that are managed by professional portfolio managers. Investing in mutual funds gives the investor a way to diversify risk exposure and give the investor a way to hand off the responsibility of managing the portfolio to someone else.

    As a general rule of thumb, it is best to only invest in instruments that you understand and in solid companies that you know and trust. For example, you shouldn’t be investing in Options if you know little about what a Call or Put option is, let alone be able to make a good assessment as to when to enter a trade and what profit and loss targets to set.

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    Investing for the Long-Term

    While short-term trading can be profitable, it is useful to note that many of the most successful investors adopt a long-term investment strategy in which they search for and invest in companies that have a long-term growth outlook. Once they make a commitment to the investment, they normally hold it for years. In general, the event that may cause them to exit the investment is a fundamental change in the economic or financial realities of the investment for the worst.

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    Conclusion

    Even if you have a competent and trusted investment advisor helping you to manage your portfolio, it is important that you educate yourself on tried and proven investment strategies – it is also a good idea to look at the portfolios of successful investors and mirror their portfolios within good reason. In short, be the proverbial chauffeur who buys and sells what the man in the back seat trades, and read what he reads as well.

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    References:

    Levene, Tony. “Investing for Dummies” For Dummies, 2010: p105, 106

    Image Credits:

    “How to invest on share market,” alancleaver_2000