Surviving Losses from Big Investments

It is heart wrenching to watch the dollars that you’ve invested disappear overnight when stock prices fall. Panicky investors actually opt out the minute they see the share prices crashing.

This reflects poor judgment, as you’ll only end up permanently losing more money that way because you’re trading in your shares for less than the value you purchased it. So how do you survive big losses from a sudden share price crash down?

Dollar Cost Averaging

Dollar cost averaging is a technique that reduces the market risk in stock market investments. In layman’s terms it simply means buying small amounts of stocks over a long period of time. In this way, you don’t suffer from sudden crashes by investing too much capital in one fell sweep.

You can play is safe by buying stock shares while the prices are down. The saying “what comes around goes around” has never been truer anywhere else than in the stock market.

If you’ve been watching closely, stocks move on a cycle. They may be down now but they’ll eventually rise up in time, given that the company you’re investing in has promise for growth.

Dividend Reinvesting

There’s no better way to cushion investment costs than by simply reinvesting the dividends you receive from the company every time your shares experience a gain.

This lets you own more shares without actually spending more money on your stock market endeavors. Let’s face it: the stock market is pretty much a gamble. When you reinvest dividends, at least you’re only gambling on money you can control.

Are you an Investor or a Speculator?

A successful stock market shareholder is financially literate and does not simply do guesswork when s/he trades stocks. In other words, a single stock purchase for the real investor means a comprehensive understanding of the company’s operations as a whole.

A speculator, on the other hand, sees the stock market as simply a floor full of fluctuating numbers. As a speculator, you make trade decisions based on instinct. When the numbers go up, you sell your share and you purchase when the prices of potentially valuable stocks go down.

Some people ask if it matters if you’re an investor or a mere speculator. There are a lot of speculators who get lucky on the floor, after all.

It’s probably less significant when you spend most of your time simply staring at numbers. However, the dedicated investor would still try to ground his trade decisions based on reality.

Sometimes stock price movement can be predicted based on current events. In fact, when the effects start reflecting on stock price movement, it’s probably a signal that you’re already too late to act on it. The “wave” has come and passed, so you can no longer ride it.

If you’re a sensitive investor, you’ll see the first signs of a company’s rise or fall before anyone else does. This requires extensive research and full manipulation of different market tools.

In other words, you’re a true blue investor when you’re able to spot a stock market indicator before it moves the price of your stock share.

Understanding the Ups and Downs of Stock Prices

A lot of factors affect the rise and fall of stock market. The most basic determinant of stock price movement is the law of supply and demand.

As in most goods, the price of a stock rises when more investors are in demand of it. Naturally the stock price falls when its investors are abandoning or trading in their shares.

This probably sounds simplistic right now because we’re looking at it in a vacuum. In realist, the supply of and demand for stock shares are connected to actual internal and external events that involve a company.

Market Psychology

Believe it or not, the strength of stock prices actually depends on the reputation of a company. When the general market psychology is favorable for the company, more investors believe in its growth. Hence, they buy shares and increase the stock price.

On the other hand, when they fail to see any promise in the company, they abandon their stocks, increasing the supply of abandoned company shares. The lack of demand, in this case, lets the stock price drop significantly.

Investor needs

Investor needs are probably the hardest to predict in the stock market. Shareholders buy and sell stocks for a number of reasons, and sometimes they don’t even have anything to do with how the company is performing.

For example, a number of investors may sell their shares at the same time because of personal emergencies or disinterest in the trade itself. This can’t be studied thoroughly because the reason behind the share sale is isolated.

Important

Stock prices are not necessarily indicative of its value. Your best bet, as a beginner investor, it to watch the fluctuations of the top company shares in the market. You can own a small portion of it at first just to experiment.

You can vouch for stock shares that rise and fall within the day. As long as each share retains its $1 value, it’s still officially listed in the market.

Your best move would be to buy a share while its price is down, and sell it once you feel that it has reached it possibility. Most investors acquire losses because they panic and do the opposite: buying when the stocks are up and selling when the prices go down.

Building your Vocabulary for the Stock Market

It’s nearly impossible to learn about stock market investment unless you manage to penetrate its language. Below are the most important terms you need to take to heart if you’re serious about understanding the stock market.

IPO

An IPO refers to an Initial Public Offering. It is an event in stock market investment that happens when a company sells stock to the public for the first time. The slang for an IPO is also “going public”.

Underwriter

The underwriter is not a single person but a bank or financial institution. It is another term for the group that’s handling all the paperwork and maneuvering the company’s IPO.

Difference between Market Cap and Share

A market cap is the principal amount of money you need to shell out to earn a share of stock in the company. A share, on the other hand, is an abstract representation of the investor’s ownership of the losses, profits and assets within a company. An investor is also called a “shareholder”.

Earnings per share

Theoretically, each share of the company’s stocks is equivalent to a monetary value. The earnings per share represent the profit that an investor is entitled to, depending on the number of shares he owns.

Ticker Symbol

On the floor, the ticker symbol is the two or three-letter-abbreviation that stands for a particular stock. For example, KO stands for “Cola Cola”.