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Entering the stock market for the first time can be overwhelming – there’s a lot to learn about the basics of stock trading, not to mention finding an investment strategy that matches your financial goals. Perhaps one of the most exciting aspects of stock trading is actually picking the stocks you’re going to invest in. Where do you begin?
1. It’s always good to start with a goal
If you want to be a smart stock-picker, you need to know in advance what you want your portfolio to achieve. Everyone wants to make money, but are you more interested in generating a stable retirement income, preserving your current wealth, or earning on capital appreciation?
Each of these goals has a different risk appetite, which will come into play when picking the stocks that make up your portfolio.
2. Do your homework
How well do you know the company or industry of a potential stock? Stay on top of financial, industry-specific, and even world news, because what’s happening in real life is usually reflected in the stock market. Emotions have no place in your portfolio, so think twice before buying into a company simply because it has sentimental value. It’s also important to not only pay attention to what the company is doing, but what its competitors are doing as well.
3. Evaluate the company’s corporate health through fundamental analysis
As an investor, you need to be able to analyze the real value of a stock and not only go by the price listed next to its stock ticker. Fundamental analysis dives into all the information related to a company and puts together a picture that illustrates how healthy the company really is.
Some of the most basic assets that can be analyzed are the company’s income statements, balance sheets, and cash flow statements. By starting with the financial data, you can determine if the company even has the ability to make a profit. Take the analysis further with some qualitative information, such as the annual report, to get a better understanding of why the company did things a certain way.
4. Predict price movements through technical analysis
In contrast to fundamental analysis, technical analysis takes a look at pure market data. By examining historical prices and volumes, investors can identify trading signals and patterns that alert them to a change in trends. A lot of software and measurement instruments are available to help with technical analysis and mapping out historical patterns.
The best way to get a full picture of a company’s stock is to combine both fundamental and technical analysis to determine if the company’s background is favorably reflected in its market performance.
5. Diversify your portfolio
While most people associate investing with stock picking, the reality is it’s better to have a diversified portfolio that includes index funds, ETFs, bonds, and more to balance your risk. You can also pick stocks with a combination of investment goals, devoting a percentage of your portfolio to stocks with more or less risk to offset any losses.
Pick from over 15,000 US and Hong Kong stocks and ETFs with SoFi for free. With zero commission, hidden fees, or membership fees, you can have unlimited trading potential in both markets. Picking stocks can be intimidating for new investors, but with SoFi’s trading community, you can learn from the best and be on your way to developing a strong portfolio today.
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SoFi Hong Kong is Hong Kong’s first SFC licensed brokerage (AXL143) with $0 commission, $0 hidden fees, and $0 membership fees. Get the SoFi Hong Kong app and trade over 15,000 US and Hong Kong stocks for free. For iOS and Android.