Investing in stocks for beginners

Do not invest all your money.
Do not invest all your money with the hope of getting rich overnight. PHOTO/FILE
Investing in stocks is a great way to grow wealth, but most beginners lose their money due to lack of understanding of the market.

To become a successful stocks investor, you need to learn both the basics of the stock market and its terminologies.

The Basics of Investing in Stocks
1.) Understand the stock market: Before you start investing in the Kenya stock market, get to know how the stock market works. Find out what is going on. What happened the previous day? Did the price go up or down? What influenced the market prices? Answers to these questions – and many others – can give you a better understanding of the state of the market.

2.) Set your goals: Setting realistic goals is very important as it will guide you on your stock trading. Are you in the stock market for capital gains or for dividends? The answer to this question will help you know what stocks to trade in at a particular time.

3.) Be cautiously optimistic: Do not invest all your money with the hope of getting rich overnight. Investing in stocks is not predictable and you can end up burning your fingers if the market crashes. Invest only what you can afford to lose.

4.) Be focused: Some investment advisers will tell you to diversify your stock portfolio ( invest in a combination of stocks). However, to get higher returns on your investment, look at a company’s fundamentals and buy shares from companies with strong fundamentals. This will teach you to focus on just a few companies – may be two or three.

Stock Market Terminology
1.) Stock: The terms stock and share are sometimes used interchangeably. For the purposes of clarity, a share usually refers to ownership of a specific company while a stock denotes ownership of company shares without being specific.

2.) Dividends: This refers to part of profit that is distributed to shareholders.

3.) Stock broker: An individual buying or selling shares on behalf of investors.

4.) Bull market: A stock market that is defined by increasing value of shares in the market.

5.) Bear market: A stock market that is defined by decreasing value of shares in the market.