How to Be Successful Investing in Individual Stocks
Most people who give advice about investing recommend investing in mutual or index funds. They tell you to diversify. They warn you not to put all your eggs in one basket. Invest in individual stocks and you’ll only lose all your (retirement) money, they say.
There’s some truth to that.
Mutual funds are a safe investment. If you don’t have a lot of investing knowledge and have neither the time nor the patience to learn, it probably is best to leave the work to someone else. Put your money in as many baskets as possible and let it sit to grow on its own.
That’s the path to getting rich slowly over time. The way to have a nice cushion to fall back on at retirement.
But what if you aspire to something more? What if you see investing as a vehicle for creating truly great wealth?
It’s possible. But it isn’t easy. Like everything worthwhile in life, success at investing in individual stocks isn’t something you can put on autopilot. And it isn’t about speculation, either. Getting rich with investments is a long-haul game. It takes great effort on your part, but the rewards are worth the hard work.
If you want to be really successful at investing in individual stocks, this is what you need.
Pick Stock You Understand
This is perhaps the biggest key. The reason people see mutual funds as a safe bet is because it protects them from mistakes they’d make under their own ignorance. If you don’t know anything about any particular industry, your best chances lie in betting on all of them. That way, you don’t feel losses in any one industry too heavily.
However, this also means you won’t see very heavy returns. Individual stocks give you the opposite prospect: high risk and high returns. To make these investments work, you have become familiar with the particular industries you want to invest in.
Start off picking something you already know well, or that you can learn quickly. If you’re in the HVAC industry, start off investing in HVAC companies like Whirlpool. If you decide to choose outside your field of expertise, try something you’re familiar with and you can keep up with without overly extensive effort. Restaurants are a good choice, along with entertainment companies.
Look for Promising Companies with Good Leadership
Remember, this is about the long-haul. Look at companies’ track records. How have they performed historically? What is their revenue and profit? What assets do they own? Who is their CEO? What do they have in the works? What are their growth prospects?
If you want safe bets, look for well-established companies–but make sure they have the potential to appreciate over time. Google, for instance, is already big. But it stands to grow more thanks to future projects like self-driving cars.
One of the reasons a lot of people don’t make it in the stock market is because they bail out when tough times seemingly loom ahead. They put their money somewhere safe. Then they kick themselves when they see their former investment soar in value.
Don’t be an alarmist trader. Do your due diligence before investing. Once you’ve invested, tell yourself it’s going to be long-term. Don’t pull out over any little insecurity. Research everything first, and sell your shares only when you have extremely good cause to believe you won’t regret it later on.
To make investing in individual stocks work, it’s important you keep on top of your investments and follow the market. A lot of studying is involved and you literally can’t afford to get lazy.
Investing in individual stocks isn’t for everyone. If you dream big, you can find success by choosing stock you understand, picking strong companies with good leadership, having character, and remaining disciplined. With a lot of effort and a little luck, you can become an extremely wealthy person.