What is the best investment opportunity today? It would be nice to have tomorrow’s stock prices on our computer today. That would be how to give a definitive answer to the question, what is the best investment opportunity today? Since we don’t have a crystal ball we need to resort to fundamental analysis of stocks and technical analysis of market sentiment. Although no one has a crystal ball there are investors who have become immensely rich by using their analytic skills to predict what is the best investment opportunity today. So, where do we start?
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Picking new winners in any era requires home work. Different market sectors offer different opportunities for the investor. Dividend stocks are often secure investments although they rarely provide huge growth potential. For the individual with a short investment horizon there are many stocks with short term growth potential, takeover targets, and companies with brand new promising product lines. For the short term the investor will be more interested in market sentiment and will use technical analysis of prices to help him to decide when to buy and sell stocks. For the long term investor the best bet is to look for stocks with a margin of safety in the guise of hard assets and intrinsic value in the form of a forward looking stream.
In any time frame there are hot stocks and hot market sectors. Scientific discovery in the field of biology has led to life saving medicines and billion dollar fortunes. What is the best investment opportunity today? The problem is to know what will happen tomorrow. In engineering and computer science there is predictable path from scientific discovery to invention of useful applications to profitable sales. Although production times are shortening up a five year time frame from discovery of a new piece of science to a salable product is common. Thus, our time frame for product driven investment is typically half decade or less. However, there are companies that have proven track records in taking new science and turning it into sales. As an example the Roche Pharmaceutical division, Genentech, has been making new wonder drugs and generating sales for decades. Hewlett Packard has proven itself as a leader in computer and printer innovation. Investing in these sorts of companies tends to give the investor a mixture of forward looking earnings and security. Unfortunately the investor pays a premium for investing in such companies. Learning how to invest in start ups can be profitable as these companies have yet to show their potential. As such they may be underpriced in relation to forward looking value. What is the best investment opportunity today in start up companies? The investor will need to look at potential products of the company, the track record of its management, and competition in its market sector.
With all of this in mind what is the first step to investing? The investor will want to choose a market sector with growth potential and stocks within that sector with the ability to outpace their competitors. A stock with a low price to earnings ratio and some margin of safety in the form of hard assets will be a secure investment and, probably, somewhat underpriced. The investor will need, in the end, to pick his own stocks and do his own homework. Developing a strategy for promising investments will pay its own dividends in the long term.