Picking Sound Investments

The keys to picking sound investments are fundamental analysis and timing. Fundamental analysis reveals the intrinsic value of a stock and its margin of safety. Technical analysis reveals current market sentiment and often allows investors to buy or sell stocks at the optimal price.

Picking Sounds Investments for the Long Term

Rate of Return on Investment

Over the long term an investor needs to make money, more than the rate of inflation, and enough to justify the effort involved in picking stocks and managing a portfolio. Sound investment advice is to have at least part of your portfolio in stocks that appreciate every year, dividend stocks with a good return, and stocks with a strong margin of safety that will protect your investment during hard economic times. The miracle of compounded returns can turn a hundred dollar a year investment into $32,000 over an investment lifetime with a ten percent per year appreciation. The key to making this work is picking sound investments in strong companies with the ability to find and market new products year after year after year.

Versus Rate of Interest on Debt

With credit card interest rates in the 18% range or worse it makes excellent sense to rid yourself of such debt before picking sound investments in stocks. However, the practice of picking stocks, buying stocks, and managing a stock portfolio takes time to learn. An alternative route is to practice picking sound investments and putting a portion of available cash into these investments while working primarily to reduce burdensome debt. By the time that you have gotten rid of credit card debt you will hopefully have learned something about picking sound investments for the long term.

What Does the Future Hold?

Anyone who truly saw the future would have invested heavily in Microsoft the moment it became public in 1986. The stock is more twenty thousand times as valuable today as it was when first issued. This has to do with the rise of the personal computer, associated software, and computing services. The same could have been true for anyone who invested in Apple the moment that Steve Jobs came back. Picking sound investments often has to do with recognizing the potential in a growing industry and doing the research necessary to discover which company will beat all of the others in market penetration, sales, and profits. Recognizing product potential and recognizing the ability of a company to essentially set its own price is extremely valuable in picking sound investments.

When to Get in and When to Get Out

Years ago the retail giant, Sears, was on its last legs. It became a penny stock and was bought by Kmart in 2005 and became Sears Holding Company. Most investors didn’t think much of the new company’s prospects. The problem was that investors were valuing Sears as a retailer. When valued as a real estate company the company was much more valuable. When the market caught on to the huge margin of safety in real estate that Sears held the stock soared. Recognizing value before the rest of the market does is often a key to learning how to invest and picking sound investments.

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