Sunday, June 12, 2011
Buying Individual Stocks
Those who have experienced buying individual stocks directly instead of mutual funds will give you one common advice: be very careful. Why? because buying individual stocks will not need the diversification test required to minimize the risk.
If you have already investing in mutual funds you have experienced receiving annual report from you fund managers informing you how they picked the stocks they invested in. You noticed that they have strict limits on the number of companies they invested in.
It is only wise that you act like a fund manager in picking your own individual stock by buying only stocks that are favorites of fund managers. Check your mutual fund annual report and you will see the stocks that I am talking about.
Second step is to research the stock you selected by checking the company and the management team handling the company. Judge them based on their style and management experience.
Third, once you bought the stock, you have to make sure that you manage it. You made a choice of buying directly therefore devote time to manage it.
Fourth, what will you manage? the checking how the volume of shares traded in the stock market. You have to check your stock on a daily basis or weekly basis if you are too busy. The bottom line is you should make a historical perspective of your stock's price usually for 52 weeks to establish a basis whether to keep or sell your stock.
This is my personal experience on stock buying. How's yours?