Investment research takes time and investment research typically pays off in higher stock investing profits. We often hear the question just what is a good investment? The obvious answer is that a good investment is one that makes money and carries little risk. The point of investment research is to find stocks before they are noticed by the rest of the market, and before market attention drives their price up. The issue for all investors is doing a sufficient amount of investment research to find a good investment before the market changes and the stock goes up in price. We say sufficient because there is always a time limit to doing investment research. Take too long and the market drives up the price of your potential moneymaker, taking away your profit. Take too little time and you might miss something critical causing monetary losses.
Finding by trial and error how much time to spend on investment research is part of learning how to invest in the stock market. Many experts caution the new investor not to carry too many stocks in his portfolio. Investment research goes on after one buys stock and carrying too many stocks can make it difficult to do a good job following the fundamentals of your stocks as well as the technical aspects of market pricing. Short term investors will commonly purchase a promising stock at a low price to earnings ratio and plan to sell when the ratio catches up with that of other stocks in the company’s market sector. On the other hand some very strong stocks come to carry high PE ratios because they keep making money due to excellent product development, effective marketing, and good cost controls. If an investor holds on to a high PE ratio stock he will do so because his depth of knowledge of the company and its products is strong. Someone who understands a company’s product line and that of its competitors will be in a better position to judge when a stock price has gone too high to support its earnings growth.
How to invest in penny stocks can be a dilemma for the investor who routinely does in-depth investment research. Many low price stocks have a short track record and may not provide the serious investor with sufficient information to make an informed judgment. However, some low priced stocks will become excellent long-term investments. Having unique insights in a particular line of business can be a distinct advantage when doing investment research in start-ups and other low priced stocks. Doing technical analysis of low priced or penny stocks can be tricky as many of these stocks are thinly traded making the statistics on which technical analysis is based unreliable. If the investor wishes to invest in penny stocks he needs to do his best investment research and only invest in these stocks as part of an investment plan that includes a range of other stocks in his portfolio. Then, when one stock fails to meet expectations others will commonly help make up the difference. As usual this discussion is not so much about penny stocks or other specific investments as about developing an investment plan and routinely doing investment research before buying or selling.
While fundamentals dictate the prices of investments over the long term, short term prices are determined by market sentiment. Learning how to find and use market sentiment data can help you find attractive investments at low prices.