Hey, I really want to invest my 500 pounds into a business to make a profit but I don’t know much about the stock market and the ins and outs, can somebody fill me in and what to invest on and when? And any other secrets? Thank you very much guys. Daniel.
Remember that you can make money and you can lose money. You’re hoping that by choosing a company with a good business model that hasn’t taken on too much risk, that the probability of a return will be higher and or the return will be greater but you still have to consider the possibility of a loss.
If you model the investment as a random act, say the flipping of a coin where if you win, you won twice your wager but if you lost, you lost your wager then you would have an opportunity that was in your favor, you would expect to gain $1.50 for every $1 lost. If you risk nothing by wagering nothing, you will gain nothing, the more you wager, the more you should gain but if you wager everything you have, you will lose everything with the first loss, so at some point, the increased risk is not warranted by the increase gain. With a coin toss, this can be calculated, any wager above 50% of the portfolio will lose money, a wager of 50% will break even, and a wager of 25% is the optimal for portfolio growth. Stocks aren’t so easy to figure out but what you know is that you shouldn’t put everything on one investment so long as there’s a chance the investment could lose and there’s always that chance.
Now if you could wager on two similar simultaneous coin tosses that are independent of each other, then the optimal would be 21% per toss which is a total of 42% of your portfolio. So with diversification, you can invest a greater proportion of your portfolio without exceeding reasonable risk.
It takes accurate estimates to minimize diversification and it’s safer to be over diversified than under. So long as there is a risk of loss on all investments then some portion of the portfolio should be kept relatively secure such as in bonds ( note that continual contributions from your paycheck is like holding a bond ).
Cons
1) £500 is nowhere near enough –
remember – the price you pay to buy shares is than you would get by selling the same shares at the same time. So the shares have to rise in value fir you just to break even.
and it costs to just sell then and buy them
2) you dont have a clue as to what to look for in shares,- you are asking OTHERS what to buy
Pros
you dont have any unless you are REAL lucky
Read Book on “Art of Stock Investing – Indian Stock Market” @ http://bse2nse.com/archived/3185-book-ar…
Where there’s a tip there’s a tap.
The market is discounting events, maybe 6 months or more.
Diversify, avoid noise traders tips and focus on economic fundamentals when you choose stocks and hold long.
Don’t you will be piss poor super fast
When its a bull market…duh