Learn the Ultimate Secret to Investment Success

Tweet

Why do you buy a certain stock?

- Because it has bottomed out

- Because it is ridiculously cheap

- Because it is offering a huge dividend

- Because most analysts have given it a thumbs-up

- Because it offers an appealing long-term return

The fundamental secret to investment success is understanding your reason for buying a stock.

To see it clearly, let’s analyze the reasons above:

1. It is very inexact to state that a company has bottomed out, since you can’t know where the bottom is: even if a stock is down 95%, it can still drop another 50%.

2. It is not smart to buy from a cheap company… it may be tempting, but it is also foolish.

There is a reason why a company is cheap, and it is not a good reason. More expensive companies offer better investment opportunities.

3. Huge dividends entice investors; however, these are high normally because investors are running away from the stock, which lowers the share price, which, in turn, raises the dividend yield. Before buying, research why so many are selling.

4. Are you sure a company that is rated high is safe? Consider this:

o Many analysts inflate ratings. As long as a company doesn’t stink, they give it a thumbs-up.

o If most analysts are rating a company high, they can’t upgrade it, and rating upgrades bring in hordes of new investors.

It is best when analysts are kind of indifferent towards a company. In any case, if the business is good, the ratings will go up, which will bring new investors who will increase the price.

5. The only good reason to buy a stock is if you think the company will give good long-term returns compared to other investments.

This company may go down a bit short-term, but it has proven it can grow profits, manage its cash prudently, is in a good sector and has a reasonable price.

If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com