I'm In, Now What?

After spending countless hours preparing yourself, you have finally entered the stock market. You did your homework, monitored the movement of the stock price, picked your opportunities and pounced when the stock hit your target price. As proud as you are (and you have every right to be), now is definitely not the time to sit back and relax. This is your hard-earned money out there, and you want it to grow, not shrink.

At this point, it’s time to formulate your overall strategy for your stocks. By this I mean, are you trying for a “quick flip” or are you holding for a while. But how long is quick and how long is a while? Have you identified target prices, both high and low, at which point you would sell your shares? Lets start with the first item, duration. Have you decided on the type of portfolio you want to own?

Warren Buffet is a legend in the stock market, and his strategy is (basically) buy and hold. Now of course there are always exceptions to this rule, and there are times when he will exit a stock earlier than planned. But the general theory is that if you invest in a good, solid company, you should make money over time. Easier said than done, of course, as most entry-level investors want to see results a lot sooner than decades down the road. You need to decide where you stand on this.

One thing is for certain: there is no “easy money” to be found out there, so be wary of the quick flip. Now, if you followed our advice of monitoring stock price trends, then you likely bought a stock a low point and could stand to make a quick 5-10% or higher. For some, this is not enough—the important thing is to have realistic expectations. If you put your money in a bank or other guaranteed investment, you’d probably get 1-2% return for one year. Paltry to say the least, making a 10% annual return nothing to sneeze at. The point is this: unless you’re planning on holding for years (ie: retirement), then it’s never a bad idea to take profits when they are there for the taking. We all know stocks go up and they go down, so if you have a nice little profit on the table, it’s never a bad idea to take it (or some of it). Don’t get caught up in the “what if” factor. If a stock hits your target price, don’t be afraid to take your profits because the stock “might” go higher. It could just as easily go lower. Which brings us to Target Prices…

It’s always a good idea to have a target price in mind when you buy a stock. A point at which you would sell (or strongly consider selling), defined in advance. This can also apply to the downside: how much are you willing to lose before cutting your losses and moving onto the next stock? Sometimes selling for a loss is the best option—particularly if you think the stock is going to sink further. Netflix is a classic example: as soon as they announced their price hike, their customers started to revolt and the stock price went on a long decline. The person who sold for a small loss at the beginning of that decline is a lot happier than the person who rode it all the way down for a 70% loss.

The final item I’ll touch on here is something that you’ve likely read about along the way during your research: your portfolio. You’ve more than likely heard people talking about being diversified, having a mixture of low-risk and medium-risk, having a defined number of stocks in your portfolio at all times, etc. These are all good strategies, and generally speaking it is good to have a mixture of stocks from different sectors in your portfolio in order to minimize risks. However, there is no one single strategy for all investors. Everyone is different, and this is something you have to decide on your own. If you identified only two stocks that you like and that’s all you want to own, then that’s your decision. If you are willing to take on more risk, knowing that you could lose you investment, than that’s your call. Educate yourself, seek the opinions of others and decide for yourself if they’re right for you. After all: it’s your money, not theirs.

About BestOnlineTraders

The goal of BestOnlineTraders is to help new investors get off on the right foot. We don't claim to have all the answers to all the questions, but we feel like this site is a great place to start out if you are new to investing. The stock market is a complicated, intimidating entity, complete with complex terminology and calculations. As a new investor, your goals should be to get a grasp on the basics--the fundamentals, if you will. This is what we offer our readers.

There are many sites out that that are packed with information. The problem is that for the new investor, this can be information overload and overwhelming instead of educating. Start slow. Read our introductory articles, browse our online trader reviews and you'll be off to a good start. You will then be ready for more thorough discussions of the more complex aspects of investing, and we have some excellent links right here to help you.

Thanks for visiting, and good luck!

More Articles

  • I'm In. Now What?

    You've made your first purchase(s), but the work doesn't end there. Here are some tips to help you in achieving your goals.

  • Want to Learn More?

    Got a thirst for knowledge? You're in luck, because there is no shortage of topics to choose from in the world of investing.