Investing in stocks is one of the primary ways to achieve financial freedom. Tony Robbins in his latest book “MONEY Master the Game: 7 Steps to Financial Freedom” says that over 61% of Americans spend around $10 on coffee daily. Had these people invested this money on stocks on a regular basis, they’d have achieved financial freedom pretty quickly. Investing is an art that has its own secrets. In this article we will talk about 8 secrets on how to invest in stocks to make money.
Fundamental Analysis is the Way to Go
We are experiencing a major shift in the investing strategies these days. Most of the beginner investors buy stocks on both market news and hype. But the old school investing strategy of fundamental analysis remains a key in making money by investing in stocks. Legendary investor Warren Buffett’s secret of success is nothing but an uncompromising emphasis on fundamentals and value of stocks.
Mimic Hedge Funds
If you are a beginner investor and don’t know how to invest in stocks, mimicking hedge funds to make money is perhaps the biggest open secret you should be aware of. In July, HFRI Fund Weighted Composite Index was up 1.2%; its ninth consecutive monthly gain. Hedge funds regularly beat the market by clear margins. Hedge funds channel billions of dollars in the stock market. These funds have extremely competent resources and tools which pick up the best stocks to invest. Hedge funds manage over $3.1 trillion in assets. You can check out their stock picks by checking their 13F filings regularly. Buy the stocks which are being bought by the famous hedge funds.
Financial Reports are Windows to the Future of the Company
Most of the people don’t bother digging deeper into the financial reports, hefty statements, and details of companies they invest in. That’s a recipe for disaster. Never invest in stocks on hearsay. Most of the times the financial statements, quarterly reports and small details hidden in company filings hint to the future plans and actual financial situation of companies. You should learn how to read balance sheets and financial reports. This will help you in long term investing.
Never Sell During a Panic
Never be alarmed to see instant crashes and dips in the stock market. No matter how low the market goes, it always gets up and become normal. Your investment decisions should not be driven by tweets from Donald Trump or a war in other parts of the world. A stock market crash always represents a good buying opportunity. Similarly, buying stocks when they lose value is also a good, long-term investment strategy. As Tony Robbins put it, “When everyone else thinks the world is going to end, it is the right time to invest.
Don’t Get Carried Away by High Dividends
Don’t be lulled by high dividend stocks. I understand that you have to increase your running income, but many times, insanely high dividends point towards internal problems and desperation within the company. Always invest for long term gains.
How to Evaluate a Stock Quickly
Whether you decide to buy a stock or not, it is best to spend an adequate amount of time researching that particular stock. You should always see ratios and figures like returns on equity, debt to equity ratio (should be low), gross profit margins (must be increasing), product pipeline (mostly for pharmaceutical stocks), and Price-Earnings ratios.
Don’t Underestimate ETFs
In investing, diversification is the key. No investor has ever become successful by betting on one or two stocks. Exchange-traded funds (ETFs) are the best way to diversify your portfolio. ETF is a marketable security that tracks an index or several assets of an index. For example, I am dead sure that Cloud computing stocks will go up in the future amid a rising demand. But I only have $1000 to invest, and Cloud computing stocks are way up my budget. I can still invest in Cloud computing stocks buy putting my money in an ETF that tracks Cloud computing stocks.
Invest in Emerging Markets
The last secret on how to invest in stocks is that you should never be afraid to invest in emerging markets. In fact, emerging markets like China, Africa, and Asia are growing rapidly and surpassing the developed world pretty quickly. That’s why famous investors from the US are putting millions of dollars in the emerging markets. Millionaire investor Michael Hasenstab has over 80% of his investments in China, Central Europe, and Africa. He regularly tours these areas to conduct research and surveys in person before investing his and his clients’ money.