The Business of Stock Investing

The Business of Stock Investing

One of the biggest mistakes people made when they first started investing was not treating stock investing like a business. Instead they look at the stock market as a place where quick sum of money are made in a short time. In short, the stock market to them is a casino.

Others, just as gullible followed the advice of the broker, their friends, or speculative articles they pick up in money magazines. These people truly did not have a clue what investing was truly all about. 

But as years passed and they either lost money or made very little then they realized that they had to get serious. Most of those people who succeeded decided early on to treat stock investing like a business.

So what is treating stock investing like a business you ask? For one, it means not having the fixation about the short-term stock prices. Instead people who treat stock investing like a business focus on how the stock is doing in the long-term. Is the company having more sales, increasing profits and paying more dividends? Because they know if the stock is doing well the share price will rise. 

How To Treat Stock Investing Like A Business

If you agree with me and like the idea, here are 7 tips you can use to turn the corner in your stock investing by treating stocks as if it was a real business.

1) A Business Plan

In every business you start with a business plan. A business plan will guide you as to what you want to do in the business. Do you want to invest or trade in the stock market? What products (stocks) you want to purchase and sell later? How much capital do you want to employ? How much risk do you want to take? These are some important questions to ask and decide in a business plan. A business plan will help you save lots of time and money in the running of the business.

2) The Products

Every successful business always have good products. The products are good enough to attract a steady stream of buyers everyday of their life cycle. What are good products in the stock market? They are the fundamental strong big companies with high cash flows listed in the stock market. The bad products are all the penny and speculative stocks who continuously lose money or at best making insignificant profits. But the insiders make them appealing by coming out with wild juicy stories. Do you want a good product in your business or remain forever an individual playing inside a casino? The choice is yours.

3) Steady Cash Flow

Every business who are around owe their existence to their cash flows the business generates. In the stock market, things are the same. There must be steady cash flows to continue. What stocks can give you steady cash flows? The only source of steady cash flows in the stock market are dividend stocks. They continue to pay steady streams of cash flow in the form of dividends no matter the share prices are flat or down. As a business owner, you should have a big portion of capital into stocks paying a dividend.

4) Review The Inventories

A good businessman will always review his list of inventories. Inventories that are not performing get sold off quickly and new stocks added to the list. The same will happen in the stock investing business. A review to analyse what the performing and non-performing stocks and selling off bad stocks and finding new ones to add to the list.

5) Keep Costs Low

A wonderful business tend to be also a low cost producer. They use technology to keep their overheads low and increase the cost of sales (profit margin) of their products. The easy step to lower your cost is to reduce trading. Increasing your trading does not guarantee a profit on the stock but what is guaranteed is for each trade you make you have to pay a cost in the form of a commission to the broker.

Another way to lower costs will be to signup for online trading. Online trading is very user friendly today and can lower your commission costs between 30%-50%. So, keep business costs lower by reducing trading and using online trading as much as possible.

6) There Must Be A Profit

In order for the business to be viable there must be a profit. That means that you could no longer take losses like an individual. An individual does not account for his losses. It meant that you have to look for ways to reduce your risks. It meant that you could no longer speculate as your heart desire in the stock market. As a business owner, you realize that taking massive losses, huge risks and excessive speculation could ruin your business for good. And a good move will be to practice an investing method called value investing.

7) Ongoing Learning

Ongoing learning is all about staying ahead of the curve and beating up the competitors. In the stock market, ongoing learning means taking time and forking out money to attend seminars, reading materials and socializing around with more experienced and knowledgeable people to improve your stock investing. Of course, you should only seek out knowledge and skills that can add value to the business, AND not market rumours and tips.

Conclusion

In order to be consistently successful you need to take a completely different approach to stock investing. The first step is always to learn what made you lose in the stock market. When you start asking yourself this question and act on this later, you will begin to turn the corner in your investing.

But the real key to success is to treating stock investing seriously like a real business. Most of those people who succeeded decided early on to treat stock investing like a business. Benjamin Graham, the father of investing, used to say that “Stock Investing is most prudent when it is most business-like”. As stock investors, we need to see stock investing just like we are investing in a business. Then we are surely to do well in the stock market.