I can’t tell you how many people I know who invest in stocks solely based on the hype of the stock. It’s almost always true that the basic investor has already missed the boat by the time they get their money invested. Whether you’re new to trading, an experienced trader, or a day trading guru there are few simple strategies everyone should follow to find those hidden gems.
First and foremost you need to know a little something about the company. You need to do your homework. If you don’t have time for this part then you might want to consider getting a financial adviser who does have the time. For example, you don’t want to invest your money in a fast food restaurant if the last time you ate at one was back in 02′ right before your triple bypass surgery. You need to know the company you’re investing in. When you think of the company’s name and the products it sells it should give you a genuinely good feeling. No no, not the same feeling you got climbing the rope in gym class but the one that makes you feel confident in the company that it is heading in a forward direction. If you don’t get that feeling I’m sure there are thousands of other people out there who feel the same way. Make sure you take a look at the company’s financial statements. Is the company making a profit each year? Is their debt under control? Is the company actually growing? You can find all this information online at (http://www.sec.gov).
Secondly, you want to find a company that is either just coming out, or has plans to in the near future, with a product that might revolutionize it’s industry. You want it to be a product that you could see people eventually saying they couldn’t live without. Think of cellphones, cable T.V., and ipods, and stay clear of trendy phases like Beanie Babies.
Ever hear the expression “buy low, sell high”? I’m sure you have but you would be surprised at how valuable that expression is and how little the average investor actually keep that in mind. You wouldn’t believe the amount of people who buy a stock when it hits it’s 52-week high instead of buying it when it hits it’s 52-week low. Think of it this way, let’s say you go to the mall to buy those new Reebok pumps you’ve been dying to get and when you get to the store you notice they’re selling at 50% off. This must be your lucky day. So, of course you buy them and walk away thinking your big stuff. Now, the average investor sees a company’s stock price drop by 50% and they run for the hills, even though they’ve been studying that company for a while and really like them. The funny thing is though, this is where the money is made. It’s like going to a bargain basement blowout sale everyday in the market. All kinds of quality, well established, innovative companies get hit with some bad news and falter for a quarter or two and their stock plummets. This is called an excellent entry point into a stock or a good buying opportunity.
Of course there is no way of predicting any stock’s outcome and investing in the market comes with a great deal of risk for the potential reward. But, by sticking to a few intelligent strategies you can minimize your risk when searching for those explosive stocks.