4. Cautions while purchasing a stock


So you have made a design to purchase stock. What stock one is going to be purchased and how long to keep it is dependent on trading nature or investment nature of the stock buyer. The purchaser decides on purchasing it as an investment. He knows that he has got stock a good company at a good price which is in a good market. That is a wise investment decision. Get hold of a good company stock for a low price and keep it for a long time.If you bought the stock for not so good price makes it as a trading decision. Trade it; say for, few weeks or months. You could get a good deal if you trade. But if you hold to the stock purchase, it may go down for sometime and then go up. It may be lock up for the stock purchaser. So make a good decision for stock purchase by doing trading or keeping for investment.


How to purchase the stocks through a stock brokerBefore you purchase any stock, just check what makes you purchase it. You may be market savvy. You know that market gives you the best returns on investment, so you keep track of stocks and regularly buy or sell. That is the regular type of trader. Another type of trader is one who is buying for specific purpose. Generally, he buys for himself consulting his broker or the dealer or reading about market sites and makes a stock purchase.

Another set of people buy it because they may want to save some tax incurred on their property and earnings. When stocks for long term are bought, they will get discounts to maintain them. Some people get stock as part of Employee Stock Purchase Plan, popularly referred to as ESPP. ESPP is employee stock options that they get for the employment period with the company. There are professional traders that are people who make money out of their stock purchases and make a living out of it. The investment banks are the main stock purchases for collateral purposes and hedging purposes. The another set of purchases are government and central government banks who purchase public sector companies and stocks and bonds of foreign companies so that they can have an effective hedge against inflation.So all these people are stock purchases who have their own criteria for deciding the purchases they are going to make.


What stock to purchaseThere are three different types of stocks. They are large caps, small caps, and mid caps. Then, you must be aware of the criteria of the purchase to be made by retail investor. Should he be buying small cap or large cap or madcap stocks, all depends on the risk appetite and the confidence of the investor or trader involved on the market. If he wants to invest in large cap stocks, he will be buying good company stocks. He can expect that the stock will not go down too much. So whenever the stocks of the large cap go down, the big investors and the government will buy at lower prices to average it out.


If you buy midcaps or the small cap stock, you cannot fully expect that it will not go down. But the stock suddenly goes up due to some good news that is coming out of the company. On average you make more money, if you buy small cap or madcap compared to large cap stocks. Also the stock to purchase depends on the money you have. You should not risk his main capital. You should be investing with minimum risk and get maximum gain. If you are not able to decide on doing this, he should leave all the stock purchases to mutual funds and believe in them to make a good purchase for you. You may not be holding the shares yourself, but he can be sure at least that a professional trader or manager will manage it for him. So he should leave all investment decisions to them.


Make the stock purchase with low risk capital you have. Do not risk your needed capital which you should not risk. Also investing is like growth. You invest in a particular instrument where there is safe way of generating money and making it grow. Also depending on the risk appetite, you should buy good stocks. If you want safe investment, better look at good and large companies which are into many businesses, who have a good reputation at a stake. These companies are safer bet. They are in-fact same as investing in the banks. If you are looking at explosive growth of the stock purchase, it is better to invest at small or upcoming companies. They are the ones who do not have bureaucracy and also they have the managements who can take fast decisions and they have everything at stake.


People or companies who have a survival and everything at stake are the ones who perform at their optimum. So try looking at them and purchase them when they are very focused at the growth stage. If you want some stable growth but also looking at fast money growth, midcaps are generally good companies to buy. The plan here is to look for companies that are nascent in growth, do not have many debts and have good plans of stable growth. So this is the main criteria for stock selection and stock purchase.