The stock market can be confusing and complicated for most everyday investors. However, it is also true that wise investments in stocks can give big returns.
Stock markets almost always beat simpler forms of investment and are increasingly ahead of inflation, which means you will end up with more value for your money when you invest in the stock market than you started off with. Also, the return on stocks is usually significantly higher than bonds and other safer assets.
It is a wise decision to invest a percentage of your savings in stocks. But which stocks should you buy?
We all hear about a friend or a friend of a friend who heard of a stock pick and got rich overnight. Such stories, though true, hide more truth than they should. Behind every such success story are a hundred failures where people lose all their money. It is just that you don’t hear about the guy who lost all his money following a hot pick.
You heard what?
It is unwise to invest based on rumor. It is true that no one can predict the movement of the stock market, but there are ways to minimize risk and maximize returns. It is certainly not a gamble. Investors like Warren Buffet are able to make profits consistently only because they are able to understand the rationale of the market and invest accordingly. They don’t follow any hot picks but trust their own calculations and other methods.
Be in it for the long haul
At least for beginners, it is always best to invest in companies from a long term point of view. This will help you iron out any short term ups and downs. When you invest from a long term perspective, you will not need to worry about the stock price tomorrow or even the next week.
What is important is that the company should do well in the years to come. Trusted names are the best bet in most cases. You should look for companies that invest in the future because that is the only way to grow sustainably.
To know exactly which companies are the best to invest in, you will need to do a detailed fundamental and technical analysis. Since most people are not so well informed, it is best to follow some advice and look for other sources of information.
Buying on a hot tip or rumor is outright ridiculous and you will most likely end up losing money. So when you get your advice, make sure it is from an unbiased source who is not trying to sell you anything. In addition, you should listen to experts and not friends and colleagues.
The best way to know about companies is through financial newspapers and magazines. Thus, if BusinessWeek suggests buying Nestle or Google, you should give this much more weight than if some random internet site suggests stock XYZ that you have never heard of. Wall Street Journal is an excellent source of financial news.
In the long run, it is good to be informed about different companies so that you can invest in them at an appropriate time. Awareness and knowledge are great tools that you can use to your advantage and make good money in the stock market.