Investing in stocks is something everyone hears about, some do, but most people don’t. Today, with the internet, computers and smartphones it is easy. But it can be scary.
The dangerous part of investing in stocks is that it’s like putting all your eggs in one basket. If that stock goes down you lose. At least with ETFs and mutual funds there is a level of diversification built in.
The advantageous part of investing in stocks is the potential for great gains, huge profits if you pick the right stock.
One of the challenges with investing in stocks is controlling your personal emotions. Basic human nature too often prevents us from letting go. Just look at how much stuff is stashed in garages, closets and basements that never sees the light of day because letting go is so difficult. The same thing happens when we buy stock in our favorite company and it just kind of muddles along or even goes down, down, down. We don’t want to let go and sell it; we hold out believing it will become popular again and go back up. And it may in two or five or twenty years, but that doesn’t help your wallet today.
So one of the challenges with stocks is controlling your emotions to both buy and sell what is best for your wallet and not necessarily for your heart.
Key factors in investing in stocks include:
• Having a non-emotional decision based system
• Using other peoples work to put together a list of potential stocks
• Keeping your portfolio manageable
• Keeping your portfolio diversified
Previously I wrote about a manageable portfolio and also about the different keys to diversification so I won’t repeat myself here.
How do you use other peoples work to put together a list of potential stocks? First, this does not mean talking to your neighbor or cousin about what they like!
Use professional sources for creating groups of potential stocks. These sources include (but are not limited to):
• Investor’s Business Daily newspaper
• Money Magazine
• SmartMoney magazine
• Kiplinger’s magazine
• Today newspaper
• Wall Street journal
These sources are constantly publishing lists or articles about companies with growth potential.
You can create groups, from which you can pick one or two stocks for investment. I actually have a “Kiplinger’s” group of 18 stocks. You can do the same from any of the above or other sources.
You can also create groups based on industry’s or sectors like:
• Banks or Finance
• This list is almost endless
Once you have your potential groups and stocks you need that unemotional way to make your decisions. I will discuss this in further detail in the future, but for now I will repeat from my previous articles your basic choices:
• Decide according to an investment newsletter, newspaper or magazine
• Computer software based on charts
• Computer software based on complete technical analysis
• Investing company fundamentals
The key is to pick a time-proven method and to stick with it; leaving your emotions “at the door”.