It can often seem like everyone has a hot tip. However, great stocks aren’t always a great investment. I know that you are looking for a great stock to invest in, but the tips from your neighbors and co-workers are usually not where you’ll find them.
Stock tips usually fall into three categories:
- Shiny, but hollow. They look great, but they are not really viable businesses. Investors are easily drawn to them, but in six months they will be defunct.
- Cyclical stocks that are tied to economic cycles. The downfall is that they are about to swing downwards. Your friend may have purchased the stock when demand was high and it is looking hot. But it will go the other way shortly.
- Great stocks, bad timing. The stock is a great deal, but the market has bid up the price too far. It is now overpriced and won’t make you any money. Remember, you buy low and sell high — not the other way around.
There are two parts to making good investment decisions for long-term investing. The first part is to identify a company that is solid and has good potential for future growth. You should choose companies that are here to stay.
The second part to making a good investment is in finding the right price. You need to look at where the company is right now and where it is going. What price fits the stock? You don’t want to purchase an overpriced stock. There are many formulas that will help you in determining current and future value. You should learn to use the formulas and combine them with a little common sense.
It all isn’t just buy low and sell high. The appropriate price for each stock is different, based on various factors. For example, sometimes a stock at a 52-week high is still a good value. The stock is obviously doing something right and chances are that it will continue to move forward. However, it all really depends on the company. Not just the price of the stock.
Look for stocks that show steady growth over a long period. When you identify these stocks, you can start your evaluation using the two parts mentioned above.
When you are investing, it is better to take your time when making decisions. There will always be great stocks. You don’t have to jump on everything that comes along.
You would rather congratulate a friend on good fortune than to blame them for taking you down with them. Remember, for every great stock there are 20 that only appeared great.
Shopping around for great stocks is a fine art. You can’t just buy on a tip or on price. There has to be a good reason behind your purchase, not just that someone told you it was a hot stock. Winning stocks are hard to find, but if you take your time, evaluate your stocks and invest wisely, you should have more winners than losers.
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