Investing in the stock market is full of risks and compared to the real estate market is a gamble of your money and wealth! Nevertheless, many people have built tremendous wealth from the stock market. They did it because they knew what they were doing. They knew the investing basics and the economic indicators and used it to read the world economy and make sound investments. In a nutshell; that’s really what it takes to succeed in the stock market. The world economy however isn’t an open book! It is a big ambiguous mystery novel full of twists and turns to drag your mind away from the real ending. Those who know how to interpret the world economy and translate its twists and turns into plausible clear indications, will cut through the clutter and win.
The thing that everybody has to understand about the stock market is that this market is not bounded by the walls of the trading center or the limits of the big cities or even the oceans. Literally, anything that happens in the world affects this market and the more any incidence makes people fear the future the more the stock indicators are going to jump up and down like crazy. Fortunately, if there is a well there is always a way. Even nowadays with the dwindling economy, a lot of people are making a lot of money from the stocks market! Why? Because while it does matter what the economy looks like when it comes to stocks, that still doesn’t mean that all the stocks will be worthless. For example, if technology stocks drop, energy or real estate stocks will go up for a couple of reasons connected to the world events and economy! You just have to read the world economy!
These are the surefire ways towards better stock investing:-
1- Read the world economy: – For example, gold was at its cheapest prices back in 1999. That’s because the world was living in a state of relative political calm and the U.S. economy was booming. Oil supply was abundant and there were no fears of shortages or sudden increases in demand. After the events of September 11, the world has changed considerably. Terrorism has become a serious threat. Security measures have shot costs to the roof. The wars that followed in Iraq and Afghanistan have created a new chapter of instability. We outsourced many jobs and opened many factories in China, India, Mexico etc. without knowing that while this reduces manufacturing costs, it created a boom in demand for energy in those countries, which translated to a boom in demand for oil. As a result of all of this, gold and oil prices have shot up, the dollar devalued, inflation soared and the real estate market collapsed because of the rising interest rates of adjustable mortgages. This should give a clear picture of what kind of companies to invest in right now. These are: oil companies, alternative energy companies, Gold mining companies and finally weapon manufacturing companies! I don’t want to be pessimistic, but recovering from this weak economy will not be easy and we have a long way to go in this dark tunnel.
2- Do your due diligence: – Don’t take my words for granted and go ahead and invest in every oil and alternative energy company. Even though you will not regret it, still before investing, technical analysis must be done on any company before you invest. There are certain indicators to look at like: – how much debt to equity ratio this company has, what’s their future expansion plans, how stretched their assets are compared to revenues, what is their real worth in the market (also called book value), what is their P/E ratio, which is the value of the stock compared to its earnings and much more. Put all of these together and draw a picture of how well this company will do. Don’t forget to read the world economy too! A good resource for all of this analysis is CNBC website. They have amazing analysis reports where they have done most of the tough technical analysis hard work for you. You just have to read the world economy and make decisions.
3- Always watch the insiders: – one of the very important ways to succeed in the stock market is to have extra knowledge resources to vaguely or specifically know what is happening inside the office walls of companies. One way to do this is by continuously reading the quarterly reports or called 10-Q reports of companies. What to look for is the stocks selling and buying activity of the company board of directors or the private shareholders. Think of it this way, if the people who know best about what’s happening in their own company are day after day selling large volumes of their stocks, what kind of indication you will get from that. Yes; dump your shares before the stock tanks! Another way is to have good relations with some of the senior managers in the company that you want to invest it. Believe me; this kind of friendship is very valuable.
4- Don’t put all of your eggs in one basket: – as simple as this rule is, you would be surprised how many people are doing it in the stock market in a daily basis. Diversify in your portfolio by investing in different winning sectors and in multiple companies. Even if you know the CEO of a company and he tells you that the stocks of his company will triple in the next week, still don’t take all of your money and buy the stocks of this company.
5- Don’t borrow excessively to create wealth: – Suppose you diversified and did your due diligence, but 80 percent of your money is borrowed and you lost half of it. Financial recovery in this situation is a very hard thing to do. Even if you don’t have a lot of money, start small, build your wealth and take it a step by step. If you don’t have a lot of money, start investing in small capital companies and a lot of good ones are available in the NASDAQ stock exchange. The good thing about small cap companies is that they have a tendency to shoot up in value more than big cap companies in terms of percentage growth. So it will be really worth while your investment if you found that gem in the crowd.
6- Practice, practice and practice: – Even if you have read a lot about using financial indicators, you did a lot of technical stock analysis and you have many insiders, practice before doing the real thing. Start a fictitious portfolio containing real stocks, but with imaginary investments. After a month or two check how well are you are doing. If you are not doing well, go back and see what where you doing wrong because you must’ve did something wrong to choose bad investments. Correct your mistakes and retry. There are free imaginary portfolio tools available by the big online stock brokers like E-trade or Ameritrade. You can use these tools to buy stocks and track stock movements and calculate your earnings and losses instantly. You can also set up a simple Excel sheet to do this tracking.
I personally like the stock market and I think it is the most lucrative and the fastest way to wealth. Real estate is good, but it delivers results over extended periods of time. As long as you know what you are doing, you should have no problems. Read some reports and books about stock investing, practice it a little bit with small amounts of money and learn from your mistakes. Stocks are not risky, they are calculated risks!
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