How to Avoid Losing Money in the Stock Market

investingIf you have a business such as Tysons Tow Truck or any other, you understand the pain associated with making losses – no one wants to make any loss out of their investment and same applies to the stock market. Investing in the stock market can be complex especially if you don’t have the necessary knowledge of the market. Additionally, many people invest in the stock market out of peer pressure. Just because your friend has chosen a certain company to invest in doesn’t mean you have to choose the same company.

 

Laws of Stock investing

Before you can make a decision on which company to invest in, you need to have a strategy. You need to study the company and see it is overvalued or undervalued. If it is undervalued, that’s good news for you. You can only determine if a company is overvalued or undervalued by determining its intrinsic value.

 

Debt to Equity Ratio

Once you have determined the intrinsic value of a company, next you have to look at its financials. These are books of account that represent the financial health of a company. The key here is to look at its total assets and total liabilities. What you will be looking to determine is the debt to equity ratio of a company. A company that has a debt bigger that its equity represents a red flag and should be avoided.

 

Management

The next most important factor to consider are the people who have been tasked with the management of the company. You need to buy shares from a company whose leaders are visionary and have a proven track record of experience and performance. Else, you shall be investing in a company with a high likelihood of collapsing due to bad management.

Future Value

Before you can make the decision to invest in a company, you need to understand its products and services. You need to invest in a company they you understand very well and you are attached to it. Internally evaluate if their products and services have the ability and potential to be around for long- at least 10 years. Invest in a company that has a long term prospect.

You should also try to avoid the mistake that many people investing in the stock market have – impatience. Only buy stocks you are ready to hold for long, at least ten years. Don’t buy stocks today and expect to sell the next week, month or year. Have a long term strategy in mind.

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