Astra Resources Cambodia Simplifying The Stock Market

Traditional investing schools advocate diversification

. The idea behind this line of thought is to capture a share of the profits that the market creates every year without risking all your assets. Stock market investing is the best medium to diversify your investments because you can own as many companies as you like.

The key to stock market investing is having the right mix of high-growth companies and stable cash cows in your portfolio. You can either opt for technical investing (put your money in the company with the best financial ratios) or go the traditional way of value based investing (select the stocks based on their fundamentals). It is very important to know the industries and businesses you are investing in, as this gives you the opportunity to identify business cycles, select the right financial metrics to watch and avoid frauds and sour lemons. It is advised that you avoid ultra-high risk segments such as startups or very technical ventures (unless you're a professional venture capitalist).

For those inclined to put a large percentage of their capital into stock market investing, indexes are a good idea. They provide a cluster of companies professionally selected by teams of seasoned financial experts and generally remain very safe over the long term. If you want to capture a larger share of returns, you can try international stock markets. If you're familiar with the geography and the risks of each country, it is fairly easy to find stocks that outperform the American market by a significant order of magnitude. Although one must bear in mind that many of the economies of developing countries are very fragile and subject to various instabilities.

There's an art to stock market investing: picking the right companies, selecting the best times to invest, realizing when to trade, sell, short, re-invest dividends, all with too little (or sometimes too much!) information. Truly a catch-22 situation. The game changes significantly depending on the market capitalization of the company and its prospects (are you investing in Facebook to cash out in ten year or in Microsoft to capitalize in the revenues a recent line of business will bring). Initially, it is best to avoid short term trading, brokers with little or no track record and hyper competitive markets. Go for singles early in your stock investing career and chase home runs once you become more seasoned.

Finally, learn to read the numbers. The sole share price doesn't tell the whole story. EPS, or earnings per share, is a more significant metric. How much did this company pay last year in dividends, how large is their market cap, and how has the stock beta (the metric that quants the stock correlation to the market) changed over the years. All are very significant questions. Subscribe to a reputable financial publication, take some courses and start trading, perhaps assisted by the savvy hand of a professional. In the end, you'll love stock market investing; it's simply a fascinating field.

by: Steve Rohl

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