Did you know that GDP has little relation to markets? Do you know the benefits of buying cheaply and systematically? The global stock markets remain in a state of grace and try to keep alive a rally that -with its ups and downs- has been going on for more than two years. Is it too late to get in the car anymore? These golden rules for trading in stock market will help you to success.
10 golden rules for trading in stock market
Nobody can answer the question with certainty, but it is always important to have the best tools to make the right decision. Therefore, it is vital to know the ten golden rules to operate in the stock market.
1.- The economic growth has a weak correlation with the behavior of the stock market
Data show that there is little or no correlation between the behavior of the markets and that of GDP. Thus, the higher rises of the S & P 500 correspond to weak periods of the US economy. When the Ibex rose by 54% in 1993 GDP. It dropped 1%. Losing a good business because the guys are going to go up a quarter of a point is unintelligent.
2.- Buy cheap is the best decision that an investor can take
For the Popular expert, get what is cheap regarding PER (price/benefit ratio) or book value in the end just producing excellent results. Hurtado is clear that what is expensive is because it is growing a lot and people are willing to pay exaggerated multiples about profits.
3.- The reinvestment of dividends is one of the greatest sources of wealth creation
Reinvesting the dividend in the long term. Always means obtaining greater profitability, even in companies that periodically pay less than others, but to reinvest the dividend. With the reinvestment money is made, it is a pure mathematical effect.
4.- The volatility of an action is not representative of its risk
Many investors leave good business aside because they understand that they are very volatile and pose a lot of risks. But the analyst thinks that this is not the case. For example, you can invest in a copper company that has a lot of volatility, but your business is not risky because it is in high demand. We have got the idea in mind that volatility is equal to risk, but this is not true.
5.- Equities are a hedge against economic risks such as inflation.
This is so because if inflation rises, companies logically sell their most expensive products. Hence, your profit per share will increase. But those who have fixed income will see how their coupons will not be increased. Therefore, the expert points out, “the stock market manages to maintain the wealth of investors in inflationary environments.”
6.- Following the fashions is a simple way to forego the returns
Following fashion is something that both retail and institutional investors like a lot. They tend to focus on sectors that grow a lot, but with this, you have to be very careful because, according to Hurtado, companies do not have to make a lot of money because it is generated in their sector. The prices of the shares always return to their fair value, but not to their average.
7. Investors spend all their time looking for catalysts. But it is a mistake that can only cause loss of time and money.
The very rule says it all. The investment should not focus on what the others will foreseeably think of but on the investor’s knowledge about whether the stock is cheap or not.
8.- Investment in traditional sectors, with few technological changes and stable market positions, may not be a great intellectual challenge but it is the most effective.
This rule means that we must avoid investing in businesses that have brutal changes. The traditional sectors are little exciting, but it is proven that they work.
9.- Choose a few values and invest in them systematically is the best way to build a portfolio
This standard requires few explanations, and in the Anglo-Saxon world it is also known as the “dollar cost average” style, or to buy the values systematically whenever there is an opportunity. When the securities are lower, they will have been acquired at a comparatively lower price The effect is that the average cost per share tends to be cheaper
10.- Being patient is the best way to be successful with long-term investments
Any study always ends up concluding that the stock market is the investment more profitable in the long term. Because companies always continue to earn more money.
