A Few Traps To Avoid With The Stock Market
Posted on 25. Jul, 2010 by Global in Uncategorized
The stock market really is a fantastic place to grow your money over the long term.However there really are a lot of traps that new traders tend to fall into.These may not sound like they are a good idea, however when it comes down to it, they actually aren’t.
If you have some extra money and wish to invest in the market here are some stock tips on things to avoid.
1. Listening to Rumors
If you own a stock then of course you want to know everything about the company.And every single rumor that pops you, you have to consider it right? Wrong!
There are a lot of false rumors with any sort of gossip.And because the stock market is extremely complex it might not even help you. Even if it is right it may not have much of an impact on the price of the stock because it is already factored in.
What listening to rumors will do however, is freak you out and cause you to go against your better judgment.
2. Buying Because of Dividends
Dividend paying stocks can be a great way to get some passive income if they are combined with a fundamentally strong stock.However, buying a stock just because of the dividend is kind of a bad idea.
The reason, the dividends come out of the price of the stock.Everything that they gave you, you already had. If a stock pays out a $1 dividend and is trading at $100 it will be trading at $99 after the dividend because it is taken out of the price of the stock.
So if you buy a fundamentally weak stock the dividends will just make the price go down faster.Ok, so you get some money out of it, however this would really just be the money that you originally put into the investment to began with. And if the company is weak enough to go bankrupt then the dividends aren’t going to come to the rescue.Basically don’t buy a stock based soly on the dividends that it offers.
3. Buying Penny Stocks
Another idea people have is to buy penny stocks. They buy $.05 stocks and just wait for the lottery to come to town.The problem is that a lot of these stocks are actually going under.
So, if you do buy one consider it a risky play that will most likely end up with you losing money.
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