Many people believe that investing in the stock market is a very risky prospect and that you need to be an expert to make any money at it. This is far from the truth as many ordinary investors have found that they could make a tidy profit investing in the stock market. There are a number of investing rules that are used by smart investors to ensure that they are making good investment choices. These rules will work for anyone that is interested in investing, regardless of the amount that you have available to invest.
Sell Off Big Spenders
One investing rule that many smart investors live by is they sell off stocks of companies that like to spend large amounts of money. Companies that make huge acquisitions, spend a fortune on a new headquarters, or overdiversify should be looked at carefully to determine whether the time has come to sell the stock before it significantly drops in value. Companies that spend a great deal on executive compensation should also be avoided.
Conflict Is Not A Good Thing
You do not want to hold on to stocks for companies where management routinely picks fights with analysts or hedge funds. Frequent collisions between the board and the investors or between members of the board are also an indication that it may be smart to sell off the stock. Principals that are more interested in fighting with each other than building and running the company are very bad for business.
Sell When The Top Executives Sell
When the top executives of a company begin selling a lot of their stock, it is a sign that you should be following suit. Even though these executives will always have a plausible reason for doing so at the time that they choose, executive stock sales have proven to be a good indicator of where the stock is headed in the near future. Keep an eye out for stories of executives selling stock in a company that you have invested in.
Avoid Boom Cycles
One of the fastest ways to lose money in the stock market is to get caught up in the boom and bust cycle of a particular industry. Avoid all stocks from industries going through an investment boom because the natural order of things predicts a massive overcapacity in the near future and a subsequent collapse of the stock price. It is very rare for an investor to come in at the bottom of the curve and ride the crest to sell at the top price, and those that try often find that they have lost more than they have earned.