Invest in Growth Stocks at the Right Price
So you want to make money in the stock market. To do that you have to have a method. The only way to make money is to have a plan.
There are two basic investing methods that successful investors use to make money. They either use a growth or value oriented approach to investing, which looks for companies whose earnings are rapidly growing or whose stock is undervalued, or they employ technical analysis, which examines prior price and volume movements in order to forecast the future price movements of financial assets. Some investors use a combination of strategies, such as William O'Neill who combines a growth and technical approach to investing in his book How to Make Money in Stocks and in his newspaper, Investor's Business Daily.
The growth investors buy in stocks that go up and go up more. What makes the stocks keep going up is the fact that the companies they represent have big earnings growth. The companies got new products or are run better than their competitors and build market share, which translates into a rising stock price.
Growth stocks usually do better than other stocks in bull markets, but can fall hard in a bear market. There are some dangers to growth investing. If all of a sudden the growth in the earnings stops the stocks can fall very hard, because investors are all betting on the big earnings growth to keep going on.
At some point this is going to happen, because nothing goes up forever, not even a rocket ship. The big companies we all know about all grew fast when they started out, but most don't grow as fast anymore so they are no longer growth stocks. Think about GE for example.
Growth stocks tend to have big valuations, because investors are willing to pay big prices to get the growth. That is why they can drop in a big way when bad news comes out or earnings growth stops. Investors need to also have some basic stock trading strategies in place to know when to take profits or sell.
The opposite of growth stock investing is value investing. The most famous value investors are Warren Buffet and his mentor Benjamin Graham. Value investors look for companies with low debt, a high book value, a dividend yield, a high sales-to-price ratio, and a low price-to-earnings ratio, among other things.
In a bear market or a big stock market correction you can find bargains and that is when it is time to think about being a Warren Buffett. It happens all of the time. Investors always get scared from time to time and sell stocks at a stupid price. That is when you can buy.
One problem with value investing is that even after a company's earnings picture improves often its stock does not immediately respond. For instance when the price of gold fell from over 400 to under 260 between 1995 and 1998 the stock of large producing gold companies fell to ridiculously low valuations. However, it took two years for gold stocks to start to rally after they bottomed out.
Value investing methods also tend to underperform strategies based on growth during bull markets and can cause investors to sit out on the best moving stocks. For instance Warren Buffet refused to invest in technology stocks during the 1990's, because they did not meet his valuation criteria. - 23229
There are two basic investing methods that successful investors use to make money. They either use a growth or value oriented approach to investing, which looks for companies whose earnings are rapidly growing or whose stock is undervalued, or they employ technical analysis, which examines prior price and volume movements in order to forecast the future price movements of financial assets. Some investors use a combination of strategies, such as William O'Neill who combines a growth and technical approach to investing in his book How to Make Money in Stocks and in his newspaper, Investor's Business Daily.
The growth investors buy in stocks that go up and go up more. What makes the stocks keep going up is the fact that the companies they represent have big earnings growth. The companies got new products or are run better than their competitors and build market share, which translates into a rising stock price.
Growth stocks usually do better than other stocks in bull markets, but can fall hard in a bear market. There are some dangers to growth investing. If all of a sudden the growth in the earnings stops the stocks can fall very hard, because investors are all betting on the big earnings growth to keep going on.
At some point this is going to happen, because nothing goes up forever, not even a rocket ship. The big companies we all know about all grew fast when they started out, but most don't grow as fast anymore so they are no longer growth stocks. Think about GE for example.
Growth stocks tend to have big valuations, because investors are willing to pay big prices to get the growth. That is why they can drop in a big way when bad news comes out or earnings growth stops. Investors need to also have some basic stock trading strategies in place to know when to take profits or sell.
The opposite of growth stock investing is value investing. The most famous value investors are Warren Buffet and his mentor Benjamin Graham. Value investors look for companies with low debt, a high book value, a dividend yield, a high sales-to-price ratio, and a low price-to-earnings ratio, among other things.
In a bear market or a big stock market correction you can find bargains and that is when it is time to think about being a Warren Buffett. It happens all of the time. Investors always get scared from time to time and sell stocks at a stupid price. That is when you can buy.
One problem with value investing is that even after a company's earnings picture improves often its stock does not immediately respond. For instance when the price of gold fell from over 400 to under 260 between 1995 and 1998 the stock of large producing gold companies fell to ridiculously low valuations. However, it took two years for gold stocks to start to rally after they bottomed out.
Value investing methods also tend to underperform strategies based on growth during bull markets and can cause investors to sit out on the best moving stocks. For instance Warren Buffet refused to invest in technology stocks during the 1990's, because they did not meet his valuation criteria. - 23229
posted by X - Men @ 3:07 AM
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