Online stock trading is weird. Some users call it science; some call it art. But, the truth is it is the combination of mathematics, science, art, & many other subjects. One doesn’t become an investor like this! He needs to be good at things.
The science is the fundamental research; mathematics is technical analysis, and buying and selling is the art. Growth investing is spending your money on hot shares. However, these stocks are volatile, and an investor should be able to handle it properly with sheer persistence and hard work, with being a little smart.
One needs to execute different strategies to use growth investing. But, when we started, we usually didn’t find any step-by-step guide on how to trade using this style. Thus, we decided we would not let anyone else suffer.
In this article, we would learn how to invest your money on growth stocks, followed by a summary!
Growth Investing Guidelines and Tips
1. Know the Approach
The first step is to understand the concept of growth investing and its several approaches. Investing is a long term thing, and we know you will not want your money to get wasted. Read about the different strategies; learn how to analyze the stocks; have a good plan in hand; and if possible, get a piece of professional advice too.
Once you are familiar with the market, it’s’ working, and several tools & techniques, you can move one step further and read growth investing Guidelines books. Some books we would suggest are:
Common Stocks and Uncommon Profits by Philip Fischer,
One Up On Wall Street by Peter Lynch
Picking Growth Stock by legendary growth investor, T. Rowe Price Jr.
Moreover, many people feel that investing is a complicated task. However, the scenario is the complete opposite. One only needs to find the companies he has some knowledge about and invest in it if he sees good potential.
Beginners should start with the industry with which they are most familiar. For instance, if you are working in a beverage company and then go for that industry. Also, don’t hesitate to invest in a big firm if you see good further potential in it.
2. Arrange Your Finances
After knowing the right investing approach for you, it’s time to prepare for your finances now. The basic rule is never investing your needed money. In other words, the payment for your bills, rent, or any additional urgent expense, you should not invest money you might need in the next 3-4 years.
The ideology is that the market is an uncertain place and falls 10/ 20/ 25% often, though it covers shortly. But, if you’ll need that money during a downfall, then you’ll be forced to take that out at fewer profits or losses.
Have your balance sheet ready and take action accordingly. Also, be debt-free before investing; investing other people’s money is the worst idea. The ideal situation is spending 10% of your income.
Think, and then spend – You require to assume that you are investing money in your business, would you take out the money from it when it is required?
Once you have allocated your money and prepared the investment amount, it’s time to spend. The most important thing here is how and what stocks you choose. The other crucial thing is how much percentage of your total investment you will invest in growth stocks.
The answer to that query depends on you!
Different stocks have different features in terms of risk, volatility, time, flexibility, and returns. Usually, a growth stock is much more volatile than regular shares and thus, poses a significant risk.
Therefore, one needs to be very cautious about these stocks. There are several methods to analyze the stock which shall help you choose the right one for you. You can find the complete guide here.
The other crucial thing is the percentage of the total portfolio in growth investing. For beginners, we would not recommend experimenting much and keeping it below 10%. However, as you feel a little comfort, you can increase this ratio.
Also, one need not forget to consider non-tangible, non-visible factors while screening the shares. Factors like goodwill, brand name, and company leaders play a significant role too.
4. Be Smart
Now, this is something weird! Be Smart; what do we mean? The ideology here is that your work doesn’t stop once you spend the money. If you want to maximize your profits, then you must act logically & intelligently.
One is required to keep an eye on the portfolio for the following reasons.
If any share’s price rises above your expectations, then there are chances that it is over-priced. The time is to sell it and invest your money into another good growth stock.
If a share’s price is not performing as per your expectations or have messed upholding, then sell it ASAP! The share’s downfall could be because of many reasons like conflict or mismanagement.
Try to balance your portfolio often. Also, if a stock is dominating the holdings, then you might need to re-balance it.
So, these were the steps for implementing a growth investing strategy. Keep all the points in mind and forget your spending for 10/ 20/ 30 years. Remember, if you had invested $40 in Coca-Cola in its IPO (when it was a growth stock), you would be sitting with $350K today. Imagine turning 40 into 350,000!!!
The Conclusion For Growth Investing
The growth investing strategy requires you to do a lot of hard work. However, the best part is people still do it. The reason is the insane profits and returns rate! Also, it is one of the popular investing styles. And, if someone else can make money, then why can’t you? However, it demands a little knowledge, confidence, patience, and a habit of keeping an eye on them.
Remember, at last, it would only be about money and profits. And when you start making your wealth double every year, that day you would recall this post.
Moreover, if you have seen a similar opportunity like this, and regretting not grabbing it, then don’t worry. The good thing about the market and life is it gets you many chances; you need to spot and take them!