MINIMIZING RISK in STOCK INVESTMENT

Investing in stocks is a very risky but very rewarding undertaking. There is always the risk of
incurring losses because the market price behavior is affected by supply and demand. In order to
minimize or reduce risk in stock investments, an investor should:

1. Conduct research on stocks of your choice, read annual reports and business sections of
newspapers and make inquiries. With this, investors can avoid trading based on rumors.

2. Diversify stock investment. It is advisable to spread the investable funds in stocks among
five to seven kinds so that losses in some can somehow be offset by gains in others.

3. Buy stocks at the point of most pessimism and sell at the point of most optimism. This is
called contrarian investing. It is advisable to buy gradually when prices are going down
and sell gradually when prices are going up.

4. Avoid trading on margin. Trading on margin means that an investor buys stocks but does
not fully pay for them. The amount of liability he incurs is called the margin. When you
trade on margin, you are under pressure to sell even prices are going down because there
is a liability to settle. Trading on margin can eliminate one’s capital and even cause of
bankruptcy.

5. Cut losses. Cutting losses means selling stocks even at a loss during times when prices
are continuously declining. This would enable you to conserve part of your capital and
use it when there is a new opportunity.

6. Remain focused on Long Term Objectives

7. Learn from mistakes and improve.