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How to invest in Stocks

How to invest in stocks? Here are ten expert tips from Jim Cramer, along with my comments based on personal experience.

How to Invest in the Stock Market

1. Never turn a trade into an investment

First, understand the difference between a trade or an investment. Make the decision right up front: are you buying a stock for trade or for investment? The two demand significantly different approaches. If you are buying a stock for a trade, prepare a firm stop-loss point that you will adhere to. Do not come up with excuses as the price drops beyond what you had accommodated for – and begin believing that you are actually buying for the long-term. Cut your losses on your trade immediately if the market does not turn your way!

2. Your first loss is your best loss

Jim Cramer’s advice is especially true if you trade frequently. If the stock moves against you right after you buy it, cut your losses quickly and get over it. Your subsequent losses will usually be much greater and at much greater cost to you.

3. It’s okay to take a loss when you already have one

How to invest in shares: What this means is simply, do not try to pretend that you are not losing money just because you have yet to realize the loss. Once you hit your cut-loss point, get out

4. Never turn a trading gain into an investment loss

Again, a trade is a trade! Even if you make good profits on a short-term trade, do not turn it into an investment. Once the signals that you had been looking out for have fully appeared, realize your profits.

5. Tips are for waiters

I like the way Cramer says it: ‘If you really ‘know something’, then you are per se an insider and aren’t supposed to tell anyone without running afoul of the securities laws. And if you don’t know something, you should shut the hell up because you don’t’ know what you are talking about.’

Those who make the tips will make them sound like genuine insight - but always take it with a pinch of salt.

More How to Invest in Stocks Commandments

6. You don’t have a profit until you sell

This is closely related to Commandment #4 and Commandment #3. Sometimes, people go the opposite: they ride the stock all the way up and all the way down. Some people think they are trying to avoid taxes by not realizing their gains – the truth is that their losses might therefore be even greater.

7. Control losses: Winners take care of themselves

This affects how your time should be spent. Devote far more of your time to the stocks that are losing money than to the stocks that are making money. If you can control your losses, you will be making good money.

8. Don’t fear missing anything

This relates to the investment herd mentality, which can be hard to resist if everyone around you seems to be buying into that stock and making money. Practise adopting a contrarian approach instead – you will train yourself better in the long run.

9. Don’t trade headlines

How to invest in shares? Learn the whole story before you actually take action. Headlines can by nature be misleading.

10. Don’t trade flow

Related to Commandment #8, do not buy simply because you see a lot of people buying on TV, or sell simply because you see a lot of people selling. Make sure you understand the basic technical rationale before you take any action.

(Excerpted from Jim Cramer's excellent book, Real Money)

How to invest in Stocks? Investing in stocks can be highly risky – be it doesn’t mean you have to risk your money. To master how to invest in stocks, heed these important stock investment tips carefully!

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