The Commerce Times

Investing advice for beginners

As stock markets in every corner of the globe continue to plunge, the bleak market outlook leaves even the most optimistic investor feeling more despondent and anxious than ever. On March 2, the Dow and the S&P 500, fell to levels not seen in 12 years; with the Dow Jones Industrial Average closing at 6763.29 and the S&P 500 index falling to 700.82. It looked as if it couldn’t get any worse, yet stocks tumbled further adding to the uncertainty and confusion plaguing investor confidence.

With several financial institutions, including the banking giant HSBC, pulling back on extending credit, and AIG posting a loss of $44.6 billion – its largest 4th quarter loss ever, has experts believing that the markets haven’t levelled out yet.

Nonetheless, by being on the lookout for a sudden shift in prices, a handful of investors used the volatility of the markets to their advantage for some short term profit making. However with stock markets so volatile, even expert market timing is getting more difficult.

For the majority of us who are risk-shy and don’t want to charge into the increasingly unpredictable investing environment. Here are a few tips gathered from The Canadian Business Magazine, Toronto Star and CNN”.

1) Do your research

Before diving in to purchase a security or a derivative, look up its earning history and key ratios like Price to Earnings P/E and Return on Equity (ROE) ratios. Try researching what and where these companies are invested in, and compare these with several other companies in the same industry. This allows you to get an idea of where the company stands relative to its competitors. Information about key ratios and financial statement analysis can be found at various online sites such as investopedia.com.

2) Diversification

Compile risk across various industries and sectors to reduce the overall level of risk to your portfolio. In doing so, one possible gain may limit or offset the losses of another. Be cautious not to over-diversify a portfolio as it may lead to the portfolio underperforming by 2% forever, according to an article published in the Toronto Star.

3) Customization

Experts advise that the more tailored one’s portfolio is to their needs, the more beneficial it can be. It is important to take factors of time horizon and risk tolerance. Ask yourself: are you in it for short term profit, or is your focus on the long haul? Do you possess the ability to take some hits and deal with highly volatile stocks? Ask these questions and others to revise your investment strategy.

4) Don’t get greedy

A good method for beginners to lower their risk of incurring losses is to sell a certain percentage of your holdings once a stock has reached its target price. In following this method you have a greater chance to break even and can allow yourself to speculate with the remaining shares.

Anyone interested in investing should always be ahead of the information curve when it comes to keeping up to date with the current market situation. Reading newspapers like the Toronto based ‘The Globe and Mail’s’, Report on Business section, offers information on market data and stock markets, providing crucial information on how the market is doing and what direction it’s taking.

Websites like Bloomberg and Reuters are constantly updated with the latest corporate news, enabling users quick access to news updates that may affect their portfolio.

For those who want to test the water before actually investing their hard earned cash into the market, Google’s finance website (google.com/finance) enables users to create virtual portfolios to hone their investing skills.

Restoring confidence in the battered investor will take time, but will happen when things finally do start to look up. Until then, the current economy presents us with an excellent opportunity to learn more about the upswings and downswings in the market place.