When buying stocks, use your knowledge and experience. What are your interests? Your hobbies? Your knowledge is your edge. What interests you? Automobiles? Railroads? Retail stores? Home products? High tech? Banking?
Whatever your interests, start by researching companies in areas that you find interesting and know something about. Some of the companies will be doing well; some not so well.
Do your research: Retail store start-ups do well at first, but can become mediocre or even have store-closings as they mature. Are the company’s executives still dynamic and aggressively coming up with innovative ideas year after year? Or are they marking time, with unremarkable sales levels, pulling in the profits while they last, and counting the days until retirement? Target seems to be doing well. Kohl’s was opening lots of stores, but now seems to be less aggressive. Research their Executive teams.
Do you know the automobile industry? Ford and GM stocks were going slow, but have been doing a little better. Tesla is doing great; they have everyone’s attention. But that can mean they are “over-bought” – the stock is over-priced. Will it fall? Or will it continue to go up? Ferrari’s stock (“RACE”) is always fun to watch. Everyone dreams of owning a Ferrari. Do your research.
Don’t buy the stock of the company you work for. Simply put, don’t put all your eggs in one basket. Besides, “insider trading” is illegal. Look for other places to invest.
But if your company offers “options”, take advantage of them. Buy them up. These are usually sold through an “Employee Stock Ownership Plan” (“ESOP”). If your company is doing well, buying options can be a great way to make money.
Buy Wall Street Journal or Barron’s every week or so, at the grocery store, Barnes & Noble, etc. Skim each issue, looking for articles on companies that interest you.
A company’s Executives are what drive a company’s success or failure, not the products. Find dynamic, “hungry” CEOs running businesses you find interesting.
Learn about the company whose stock you are thinking of buying. Get research material from your broker; it’s free. Research companies on the Internet. Visit their website. Look for news about them.
Note the company’s one-paragraph self-description. Are their corporate goals explicit, focused, and well-defined? Or does their attitude seem to be indeterminate and vague? That is usually a good indication of how their stock will do.
Check the graph of the stock’s price for the past month, six months, and year. The more all three show a generally upward trend, the better.
Buy stock for the long term. Buy stock you intend to keep for months or years. Pick companies you expect to grow over time. Don’t spend your grocery money; quick profits are rare.
COVID had a big impact on all stocks. How has it affected yours? How will it affect yours going forward?
Risk is a part of investing. Don’t panic when your stock’s price falls. Hold on to your stock “through the dips.” Dips scare off the people who don’t understand the stock market; don’t be one of them. Quitters are losers.
Watch for news about your stocks. Learn. Be patient. Trust your judgement.
On some stocks you will lose money. On some stocks you will make money. Your goal is simple: to make more money than you lose. How much more is up to you.
Education is part of investing. Build guidelines that work for you (not your buddy). If you learn from each mistake, you will do better the next time – usually.
When the price dips, learn what caused it. Did the whole market dip, or just your sector, or just your stock? Ask yourself, “Would this be a good price at which to buy this stock?” If so, then hold on to it. If you have the money, you may want to buy more – or diversify: buy a different stock.
“Right after I bought the stock, the price went down.” It happens to everyone. A good rule of thumb: hold your stock for six months; then decide if you should continue to hold it, or sell it and buy a better-performing stock.
If you have not sold the stock, you have not lost money. And if you have not sold the stock, you don’t have to pay any taxes on the profit. That only happens when you sell.
Next Month: Taxes.