Trading in the stock market can be both lucrative and devastating. This kind of investment is different from proactive investments, like house flipping, where you buy a rundown house, fix it up, and resell it for a much higher price. There you have control over your investment – the amount of effort and labor you put in improves your chances of selling for a profit.
But, buying and selling stocks is usually very non-proactive where you simply wait for prices to rise before selling for a profit. It seems like gambling, but the difference is, you can do research on the market environment and potential company you’re about to invest in so you can make an educated prediction on whether its stock prices will rise or fall.
Here are four more ways that can help you choose profitable stocks:
1. Invest in companies making money.
Most new investors go into stock market trading thinking they can pick a random startup, buy some stocks, and wait to see if prices rise or fall. This makes it more like gambling and less like investing.
If you want to lower your chances of buying bad stocks (and save money), you should choose a company whose market you can understand, and carefully check the company’s financial history to see if they’re on the way up or down. Don’t rely on weird statistics, like random spikes in prices, but base your insights on gradual increases in stock prices and company revenue.
Even if you can’t tell from a company’s financial records whether it’s going to prosper, understanding the company’s market allows you to predict the upcoming overall environment, like if you’re well-versed in the augmented reality field and foresaw the huge boom Pokemon Go would bring for all augmented reality startups. Or if you’re more knowledgeable about mineral resources, you could try investing in new mining operations.
2. Try to choose leaders instead of companies.
The most successful businessmen made their lucrative mark by thinking differently. For example, Jeff Bezos of Amazon introduced predictive analytics where he theorized that studying an individual buyer’s purchase history would provide better insight on which products to recommend to him.
Most stock market investors will focus on the company – think outside the box and focus on the people behind the company. Like seeing the forest for the trees, even if a company’s financial history looks bad, if a renowned guru just joined their team, you can expect great things in the future for that company and it would be wise to buy those stocks while they’re low.
3. Are there any competitors?
You found a new startup with over 1000 employees and approved loan applications for the construction of a fairly sized factory. Sounds great, right? Then you find out it’s planning on manufacturing cherry, vanilla, and fruit-flavored sodas. Turn away. Even if a particular company seems solid with ample financial backing and a large employee team, you should think twice before investing in it if its market has a lot of competitors.
The soda market is huge, with the top brands already saturating the market with their different-flavored products. Unless this new startup is offering something radical, like glow-in-the-dark beverages, it will be a challenge for it to survive among the other established companies who are selling the same exact products.
4. Pay attention to the weather!
Buy stocks when it’s raining and sell them when it’s sunny. Why? Researchers found that people’s planning behavior is affected by the weather and temperature. In particular, they found that people buy less when it’s raining and buy more when it’s sunny – they found this leads to stocks underperforming when it’s drizzling and performing better when the sun is shining.
Of course, the weather’s effects on the stock market aren’t massive, but if you’re planning to invest in an iffy startup, why not buy their stocks on a rainy day when chances are their prices are lower. This means less risk for you because if you decide to sell your shares, you just need to wait for a nice sunny day when their prices are likely to rise (even if just a little).
Investing in the stock market can be like gambling, but if you follow these tips you’ll lessen your risk of buying bad stocks.
Featured photo credit: Olu Eletu via images.unsplash.com