What are Stocks?
Imagine you have a great idea for a business but you need money to open. What do you do? You can apply for a loan or sell equity in your company. When you sell equity you are selling shares in your company and your investors become partners. When you buy stock in a public company you become a partner in the profits and losses of that company. You become a shareholder. Stocks are shares of equity a company sells to raise capital.
How to Buy Stocks Like Warren Buffet
Warren Buffet states “buy good companies.” He advises you to become a partner in a business you love. When he buys, he looks for value and believes he is a partner. Today’s investor looks for action, they are not true investors. They are traders. News and updates are everywhere, they want to be involved. There is a blurred line between investing and trading today and you need to know the difference. Trading is difficult. Trading is not investing. Traders chase price. Investors buy value. Warren Buffet is not a trader. He is the greatest investor in history. You can learn to invest from the best there ever was. I don’t care if you have $100 to invest, the principles are the same. Learn how to find value and become a shareholder in those companies. We make it easy for you to find value with our investment research so you can make informed decisions.
Why is Investing Confusing?
Accounting rules are constantly changing. This makes finding the right numbers challenging. Basic math is easy. You either have cash or you don’t. Picture your own paycheck. Imagine you earn $100 but your take home pay is $70. You also have $20 in expenses. Do you tell your friends you earn $100, $70 or $50? In my world (the real world) I have $50 to spend. This is my cash. This is the real value. If I increase my paycheck but also increase my expenses I do not create more value. This is pretty simple stuff right? In the world of public companies there are hundreds of methods to declare value when reporting results. This is why investing can be confusing. Everyone has an opinion of which numbers matter. The truth is most likely buried somewhere in the footnotes of a 500 page report. This is why financial TV is big money, we eagerly search for an opinion to follow. To be a smart investor, follow the cash. Start there.
What are Good Investing Goals?
Before you set goals you should assess your resources. Resources include time, capital, knowledge and skills. To be clear, capital is not the only resource to identify when determining your goals. How much time do you have to find a valuable company? How much time do you have to learn? How much capital are you starting with? What is your risk tolerance? How strong are your investing skills? Do you know when to sell? Good investing goals will match your resources with your skills. This is strategy or planning. If you are investing for retirement and have 50 years, you have different needs than someone with only 20 years. An aggressive approach is required with less time. Be honest with your starting point and you have the key to setting smart investment goals.
How Should I Start if I Don’t Have Investing Experience?
A beginner investor has two choices. You can do the research yourself or pay someone to give you advice. We think it’s smart to do the research, even if you ask for advice. This makes you responsible. Investment research methods vary, our reports follow the cash. We think you will find them easy to read. Our ranking system is simple: attractive or dangerous and we explain why. Your next decision is how to assess potential risk versus potential reward. There are two methods. Individual stocks have “volatility.” The price of some stocks can move $10 in a month and others can move $10 in a day. You should seek to match your resources with your choice of stock. A small investing account and little experience should not be involved in a company with price movement beyond your resources. You may be correct about value in the long-run but may be forced to sell in the short-term if you cannot afford the price swings. Investing above your resources is not responsible investing. You may find a mutual fund or ETF to be a better match if lower potential risk is a priority. The diversification and professional management they offer may be the right choice for you. One important final point. Stay away from penny stocks or bulletin board stocks. These are companies that are not required to report earnings. Do not invest where you can’t inspect.
When is a Good Time to Start Investing?
Now. There is no other answer.
Now is a good time but now is relative to your resources and to opportunity. Seek to invest when you have the resources and you have found a good company. A desire to invest is not a good reason. Finding a good company is a good reason. Compounding returns over time creates wealth. The sooner you start the sooner this powerful concept can help you reach your goals.
Summary: Your 401K or IRA are investments. Your child’s college education is an investment. You can be a smart investor if you take the time to match your resources to your goals. This is the plan smart investors follow before they start. Be smart.