Very few investors have a chance to talk to a stock broker from a large firm. Even if they do find themselves sharing a conversation with a real stock broker, it is unlikely that they will learn any trade secrets. It is not that brokers belong to a secret society. Brokers are often uncomfortable talking with novice brokers because it usually ends up in an argument.
There is so much evergreen, rehashed information on the Internet, that many novices are die-hard fans of out dated investing methods long before they ever learn how the brokers invest.
Avoid Hot Stocks
This is laughable in the investment world, but novice investors are constantly attracted to the hot stocks. Unfortunately, all the big money has been made before the stock became hot.
Cash Flow
The brokers do not worry about the news, politics, or business plans and propaganda of companies. Instead, they look at the balance sheets. Avoid any company that carries a high debt, even if it is in overdrafts and open ended loans.
A company with little debt is capable of losing a massive amount of sales, go through a restructuring, and step back into the market, without loosing stock value.
Avoid Speculation
Long shots are called ‘long shots’ because they almost always
miss the mark. If someone walks around telling people about the next biggest boom, then experienced investors wonder how much of a ‘cut’ the sales person is getting.
No company can make a simple change, merger, or restructuring, and then have their stocks shoot up overnight. Seeing stocks head down 80% overnight is quite common, but up? Almost never.
Follow the Gurus
While it is not necessary to follow the crowd, it is important to follow the gurus. Fool.com is one of the world’s most popular investor’s website. While no guru can get it right, most of the time, learning from the gurus can help novice investors stack the odds in their favour.
Avoiding controversial stocks and dark horses is a commandment for most guru investors.
Warren Buffett, who wrote in his 1989 annual letter:
"Easy does it. After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers. The finding may seem unfair, but in both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult."
Long Term Investing
Most new investors watch their stocks float daily. Many investors destroy their opportunities by too much. Stocks should be treated like a business.
The daily price of the stock is unimportant. What is important is whether the company will make more money than last year, reduce their debts, and capture a larger segment of the market.
Conclusion
Stock investing is not like Baseball cards, and should not be treated as suck. Avoid spam that promises quick profits, secrets to wealth, and insider tricks. Instead, follow the patterns used by real stock brokers.
Mark Walters is a third generation investor who guides others to financial independence through the Creating Wealth Club http://www.CreatingWealthClub.com
