The rise of the novice investor: how to hunt for better returns

With thousands of younger, less experienced investors entering the stock market, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, shares his top tips for those looking to capitalise on the most exciting initial public offerings (IPOs)...

“A new breed of thrill-seeking investors has ploughed into the stock market over the past year, as rates sank to some record lows in March and April 2020, and opportunists sought the chance to hunt for a bargain. Other motivations include low interest rates, more spare time due to lockdown, affordable retail accounts with zero commission, and new trading platforms for millennials, all of which have inspired newcomers to dip their toes into the stock market for the first time”, explains Maxim Manturov, Head of Investment Research at Freedom Finance Europe.

“While regulators are right to be slightly nervous about this influx, with younger, more diverse investors often making riskier choices, there are also many reasons why it’s time to celebrate this sudden emergence in novice traders. First and foremost, the retail investor is back in full swing and certain stocks are continuing to make noteworthy gains. It’s also promising to see that millions of twentysomethings are at least trying to engage with investments. They have time on their side to learn the tricks of the trade and advice on investing sites are often insightful.

“Thanks to the modern technologies, trading platforms have also become much more accessible, particularly for millennials who spend a significant amount of the day on their phones, laptops or PCs. As a result, in Q1 2020 alone, over one million new online brokerage accounts were opened. And ultimately, the stock market, unlike the racetrack or the casino, is a generous bookie in the long run. People tend to get more back than they put in and young investors will learn that high-risk investments are not always the way to go.”

With this in mind, Maxim shares his top tips for novice buyers looking to capitalise on the most exciting IPOs, diving deeper into the importance of researching, practicing and planning before making a final purchase decision.

Research builds investor confidence
When an amateur investor buys any stock, they should always remember they are actually buying a small share of a company. This means finding out what the company does, how it’s doing financially, why there is a lot of media attention surrounding it and why it’s stock price may increase or decrease. In other words, before buying any stock, you should do your own research and not simply rely on what everyone else is saying, which can also help you gain some investor confidence.”

Stay firm during price fluctuations
“Such confidence, in turn, will help you stay firm during price fluctuations and volatility, which always occur and often becomes a reason for your losses. Long story short, when you buy a stock, you must understand why you are buying it. The price may go up or down, but with enough reasoning behind your investment, you won’t sell your asset straight away and will wait for it to increase in price, which will bring you profits.”

Create an investment plan and develop a strategy
“And finally, you should create an investment plan and develop your own strategy for stock market trading. You may want to base this strategy upon minimising risks through diversification and limits by sector and stock type. You should also pay attention to the financial performance and choose a company with a good balance sheet, low debt burden, high margin, a sustainable average annual growth, as well as other positive financial indicators.”

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