You should not be intimidated, everyone can do well in the stock market. you have the skills, you have the intelligence, it doesn't require any education. All you have to have is patience, do a little research, you've got it don't worry about it, don't panic.
In 1990 Peter Lynch retired as manager of fidelity Magellan, the nation's largest stock mutual fund and one of the most successful. in 13 years he drove Magellan to a twenty eight hundred percent gain, quite simply.
Lynch has been recognized as one of the greatest money managers ever, he beat the stock market for so long not by timing the market but by picking the right stocks. You can learn a lot from him and you don't need a billion dollar portfolio to follow his rules.
You can’t learn years of stock-picking experience in one night. But you have better stock picking skills than you realize and your advantage is that no one on Wall Street has.
Why Stock is the best option to double your money
You may be wondering why stocks are so important for long term investment program. the short answer, over time stocks produce better returns than other investments the past 60 years stocks have returned about 10% a year, Treasury bills or Bank CDs around that doesn't seem like a big difference does it but the power of compounding makes an enormous difference over time suppose you invest $50 a month and earn 6% after 30 years you have over $50,000 go ahead and play with the numbers you sell.
you noticed that the worksheets do not take taxes into account when your investment is taxed the government reduces your return every year if you know you won't need the money until retirement. You should place as much of your investments as possible into tax deferred accounts like IRAs Kiyo's 401k or 403b plans.
Because you don't pay taxes on the money until it is withdrawn from the accounts, the power of compounding achieves the maximum effect providing you the best return possible. The more time you have to let your earnings compound the better results you'll get.
A 20 year old who invest $200 a month and it's 10 percent on his money along love 1.1 million dollars the time he was sixty. Thirty-five year old would have to invest $800 a month to have the same 1.1 million dollars at age sixty. You're going to have a tough time getting that 10% return without at least some stocks in your portfolio before you start to invest.
Ask yourself one question when will I need to use this money, the stock market is a long-term investment if you need to use the money any time soon you should not invest in stocks. This is money you're willing to put in the market and leave it there for five, ten, twenty, thirty years, that's the kind of money you can do well with.
It’s All About Long Term Deal
If you're worried about it don't invest it, the stock market is volatile, individual stocks are volatile. The average range for stock in a year is fifty percent between its high as its low stocks go up and down the market goes up and down.
If you're investing with a one or two year time horizon, you shouldn't be in individual stocks, you shouldn't be in equity mutual funds. If you've been lucky enough to save up lots of money to send your children to college and they're starting school in two years what are you going to do if the market goes down. In the long term 10, 15, 20 years or more stocks have beaten bonds and banks certificates of deposits but the short term is no telling what will happen. In 1987 the S&P 500 fell 33 percent from its August top to its october bottom. If you have the stomach to ride through that drop you would have filed the SP performance from 1987 through 1992 still outperform Treasury bills and long-term government bonds.
Despite that decline if you want to double your money quickly and safely, fold it in half and put it in your wallet. Any other way you're simply gambling, a good stock can take two three even five years before it really pays off. It's not two or three weeks, it's not two or three months, the best stocks have been on fifth, sixth, seventh year, give your investments time to grow.
The Best Way To Sell Stock
Many people ask, when is the right time to sell a stock. selling stocks is a matter of comparing stories, if story A is better than Story B then sell B and buy more A. If you own eight companies you're playing eight simultaneous games of poker. So only stay in the games that you have the best chance of success. But remember, that stories rarely change overnight may take years for good one.
To be recognized by the market give you good stories the time to grow your advantage in picking stocks is your direct experience with companies as a consumer on your job as a professional or as a neighbor use those advantages as a place to start looking for good stocks. You have several things that you possess that will make you a good investor. Their inherent to your life it's the field you work in. It's the area where you live there may be some local company that's terrific your consumer you see some products you see some services that are terrific.
Do Your Own Reaserch
Investing is a personal thing, you have to do it by yourself. You don't do it with a committee you have to be able to have the emotional strength to stand the volatility of the market in general. And stocks in general if the key organ here is not the brain it's the stomach. You should have the stomach for this for the patience for it. You should be able to look in the mirror and say to myself what am I going to do if the market goes down.
If you know something that will drive a company's earnings higher, you know something that will drive a company's stock higher sooner or later. But you can't just guess at it, you have to have some reasons such as costs are coming down our new products going to be a big hit.
Research is developing a company's story idea of why earnings should go up or down. Doesn't mean sitting in the library for hours reading SEC filings or fiddling with a calculator. Research is exciting, it's very little math.
research starts with the things you know your edge. If you're a mechanic look at the tools you use which are the best which are the best value. Or if you're a doctor see what new technology saves the insurer money or software systems that reduce costs at hospitals you probably already know a few companies quite thoroughly.
Market Goes Up and Down
The amateur investor probably can follow between five and eight companies they could lecture in these five areas they know them very well. There's 10 to 15,000 public companies United States there's lots more overseas so you don't have to be experts on lots of companies you just have to know a few very well. It's a lot of fun, it only takes a few hours a month it's, not a full-time job. Actual bad economic news, rising interest rates, wars, elections, any of these can push the market down.
if you are one of those people that pour over graphs economic statistics or astrology charts trying to figure out what the stock line is going to do next. you are wasting your time, no one can predict the market you have to understand the market goes down. there's been 95 years this century we've had 50 declines of over 10 percent of those 50 declines 15 have been 25% more. so by once every two years the market Falls ten percent but once every six years it falls 25 percent. these are big drops, you have to understand that that's the nature of the market.
this gave you a great opportunity to buy terrific companies at very good prices. behind every stock is a company if the company does terrific of a long period of time the stock will do terrific. if the company does lousy the stocks going to do lousy that's all you're betting on.
Look at Fannie Mae from July through October 1990 the standard Poor's 500 fell 21%. Fannie Mae fell from about 42 dollars a share to about 26 even though earnings are still increasing. this was a terrific time to buy Fannie Mae. company was doing well management was still great the story was solid and they had a very good business but you got to buy the stock at a 38% discount.
Break stocks into categories
Break stocks into categories partly to make the job of researching more manageable. putting stocks into categories is the first step in developing the story. at least you'll know what kind of story it's supposed to be. the category tells you what questions you should be asking about a company you. simply can't expect all stocks to behave the same basing a strategy on general Maxim's like sell when you double your money or sell on the price falls 10% is absolute folly.
No formula will apply to all stocks different stocks behave differently so they require different approaches, different expectations, and different kinds of stories. suppose you've made a 50% gain on two companies one is the fast grower with a long way to go the other is a big lumbering slow growth company that is already saturated 95% of its market. and that market itself is growing slowly the 50% return is fantastic for the slow grower the chances are it's time to sell it the same 50% return could be just the tip of the iceberg for the fast grower.
There are basically five categories one would be fast growers, two be slow growers, three be cyclical, fourth the asset plays, and the fifth one would be turnarounds. categories are guidelines they are not hard rules some companies may not fit neatly into a category. Others may seem to be in two categories at once.
Almost all companies change categories at some time throughout their lifetimes. Fast growers if successful will always eventually slow their growth they'll run out of places to go. Cyclical experiencing long down cycles may become turnarounds once recovered. They probably will be cyclical again. Use the categories as guides to help you build your story but don't let them limit the questions you ask or the research you do.
One thing we can say about companies in general it's easier to go from 100 million sales to 200 million dollars and sales then is to go from 10 billion in sales to 20 billion dollars in sales. So smaller companies tend to have more upside potential than larger companies. But don't dismiss all big companies out of hand, some big companies defy their size and find exciting new ways to grow their earnings as well good opportunities exist in companies that are cyclical regardless of their size.
Your Story Should Be Strong
You can't just go out and buy a stock and hope it goes up. You have to have a reason why you think a stock will go up you should be able to tell those reasons to someone else in just a few minutes. People who love stocks don't talk about sports, they don't talk about their dog, they talk about stories, a story is what's happening inside a company and signs that point to what's likely to happen the future.
I'll be able to put it down two paragraphs it could be something like earnings or turning around a new product, somebody's gone out of business that was competing with them, they've just discovered oil, take a new management, is their balance sheets getting better, you're getting rid of a losing division. There's lots of different elements but that's what a story is and that's what you rely on. A good story is one that you could tell a fifth-grader and he or she would understand. The more complicated the story or likely it is to fall apart. You just need one good simple story to buy a stock and then follow that story.