Investing in the Share Market - EVERYONE'S Option
As with any business, records have to be kept and it is good practice to start this now by creating a spreadsheet of the portfolio. Include company names, number of shares, buying prices, brokerage fees, dates when purchased and sold, and any profits or losses. This can be used to follow progress, but making up an additional chart in the form of a simple graph is a quick and easy way to track your share prices as they rise, fall, or stagnate. With a line drawn showing the break-even price as a benchmark, performance of individual shares can be monitored at a glance. Another graph based on the sum totals of the portfolio will show how your overall investment is going. Obviously, prices climbing above the line record a gain, whereas anything below is a loss. See the PDF of this article for two pages of charts which have been adapted from my own work sheets and may be of use to you.
Even when doing this for real and actual cash money has been paid out to set up the portfolio, profits will only be theoretical until the shares are sold. Hopefully, at some point one or more of your holdings will have made sufficient gains to warrant selling at better than the break-even price. Now is the time to imagine getting onto your broker and giving instructions to sell, stipulating the minimum bid that you are prepared to accept. Once again, this limitation placed on the price means the shares may take time to sell, or in some instances may not sell at all, but at least you won't be taking a loss. Having set the wheels in motion, it is time to watch prices over the next day or so to see if your asking price is likely to have been accepted by prospective buyers. If it has, and your sums were correct, you will have made some profit and can re-invest all or part of the total return. You may even buy the same shares again once the price drops - which it might, thanks to profit-takers like you.
When I first tried my hand at share-trading, I was given some valuable advice - never be greedy. When a price is on the rise and past performance suggests it might continue in the positive direction for more than a day or two, there is a temptation to wait a little longer for an even better profit. But just remember - the big boys out there have many more shares than you and if only one of them decides to sell off a large amount, the price will dip. Seeing this, other smaller investors will "get out" while the going is still good and the selling price will drop further, maybe down to your break-even figure, or below. By being greedy, you will have missed the boat. Far better to take a smaller profit for now, rather than none at all.
There will be times when one or more holdings seem to have been a bad buy, those where prices continue to stay below the break-even figure, or may even have fallen lower than the cost of purchase. These need watching carefully, comparing them with other companies in the same sector to ascertain if they are all following a trend. If they are, financial and other news might explain why and whether things are likely to improve. If the one you picked is defying the trend in a negative way, you need to find out if there is a problem within the company itself. A little research on the Internet could unearth something. Whatever the cause, the price has dropped simply because traders are more interested in selling than buying. Unless you know of some forthcoming event which is likely to restore confidence in the company, you should look at cutting your losses and selling too before the price drops even lower. If you take this route, continue to keep an eye on the price because you won't have been the only one who decided to sell and this will force the price down further. Seeing this, you may be tempted to buy again in an attempt to recover your losses; but beware: even though you might pick up the same quantity of shares at a lesser price than you had to sell for, the negative trend might continue and you will simply be adding to your loss. Hopefully, this won't be the case and you will learn to stay in the black, reaping a worthwhile reward.
Playing this pretend game over a period of months cannot exactly replicate what happens in reality, but it will provide a feel for the wheeler-dealer environment. It should help you decide whether you have the patience and staying-power to give it a try to make some real money. Those who participate in the trial will also be able to ask themselves: was it exciting, nerve-racking, too time-consuming, or really worth the effort? One factor should be obvious - share-trading is a juggling act that requires planning, a cool head and an awareness of the environment.
Whatever your decision, make the best of it, and good luck for the future.
Next issue: A Penny Saved – cutting the cost of living
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