I had the idea when the market started to collapse, to start small and purchase stocks each month for the forseeable future. I am trying to get in on stocks that are undervalued, so that in the future I can sell them for a profit. Thoughts or suggestions? (P.S. – I am a rookie at the stock market)
Sure, on the surface it would seem that buying cheap and selling dear is a formula for success. But when will your stocks go up, so that you can profit? What if they go down? Are you prepared to risk that?
No one can tell you what the future holds. As you may have noticed, very well trained and wealthy Wall St. experts lost a great deal of their money, and other people's money, in the last year. They were guessing that the stock prices would stay high. The prices didn't.
If you buy XYZ stock for what looks like a cheap price right now, you may imagine that it is going to go up. You may even be right. But what if it goes down first? What if it goes up, then down, then up, all in a 45-minute span? What if you tell yourself "I'll buy at $5.00 and when it gets to $7.00 I'll sell." Sounds good. What if it does increase to $7.00 — but it takes eight years to do it? Is it worth it to you to wait?
The fact is, no one — no one — can give you a guarantee here. If there were such a thing as easy money, we'd all be doing it. There are some generalized tips about the stock market that most investment advisors will give you, though:
– Don't buy a stock because your clever friend or your aunt gave you a tip. They don't know more than you do, necessarily.
– Diversify your portfolio. That means don't put all your eggs in one basket. You might want to buy individual stocks, and mutual funds, and bonds, and CD's. That way a crash in one is somewhat protected by the others.
– Don't invest money you can't afford to lose. Don't bet the mortgage money or the food money or any other basic.
– Research is very important. Either entrust your money to an expert who seems to really know the companies they are investing in and has a track record of success, or do the research yourself. This is no small task. Supposing you want to buy Apple, because you know about the iPod and iPhone and Macs. Sounds simple enough, surely it will go up. But do you know about their supply chain, meaning the 500 different suppliers who provide components that ultimately go into an iPhone? Do you know about their inventory levels? Do you know what the price of fuel is doing to their forecasts? Do you know what the price of fuel will be tomorrow? Do you know if Steve Jobs is healthy? Do you know if some other company out there is making a better iPhone?
Summarizing: Investment in the stock market is gambling. It looks fancy, but it's a lot like walking into a casino and putting your money on the roulette table. It might come up in your favor. Then again, it might not.
Can you afford the risk?