Home of the bears and the bulls
We have all heard the stories of the person that picked a stock that turned out to be a winner and it made a lot of money. But we have also heard the stories of so many people that lost their money chasing a stock that did not perform. Stock prices are volatile and very unpredictable. On a given day a stock can soar only to lose that gain and more on the next day.
You should not invest your money in the stock market expecting short term gains. It is not the road to riches. Investors are always looking ahead attempting to predict a company's future performance. For example a company like McDonald's may be devastated if a report came out that their meals cause cancer. Could McDonald's recover from such news and overhaul its product offering. In any event McDonalds has properties all over the world that it could sell off. What about the McDonald's franchisees - what action could they take if any to protect their investments. You can see from this example anything could happen with severe effects on a company and its stock price.
Stocks go up and down - a company can be doing extremely well but investors fear current short term economic news and lose confidence in stock markets overall. Political events can impact the prices of stocks - is there a shortage of a commodity or new sources of supply have been found. You must be able to evaluate the potential of a stock over time. Do you sell your shares and take an immediate loss if your stock holdings lose value. Or is this a temporary setback that you can withstand the decline and hold your stock for a future time period.
Much has been written about how to invest in stocks successfully by many skilled investors. One of the most successful investors over time has been Warren Buffet, who on any given day is one of the Top 5 richest men in the world. Like anything else, success leaves a trail and you should follow those successful investors who have been at it for many years and weathered strong and weak markets.
Let me share with you some of the principles of successful investing. You may be a novice investor that does not understand the complexities of investing in the stock market who is hoping to make some quick gains without the possibility of losing any of your hard earned "sweat money". If you don't have the staying power you can get wiped out quickly and not even realize what happened.
We cannot control market conditions so we must establish some general rules to help us assess the performance of stocks we buy and hold.
1. Buy stocks of quality companies.
Companies with a proven record of success with strong management teams are generally expensive. How many shares of such companies can you afford to buy? Consider buying ETF's (exchange traded funds) or Mutual Funds. This will spread your money over a group of stocks and also spread your risk over several stocks at a more affordable price.
2. Make sure you understand the business.
How can you evaluate a business if you have no clue as to what they do?
3. Make sure they are businesses with long term growth opportunities.
You want to make sure the company is involved with products that are growing. For example look at smart phones and where they are headed. Lots of customers available but prices are getting very expensive. Would you buy shares of newspapers and magazines when most people are getting their news and stories online?
4. Be prepared to hold your investments.
You need to be able to weather the storm. Is your business going through a temporary or seasonal decline or are they on the verge of bankruptcy.
5. Does the business have strong cash flow?
It's ok for a company to borrow money if it strengthens their ability to expand or acquire new equipment in order to modernize or automate. If a company is borrowing money just to pay their operating costs they are in trouble.
6. Don't chase news headlines.
Unless it is devastating news it will pass in a few days, the stock may suffer a temporary setback but it should recover. Most stocks already have a certain element of expectations built into the current price.
7. Generally do not risk money that you will need within the next 3 years.
If you are planning to retire, get married, move or need a new house or car don't risk losing these savings as the money may not be there when you need it.
8. Stocks trade worldwide.
Do your research thoroughly. What is driving stock prices in America may not be the same as what is happening in Canada or Europe. Economies in Asia may offer better returns and value today.
9. Resist Fads.
Be careful and avoid trendy stocks like social media (Facebook and Twitter) or simply hot technology as they are unproven over time and may not have a sustainable business model that will generate steady and growing revenues. Look at what's happening to a billion dollar company like Facebook in March of 2018. UK and USA governments are ready to pounce and their data harvesting techniques and who they sell the data to.
Good luck and many happy returns to you.
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