It is human nature to jump in at the deep end. In many situations it is encouraged and revered, look at the traits of most film heroes and you will see the trait of recklessness. We may not live in a film world but many people apply this trait when it comes to investing their money. With sensible research investing becomes less of a gamble and more a sensible financial strategy. In this post we will look at the importance of research and some tips to help you keep track of your investments.
The most daunting part of investing for newbies is where to start. Leading investor website Investor’s Business Daily recommends to look on the Internet to get a feel for top stocks in the industry. They state that a company’s 10-K (annual) and 10-Q (quarterly) regulatory filings are an essential read. The filings will give an investor a description of the company, its products, operations, market and customers. The quarterly filings will give you a good idea on the company’s sales and earnings growth. The website also recommends spending thirty minutes or more to research the company website. The more you know about a company the more confident you will be in deciding whether to invest in them.
Research is essential to understanding the risk factors of investments. According to some experts investors focus too much on performance or returns on an investment. Every investment carries the risk of losing money. It is up to the investor to balance the risk and against the probability of making a profit. Risk assessment research should include key points such as how much could you potentially lose, what is the worst case scenario, and is there a risk of the investment being fraudulent (particularly with penny stock shares).
Winston Churchill uttered the famous words: “those who fail to learn from history are doomed to repeat it.” FXCM discuss the importance of being organized when investing by keeping a trade journal mainly because it’s a good way to record you successes and failures and to learn from both. FXCM splits the journal into three components: Pre-Market Synopsis, Trading Log, and Post-Market Recap.
This is where you write down the expectations of market behavior and potential trade opportunities. This will give you a measure of what your expectations were and will form an important part when you go back to review your year.
A comprehensive record of your trading activity. Research doesn’t stop when you start investing, it is a continuing evolving process. A journal is an extension of your research not a culmination of it.
This i where the learning takes place. Evaluating your investments and transactions will show you where you went right and where you made mistakes. This should inform your research in the future. The most important thing to remember about a trading journal is that it is only as useful as you make it. If you are a diligent researcher and organizer then it will be a useful tool.
Investing is hard work. New investors who fail to see this and are only in it for quick gains and often fail. The importance of research cannot be emphasized enough. Websites such as Chron are good places for new investors because they give a list of the top places to look for investment tips. At the end of the day it is down to you do the hard work.