Most investors that are new to investing in stocks make the same mistakes. Investing in stocks is a great way to accumulate wealth and usually your are going to hear all the same advice. Day to day, new investors listen to crazy people on T.V yell about the hot stock or the big loser of the day. It’s hard to learn how to invest by watching CNN and reading articles at Yahoo finance. I know some of you out there are saying:

“I don’t have time to follow my portfolio, I work too often to be doing homework on stocks.”

Then, what I suggest to you is that you don’t buy any stock at all - it’s that simple. If you don’t have time to watch your stocks, you don’t have time to make money with stocks. For those of you that have the time to learn and are serious about making money in the stock market, I’m here to give you a few simple tips that can save or make you a lot of money when investing in stocks!

1. Understand your Stock

Never invest in anything you don’t understand. I know that it is hard not to follow the crowd when it comes to investing in the market, but before you do anything understand the fundamentals of a company.

Where does this company make it’s money?
What is their cash flow situation?
What is the price to earnings ratio?
Why do you think this stock’s value will increase?

This sounds simple but you can not even imagine the amount of people that have no idea what they are investing in. Some companies are very complicated and make their money in all sorts of ways. It is crucial you know everything you can about this company, and I mean everything! This will not only help you understand price movements in your stock, it will also help you find entry and exit positions.

2. Have a Distinct Plan

Decide your game plan right away and stick to it. Decide if this is going to be a trade or an investment and what price and moment you want to sell it at. As Jim Cramer says, “Never turn a trade into an investment.” When you don’t have a plan you are basically lost when it comes to any kind of investment. How often is it that you hear of people wishing they sold when they had the chance to make a nice gain or sold too early? Know your selling points and stick to it!

3. Don’t Invest in the Hot Tip or Headline

Ever hear the saying , “Sell on news”? You will rarely make money reading the Wall Street Journal for that big money making idea. That’s all it is - an idea. Everyone from your friends to your local baker has a hot stock tip. Never jump right in and make sure to stick to rule one, understanding your stock. If you decide to follow one of these ideas go out and do your homework!

4. Never be Afraid of Paying Taxes

Investors that hold off selling their stocks to defer their taxes are delaying the inevitable. There are tons of ways to reduce taxes but investing like a coward isn’t one of them. Don’t be afraid to make money and pay the taxes; we all have to give a little to Uncle Sam!

5. Once You have Bought the Stock Do your Homework

Like I said before, if you don’t have time to do research and be on top of your stocks then don’t bother buying any. How are you ever going to make any money by picking stocks and then leaving them? At the moment you decide to leave your stock and stop doing your homework, you are gambling. Be on top of news and quarterly reports that are being put out by your company.

If you follow these 5 steps you will greatly increase your chance of making money in the stock market.

Kelly Parks
www.wealthforinvestors.com