The mechanics of successful investing is pretty simple. Buy low and sell high. The less simple part has to do with what to buy and when to buy it. In other words, selection and timing.
Stock selection and timing are really closely related. The key is recognizing both current value and potential value. If the current value is less than the potential future value, you’ve got a winner. And of course if the opposite is true you could still have a winner by shorting the stock (betting it will go down).
Finding Stock Opportunities
There are literally thousands upon thousands of stocks out there. So first, you need to find them, and find out a little about them …
1. Yahoo Finance. This is one of my favorite places to do stock research. It’s full of big breaking news on companies and general economic trends. Their stock quotes are 20 minutes delayed but they give you company profiles, key statistics, info on competitor companies, links to news and blog commentaries and quotes on options pricing. Yahoo Finance is a great place to start.
2. Online business news. Big media players like The Wall Street Journal and Forbes are great places to find out who’s being talked about and what’s being said. You can also check out Investor’s Business Daily, The Street, and The Motley Fool. I don’t subscribe to any of these sites because, to be honest, I don’t want to be sold on some amazing “golden opportunity”. That’s a good way to lose money. I want the public news. The big chatter. I want the hook, not the line and the sinker.
Determining Value and Potential
There are companies that lose money but their stocks perform very well. At least for a while. At the same time, there are companies with solid business models that nobody cares about. What’s the deal?
A company that actually produces a profit is going to offer you less risk. Especially in the long run. Plain and simple. But regardless of that, a stock’s rise is heavily based on confidence or market sentiment.
If a lot of people believe the company has great potential, up goes the stock. It’s demand for the stock and belief that it will continue to go up that pushes up the price. At the end of the day, nothing else matters nearly as much as confidence.
This is why I don’t like super-secret “tips”. I want a stock that everybody knows about. That everybody is talking about. A stock that everybody is buying which drives the price up.
If enough people believe, it will go up.
And if those beliefs are based on sound fundamentals, it’ll keep going up. If not, it’ll go down, and probably a lot quicker than it went up.