It is important for the investors and the traders to understand that there is no secret to stock market success. There are no millionaire insider tricks or any magic words that will ensure anyone’s success in the stock market. The only secret to stock market success is looking for great companies and buying them at a price that will provide you with an opportunity to make profits in the future. In summary, the secret to success is identifying a great company and buying at a good price.
For instance, you learn that a company named NIO is being referred to as Tesla of China. The company is doing well and it should grow in the near future. You might want to buy NIO shares before the other investors and traders in the stock market find out about the company. If you can do so at the right time, you will buy shares at a low price and then when the company grows you can sell or trade the shares for a much higher price and make profits. This technique is referred to as buying low and selling high.
There are some traders and investors who are not willing to do the required groundwork and are always looking for a shortcut. When it comes to investing in stocks, everyone wants an edge. The market can prove to be overwhelming and the advantages will provide you with more opportunities to make profits.
A lot of investors in the stock market are looking for quick money and they think shortcuts are the way to success. These shortcuts will often come in the form of a tip from a colleague or a friend. The power of personal suggestions can be compelling, even if the suggestions are coming from someone who does not know much about investing in stocks.
In modern times, these suggestions can be found on social media sites, email, and a number of other information technologies. However, the reason for why you should ignore most of these helpful tips hasn’t changed. A useful tip for investors and traders in the stock market is that they should never buy a “great stock”.
However, it looks like every investor wants to own great stocks. Of course, they should and so should you, but the “great stocks” aren’t really great. We’re talking about the stocks that a neighbor or a colleague tells you about. Let’s look at the types of stocks that you will be normally informed about.
The Three Categories
The first type of “great stocks” you might hear about can be called Christmas tree ornaments. Shiny on the outside, they capture the attention of investors. However, hollow and easily broken at the slightest touch, they will ultimately fail because they are not viable businesses. No one will probably even remember their names in six months.
The second type we will call bicycles. These are stocks tied to an economic cycle and the cycle could swing in the opposite direction. A lot of people will buy the stock when demand rises and the stock price increases rapidly. However, what your friends or colleagues might not know is that demand will soon go away and the price will deflate like a leaky tire.
The third type is “great, but late”. Your friend might be right about the stock being great. Unfortunately, the price has already reached the point where you can not make any money. It is the “buying high” and if you do decide to invest you will later have to sell the stock at a lower price and suffer losses.
If you are looking to hold the stock for some time, there are two parts to making a good investment decision. The first part is to choose a company with a sound business and good chances for future growth.
The second part is to buy at a price that makes sense. Keep in mind factors like where the company is and where it is headed. We would suggest that you never pay too much. Although there are many factors you could use to predict future value, figuring out the right price to pay for stock is never an easy decision. Remember to do what makes sense to you. As your experience and knowledge of the stock market increases, you will start making better decisions.
Take a Pass:
You are investing your money so it only makes sense to take your time and make decisions you’re comfortable with. You can take a pass if a stock doesn’t sound or feel right. There will be many opportunities in the stock market, so there is no need to rush yourself.
If you pass on your colleague’s “great stock” and it turns out to be a home run, there is no need to second-guess yourself. Remember that for every home run, there are twenty strikeouts.
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