While it is no doubt that stock investing does, indeed, work, and we can even cite numerous successful investors cataloged on Forbes as paragons of the investing game, the lucrativeness of it in this day and age, however, is being questioned. Though unwelcome, new information is being thrown at us constantly and although that would seem to be favorable for the modern investor, it’s quite the opposite. The bombardment of new data only clouds our judgment which mires us to some sort of investment uncertainty. Furthermore, the data that does matter is most often accessible with a hefty fee and those that can’t afford it are stuck in this jungle of information. In addition to that, there are other concerns like an appropriate strategy for today’s market as well as a general feeling of distress about the economy.
“Does investing in stocks work?” asks the present-day investor. The better phrasing of that question is, “can I still make money from stocks today?”
Is stock investing for me?
Is stock trading now just a platform for the affluent to wager against one another? Or is it just for the well-informed to pick out the best companies from thousands listed in the stock exchange? The small investor’s concern is how can he stack up against the big guys dominating the market. All the more, it does sound appealing for the retail investor to veer off into investing in mutual funds that cater to a particular index or industry rather than pick out individual stocks. In this way, there is a lower possibility of obliterating the invested sum because it would place the investor in a diversified setup because of how the fund is already structured. Plus, investing in stocks requires resources, diligence, patience, and time to conduct research; a mutual fund is just a perfect alternative for those who can’t accommodate those requirements. However, despite the diversification, choosing a mutual fund isn’t risk-free. The fact that you are outsourcing investing to someone else means that you are essentially putting faith on a fund manager in hopes that he will do a more successful job than you. Of course, a fund manager will have the necessary resources, experience, and insight to fulfill the role, but when things turn sour, and you get a less than satisfactory return on your investment, you can’t simply lash out on the person or people managing the fund. Moreover, in speaking of returns, stock investing has more upside potential which is why searching for the right company is a worthwhile pursuit to many investors.
Invest Like Lynch
Peter Lynch’s approach is perhaps the most simplistic way to think about the stocks that you want to invest in, and that is by channeling the consumer in you. The retired portfolio manager advises investors to invest in companies they are familiar with and to make investing more personalized. There are companies everywhere with different services and products, and some of them could be investment home runs. The job of the investor here is to generate investing ideas from the products or services he patronizes and to dig deeper from there; it is through a thorough understanding of the companies you know, according to Mr. Lynch, that gives you an edge over bigger investors.
Did I choose the right stock?
Then the tricky part is analyzing whether a particular company still has room to grow or if it already reached its ceiling. You may have selected a company to invest in, but will its fundamentals bring more demand for its stock in the years to come? Some of the companies that a new investor could think off the top of their heads are household names, and these companies presumably have steady growth which isn’t for the investor seeking a sexier annualized return.
Buying at the right price
Value investing is a strategy developed by Benjamin Graham that paved the way for the success of other investors which includes Warren Buffett. And, because the strategy focuses on the intrinsic value of a corporation, it inspired investors to think of a company’s shares for what they truly are, and those are stakes in a business. The topic of value investing came up here because one can’t simply pick a company and invest in its stock arbitrarily. Determining the right price is as crucial as selecting the company poised for growth; it also allows an investor to understand if the market is undervaluing a particular stock based on a set of metrics which, in turn, could have upside potential once the rest of the market catches on.
Is value investing dead?
However, the assertion that value investing is dead is percolating the investment world lately — with considerable merits. As we said, this information-heavy age brings a lot of tools and data to work with, and that puts our perspectives in crossroads, possibly intersecting into a homogeneous valuation. If everyone else is looking for the same treasure, there’s a chance that someone has already found it. But, in an article on Forbes refutes that value investing is not dead, and it just depends on the value metric used for assessing the fair price of a stock. In fact, the best performing metric is the free cash flow yield with a 56.2% performance in seven years.
Back to the fundamentals
Peter Lynch held a credible argument when he said that no one could predict where the market is heading, and it’s just how the market works (it goes up and down). So, anyone has a good chance to make a killing in stock investing. It’s best for the average retail investor to return to the fundamentals of stock investing and that is not about the intrinsic value of the company (although that is important), but it’s about investing in what he knows. There are plenty of stocks that an investor can buy, but if you do not have the time and resources to put forth a careful investigation on all of these companies, then focusing on just a basket of those you are familiar with and assessing each of their fair value seems like the most practical option. To answer the question in this article: yes, you can still make money from investing in stocks today.