How to Make a Profit with Stocks

Many investors who try their hand at the stock market end up losing money. This is despite the annual rate of return sitting at around 10%. Such a return is significantly more than that you get with bonds for instance.

So why do so many stock investors fail? The answer is simple, they do not stay in the market long enough.

The true secret to investing in stocks is being there for the long term. Another reason why many investors do not succeed is by trying to speculate the direction of the prices. They also exit the stock market by selling their shares at the worst possible times.

Patience is key

The reason why you should stay in the market for the long haul is that when you buy shares of a company you are offering the company a chance to do business in return for ownership.

The company will not make a profit right away. Instead, companies take months to years to increase their income.

When they make more money, the value of the company rises and the share prices increase.

Some companies will give out dividends to shareholders when they are doing well.

If you are buying and selling stock without holding it for any significant amount of time, you are likely to miss out on the dividends.

Why you fail to make money with the stock market

One thing with the stock market is investors are very sensitive to price movements.

When the price of the shares increases, people rush to buy plenty of stocks. When the price drops, however, people panic and sell their shares.

This eventually leads to buying high and selling low. Of course, this means that you are losing money.

Investing in stocks is mainly about readjusting your psychology and way of thinking.

Here are some of the mental blocks that you will need to overcome:

“I’ll buy when the price is lower”

This is an excuse that some investors use to avoid buying stocks at the current price.

They expect that the price will eventually drop.

However, nobody knows whether the price will drop or will rise in the future.

The savvy investor knows to buy stocks where they are cheap and hold the stocks for years.

Two emotions are behind this kind of thinking.

Either it could be fear or it could be greed.

“I’m Waiting for the best time to buy stocks”

Investors fail to make the right choice by holding onto the idea that there is the best time to buy stocks.

Of course, you will need to do your research and find companies that show potential growth. However, thinking that you can pick the best time by looking at the price is never a good idea.

Investors who have been experiencing declining prices mainly hold this mentality.

They hope that they will somehow see a sign of a reversal where the prices are going to rise. This is wrong because nobody can predict the market, especially in the short term.

Fear is the main driving force behind this type of thinking. Psychologists call it “myopic loss aversion”. It is when investors are willing to avoid any short-term loss and risk not taking a longer-term gain.

“I’m bored of holding the stock”

Investors who are searching for excitement will fail to take advantage of the gains to be had in the stock market because they sell their stock sooner. Investing is a game of patience and to succeed, you will need to hold your stocks for many years.

This will allow you to take advantage of the annual gains and compound these over the years.

Again the driving emotion behind this type of thinking is the desire for excitement. Often the root cause of the desire is a notion that those investors who are doing well in the market are day traders.

Index funds or individual stocks—that is the question

When looking to make that 10% return every year, you may want to go with index funds. This is because when you buy an index, you will be buying several different shares.

The risks are much more evened out.

However, you must stay focused on your investment and hold it for as many years as possible.

Granted, if you bought individual stocks and the share price happened to rise, you could earn potentially more money. However, nobody knows whether the share prices will rise or drop.

Tips for being profitable in stocks

Now without further ado, let us have a look at some actionable tips for you to turn in a profit with your investment in stocks!

1. Adopt long term thinking

The stock market can fluctuate and the prices do move up and down in the shorter term. However, when it comes to the long term, the stock market continues to rise. This creates an opportunity for growing your investment if you hold on to it.

2. Hold for the long term

This will allow you to earn interest in your investment. You can then compound this interest and then compound it again in subsequent years to make the most of the money. The initial investment can grow exponentially after a few years.

3. Be consistent

When investing in the stock market, consistency is key. Practice discipline. Once you’ve decided on a method or strategy, stick to it without deviation to ensure that you enjoy consistent results and growth.

4. Consider mutual funds and ETFs

It is a good idea to invest in ETFs and mutual funds. This is because experts will manage your account for you. In turn, you can benefit from their experience.

You will get better results and are unlikely to make costly mistakes compared to if you were investing on your own.