1. Avoid fairytales stocks
There seems to be a lot of disagreement among investors about those stock options which seems too good to be true but expert investors are adamant in their opinion that it is better to avoid these kind of options. Some expert investors advise all amateur investors to stick to statistical analysis and to never be moved by the gossip which are so often shared among investors and by which so many amateur investors are deluded. Although there are some fairytale stocks that ultimately pan out and that could generate a handsome profit for any investor there is always the risk that all of the hype which surrounds a new option is only due to aggressive marketing on the part of the production company and none of that data has been proven in the marketplace.
2. Be careful when it comes to released company figures
It is important to do a careful analysis of a company’s financial statements. This may include tax credits, things like fictitious assets, cash flow and operating loss carry forwards. Other issues such as brand value also have to be looked at very carefully and investors should be careful to determine whether those facts about company figures are truly revenue producing assets, or if the facts are not unduly blurred by all of the accompanying information. This so-called “blurring” of information can distort the overall picture and give amateur investors a false sense of security, which more often than not will not turn out as desired.
3. Be disciplined
There are differences of opinion among expert investors about the issue of discipline, but it can be quickly determined that all investors have predetermined guidelines about when it is the best time to sell a specific stock. Some guidelines which are acknowledged as accepted investor strategy is to wait until a stock’s price escalates to the point where its intrinsic value to price ratio is below 1.25–at this point it is normally best to sell. Other investors use a system wherein they sell all stocks when they fall 20% from their high.
4. Do not be deluded by dividend payments
There are many amateur investors that are experiencing high dividends and who make the conclusion that the stock is an excellent buy; but they are not taking into account something which is known as a “value trap”. There are many companies that are actually in a financial mess that will disguise that fact from the public by continuing to pay high dividends until that company collapses. In other words, high dividends are no guarantee that your stock is an excellent option.
5. Choose companies that are temporarily struggling
There are many well established companies that have been performing excellently over many years, but who are currently in a slump because of some unexpected setback. These companies almost always get back into top gear and in the long run they always recover. Ultimately, those recovery processes can really benefit a wise and discerning investor.