Investing in stocks? Homework is everything

Posted by Standard Bank Namibia on 14 Feb 18

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Finance & Budget
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Of the many methods available for investing your money, buying stocks provides one of the highest potential returns. If you’ve made the decision to give stocks a go this year, then you’re about to embark on an exciting journey. To minimise your stress and maximise your returns, it’s best to do your homework beforehand.

Without getting too technical, here are just a few pointers to keep in mind before you get started.

Ask the question

The first thing you need to do is ask ‘Why?’. Why are you investing in stocks? And why in that particular stock? Answering these questions honestly will help you decide which stock is right for you. Also, remember that you’re not actually buying stock, you’re buying a company which is making a profit, and you want to be a part of that success. So look into the company, do your research: check the customer base, the industry, the general economy and the political climate in which the company operates.


Dig deeper

Now that you’ve isolated a company you’d like to buy stocks in, get hold of their income statements and balance sheets and pay
particular attention to the Earnings, Sales and Equity figures. These should all be higher than in previous years. Finally, have a look at the Debt – not only should this be lower than in previous years, it should also be lower than the company’s assets.


The human touch

When staring at stock figures and financial reports, it’s very easy to get lost in the numbers. Always remember to step back and think about what the company does and how it meets the needs of people like you. Look for companies that are selling goods and services that a growing number of people are after. Try and identify companies that satisfy a human need rather than a want, for example: People need water; they want ice cream. Humanising your choices will go a long way to assuring your long-term success.


Diversity matters

The safest way to invest is to diversify broadly. Spread your money across stocks, Exchange-Traded Funds (ETFs), mutual funds and hard assets such as precious metals and real estate. Combine spreading your bets with a policy of keeping aside adequate amounts of cash in the
bank, and you’re putting yourself in good stead.


Information is everything

Sometimes the world’s markets act rather strangely, to put it mildly. But this is inevitable. The world is a volatile place and if there’s one guarantee in investing, it’s that you’re going to face a surprise or two. So make it a habit of checking your portfolio every day. Keep an eye on the financial markets as well as the general economy. And place checks in place with investing tools such as stop-loss orders and put options. This will go a long way in providing some valuable peace of mind.


Stay in control

Investing is all about the long-view. Sure you can make big profits with aggressive short-term investments, but these are highly risky and prone to disaster. More often than not, you’re investing for something in the future – whether it’s a comfortable retirement or a better life for your kids. So set your goals at the appropriate distance and practice patience. Keep your debt and finances on a tight rein and you’ll enjoy the satisfaction of watching your investments grow.

For more assistance on investing in stocks please visit www.standardbank.com.na