Invest In What You Know
With the advent of the internet, investing in stocks became much easier and much cheaper.Anyone with $1000 can become a day trader and make lots of money, or they can lose it all in the blink of an eye.What makes the stock market different from gambling is that with stocks, while no one can predict the future, risk can be mitigated with a little bit of education.With a lot of education, risk can be mitigated even further.
The wisest investment that a person can make when looking to purchase stock is in education.A company should be fully vetted before purchasing the stock, and the more that the investor knows about the stock, the company it represents and the industry, in which the company operates, the better decision the investor will be able to make in regards to the future viability of the company and therefore, the rise or fall of its stock price.
For example, back when 3-D movies were coming back into vogue, IMAX borrowed money to invest in the infrastructure of the delivery of their product - the Imax Experience.They were trading at about $6 a share at the time, but a savvy investor would have noted that the ability to show more IMAX films and more mainstream films in an IMAX experience would send profits up.Beyond that, the recently released "Harry Potter" was set to be released in IMAX in a couple of weeks.Sure enough, within four months the stock had almost tripled to $17 a share.When a movie person looks at the information that was available at the time, it was a no-brainer, but when a financial person looks at it, he or she sees newly acquired debt and the possibility of investing in another sector that seems less risky than film.
No one should be investing in an industry about which he or she knows nothing.It is too hard to figure out the indicators and to understand what the cost of tea in China might mean to a shipping company in Greece.Unless the investor is truly interested in tea or in shipping, it becomes too difficult and too boring to learn about the company and its industry and the factors involved in making that industry run.That means that the investor will need to rely on "experts" for their guidance in that sector of investments.Let us not forget that experts built the Titanic.
Investing is not free.So while many online stock investment companies charge relatively low fees for their brokerage, there is still a cost per transaction that needs to be figured into the total cost of the stock, especially when buying a relatively small number of stocks.It doesn't help to sell stocks and make $5 if the transaction to buy the stock cost $7.35 and the transaction to sell it cost $7.50.That would be a $9.85 net loss even when the stock was sold at an ostensive profit.Some new investors make the mistake of not counting the brokerage fees, and they end up with less money than when they started even though the stock picks did well enough.
All stocks carry a certain amount of risk.There is no guarantee for any company that it will survive or thrive in the coming months much less the coming years - the United States economy is just too volatile.The person that knows one sector of the economy, more than any other, will be able to better understand the emerging trends in a stock in that sector and be able to better take advantage of that knowledge.