How should I invest with individual stocks?
As a private investor, should you buy individual shares at all?
With the purchase of individual shares, the private investor acquires the stake in a company. You should therefore think carefully and find out which stocks and companies are suitable.
Example: the rise and fall of solar stocks
A company's key figures can provide clues as to what situation it is in. When choosing, you should also pay attention to the environment and the industry.
For years, solar companies have been considered a lucrative investment on the stock market. The industry was booming, not least due to state subsidies for renewable energies.
However, competition from China and the discontinuation of government subsidies brought many of these former flagship companies to their knees.
As a bet on the future, individual stocks involve high risks
The example shows that investments in individual stocks are always associated with a high level of risk - if the company in question goes bankrupt, there is a risk of total loss of the money invested.
This risk is higher the more unknown a company is or the newer an industry in which it operates. A good example of how private investors burned their fingers on individual stocks is the bursting of the Internet bubble in 2000.
In previous years, companies that had anything to do with the future medium of the Internet were seen as a gold mine. Millions of private investors around the world took part in the bet that the future would belong to companies from the Internet sector.
Most private investors lost the bet - and so did the money they invested.
But there are also reverse examples: Investors from the first hour in the online network Facebook became millionaires and billionaires when the company went public.
They took a high risk investing their money and were rewarded for it. Who in turn bought the Facebook shares on the day of the IPO, had to watch in the following months how they rushed into the cellar.
Minimizing risks means distributing risks!
In order to avoid such losses, private investors who want to invest in individual stocks should in any case be careful to spread their risk.
So you shouldn't buy just one or two stocks from one industry, but stocks from different companies from different sectors of the economy.
If an industry is in crisis, you can limit your losses by using other stocks that remain stable or even increase in value.
The exit from individual stocks
Anyone who invests in individual stocks as a private investor should keep themselves continuously informed about their investment. So he should inform himself about the development of the company and the industry.
This is the only way he can use this information to identify a favorable moment to exit the share at a profit. If you miss this point in time, you will complain about losses or have to wait until the share rises again.
But this blocks his money, which he could possibly invest better elsewhere.
Anyone who invests in individual stocks as a private investor should finally consider something: They should only invest money that, in the worst case, they could do without.
First of all, there is always the risk of total loss. And secondly, a private investor who is in need of money makes losses if in doubt.
Because if he buys individual shares and is forced to sell them again a month later due to lack of money, he is under pressure and pressure to sell - no matter what the price and no matter how high the losses on that day may be.
Alternative: equity funds
If the risk is too high to invest your money in individual stocks, there is the alternative of buying equity funds.
This is, so to speak, a basket of selected stocks in which the risk is already limited through diversification. However, this also limits the possible profits.
This is how you benefit from price fluctuations on the stock market With the help of the so-called cost average effect, you can benefit from price fluctuations on the stock market. > read more
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