- There is no foolproof way to choose successful stocks. There are, however, some tips you can follow that may help your overall portfolio. First and foremost, do your own research on the stock rather than taking someone else's word for it at face value. Even knowledgeable people make mistakes in the stock market, so be sure companies they recommend are ones you believe can perform before you invest.
Some people think that the lower the stock price, the more they stand to make. This could be true in rare situations, but for the most part, buying penny stocks is very risky, even if you aren't putting up a huge investment. As a general rule of thumb, don't go crazy investing in penny stocks, unless you really believe in the company.
Everyone has a different investment strategy, but you shouldn't switch strategies constantly--stick with a strategy that you think works for you. One example of a strategy that has worked very well for an investor is Warren Buffett's value-oriented strategy. This strategy works by purchasing stocks that are currently trading at less than their inherent value.
Just because you don't know the name of the company, doesn't necessarily mean it's a bad stock. Small-cap stocks (stocks with a lower market capitalization) actually tend to have slightly better returns than large-cap stocks. - One of the trickiest parts of trading is knowing when to sell and when to hang on to your stock. Just because a stock has appreciated considerably since you bought it, it doesn't mean you should quit while you're ahead and sell the stock. If you think the company has more potential, than keep it. On the other hand, a small dip in stock price is not something to be alarmed about. Long-term investors should look at the big picture and the overall quality of the stock. Also consider the variables--what caused the stock to go down? Is it reason enough for you to sell?
Judgment calls such as this can be difficult, but if you have a stock that continues to decline in value, you should seriously consider selling. If you try to ride it out, you may end up losing most of your investment, or worst-case scenario, all of it. - Tax breaks are not the goal of stock market investing, but they can be a nice perk. Capital gains, or what you earn when you sell a stock for more than you bought it for, are taxed at a lower rate than your income. However, there is a stipulation. If you sell a stock within a year of the date you purchased it, you will be taxed at the normal rate. In general, it is better to have a long-term perspective anyway when you make stock market investments, but also keep in mind that it will benefit you in the tax arena.
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