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Four simple stock trading tips

TradingPub Admin | March 18, 2013

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If you are interested in trading stocks, there are some simple tips you can follow to make this process easier. 

Patience is key
While some are drawn to the stock market thinking that it is a way for them to "get rich quick," many have advocated the use of buy and hold strategies, where the investor purchases the shares of a company and does not sell them for many years. 

Warren Buffett, the "Oracle of Omaha," has frequently touted this strategy, repeatedly obtaining larger shares in a handful of major companies. The investment guru calls major bank Wells Fargo, major financial services firm American Express, technology giant IBM and consumer goods maker Coca-Cola Berkshire's "Big Four" investments, according to MarketWatch. 

"The four companies possess marvelous businesses and are run by managers who are both talented and shareholder-oriented," the Oracle of Omaha wrote in his recent shareholder letter. "We much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business." 

There are some straightforward reasons for investors to hold stocks in the long term. If they buy and then sell equities using a shorter time frame, they will end up incurring short-term capital gains taxes, which involves a higher rate than involved in purchasing these securities and then holding them over a longer period of time. 

Time constraints
Many financial experts have noted that those who want to actively invest in stocks in an effort to beat the market frequently put in substantial time and energy doing so. For those who want to perform more research on their potential investments, doing so can devour all their free time, according to Bankrate.com. 

"Spending all day, every day, reading Investor's Business Daily and combing through Morningstar.com reports can be stressful and taxing," Jonathan Citrin, chief executive officer of investment advisory CitrinGroup, told the news source. "Investors can miss out on a lot of life if they don't know how and when to detach themselves from it." 

The market offers promise
Many investors have shunned the stock market in the last several years as a result of the Financial Crisis and also the volatility that is inherent to equities. However, Buffet writes in his letter that while there is certainly risk involved in many money in the stock market, there is a lot more if you do not get involved. 

The Oracle of Omaha also stated that in the long run, American businesses are destined to fare well, and as a result, their stocks will perform just fine. He noted that equities will lose value at some points, and this is inevitable. However, the odds are on the side of the people who take part in the stock market. 

Historically, the returns offered by the stock market have exceeded those created by other asset classes, for example real estate or bonds. 

Pick a style and stick with it
Buffet notes in his letter how he has received calls from various Berkshire Hathaway shareholders to pay dividends, but that such a thing will not happen under his watch. According to MarketWatch, the financial guru has a long-held strategy of using the company's cash reserves to purchase more companies. 

"I have made plenty of mistakes in acquisitions and will make more," Buffett has stated, according to MarketWatch . "Overall, however, our record is satisfactory, which means that are shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends." 

If you want quality stock trading education, you can find it through TradingPub, home to some of the top investors and traders in the industry.