So you want to roll the dice in the stock market? Don’t get it twisted, investing in stocks is a complete gamble. And just like on a casino floor—there is no such thing as a sure thing. But there are ways to push the odds in your favor. Just keep in mind this rule…
Never invest money that you can’t afford to lose.
Now that it’s out of the way, it’s important to get clear about what you hope to gain from your investments. There are generally two ways to invest in stocks and using both of them effectively will help you see some nice returns on your investment.
There is no such thing as getting rich quick, but if you have some spare cash to play around with, this active investment strategy is the closest thing to it. This strategy requires that you take a very active role in managing your money in and out of a stock in order to get in while the stock price is low and get out when it shoots up. This is the most sought after style of investing for new investors because it allows for giant returns on investment in a short window of time. The story below is a crazy, 2020 example of quick, flip profit.
In March when the pandemic started to become real for Americans, Hertz rental car company had billions of debt on their books which they could not pay and were forced to declare bankruptcy and their stock dropped to just $0.80 a share. Alexus Harris, an IT worker for the government, saw that the price of this iconic rental car company was so cheap, that she decided to open her Robinhood app and buy $1,000 worth of stock at $0.80.
Two months later, when some financial restructuring and optimism returned to the company, the stock was selling for around $5 a share. Then Alexus Harris was able to cash out on her Hertz stocks for a $10,000 payout – in just two months. Check out the crazy story on NPR’s Planet Money. There is no guarantee that the stock price would have gone up, but with a little bit of research, time and a little luck, you can sometimes time the market to really get rich—quickly.
This investment strategy is self-explanatory, you purchase a stock and hold it for the long-term. What exactly “long-term” means depends on who you ask. Some people say that 3-5 years is considered to be a long-term period, while others hold their investment until they’re ready to retire at the age of 65.
The purpose here is to invest in large, stable, and successful companies that are household names in their industry, and ride their wave of growth out for the long-term. The “problem” here is that these companies usually have high stock prices and don’t usually see wild increases from quarter to quarter, or year to year. Companies like Amazon, Alphabet (Google), or Apple are examples of companies that show consistent growth over the years even if it’s only incremental. Again, there is no guarantee that the stock price will go up in 10 years when you decide to sell the stock, but the odds are higher when you pick a stable, healthy horse.
Do your own research
So let’s say you have figured out your preferred style of investing, what’s next? After a few Google searches about investing in stocks, you are probably going to be bombarded with ads on Youtube and Instagram from people trying to tell you that you will become a GOD at picking stocks if you “click the link below”. Others will try and get you to purchase their newsletters that show you the “hot stocks” in the market right now. Don’t fall for it.
The odds are that these people are trying to create buzz around a stock because it suits their own interests or are straight up lying and hoping you’ve already given them your money before you find out that they’re full of it.
“I don’t care if you are Warren Buffet or Jimmy Buffet, nobody knows if a stock is going to go up, down or in circles.” – Mark Hanna, Wolf of Wall Street.
Picking a Winner
The only way to figure out if a stock is a good investment for you is if you do your own research. If you can identify a few key things about a company, you’ll be able to tell if investing in them will give you some bang for your buck down the road.
You’re going to want to find out where your company stands in relation to other companies in the industry. Are they up-and-comers? Or are they too big to fail? Another important question to ask is: What’s the word on the street?
If this year has shown us anything, it’s that the media has an extremely strong influence on the way people think, but also influences how they spend their money. Keeping tabs on the latest media buzz about your company can give you some perspective on what the general consensus is and help you decide if it’s a good time to get in or hop off a stock.
You ultimately want to invest in things that you are invested in. Invest in things you care about and are interested in. When SNAP Inc went public in March 2017, thousands of millennials flocked to purchase the stock and for good reason. The people that use the product have the best understanding of the company’s progress and will know when to sell their investment when Snapchat falls out of style, or something else comes to take its place in the wild west of the social media attention economy.
When you invest in things that you are already interested in and involved with, it takes all the stress and guesswork out of investing and makes it more practical and fun.
Have any more tips for investing in the stock market? Let us know down in the comments.
This article originally published on GREY Journal.