Building Wealth With Stocks
If it's wealth you want, then look to the stock market. No other investment available to intelligent investors with average resources, average willingness to take risks and limited time to spend on active management delivers as well as stocks over the long-run.
Stocks aren't the only things that belong in your investment portfolio, but they are the most important. And there are several categories of stocks to fit investors' goals, such as:
Growth stocks, which have good prospects for growing faster than the economy or the stock market in general. Investors buy them because of their good record of earnings growth and the expectation that they will continue generating capital gains over the long haul.
Blue-chip stocks, are a more loosely defined universe, including solid performers that could also be classified as growth stocks. Investors with an eye on the long-term and with little tolerance for risk buy these stocks for their undeniable high quality. They tend to generate decent dividend income, some growth and, above all, safety and reliability.
Income stocks, worthy of the name, pay relatively high dividends and also raise them regularly. Electric utilities and bank stocks fall into this category, which is favored by retirees and others in need of a relatively high level of income from their stocks.
Cyclical stocks, are called that because their fortunes tend to rise and fall with those of the economy at large, prospering whenever the business cycle is on an upswing, and suffering in recessions. Auto manufacturers are a prime example, though there are other industries whose profits are also sensitive to the business cycle and these include the airlines, steel, chemicals, and businesses dependent on home building.
Defensive stocks, are theoretically insulated from the business cycle because people go right on buying their products and services in bad times as well as good. Utility companies fit in here, as do companies that sell food, beverages, and drugs. In order to maximize profits, you need to buy these stocks on the verge of an economic downturn, which requires an ability to predict, that is rare even among the so-called experts.
Speculative stocks, don't pass the usual tests of quality, but for some unknown reason, they tend to attract investors anyway. They may be unproven young companies. They may be erratic or down-on-their-luck older companies exhibiting some sort of spark, such as the promise of an imminent technological breakthrough or perhaps a brilliant new chief executive. Most speculative stocks don't do well however, so it takes big gains in a few to offset your losses in the many.
The secret to choosing good stocks is that there really is no secret to it. The winning techniques are tried and true; it's how you assemble and apply them that makes the difference.
Information is the key. Having the right information about a company and knowing how to interpret it, are more important than any of the other factors that you might hear credited for the success of the latest market genius. Information is even more important than timing. When you find a company that looks promising, you don't have to buy the stock today or this week or even this month. Good stocks tend to stay good, so you can take the time to investigate before you invest.
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Stocks aren't the only things that belong in your investment portfolio, but they are the most important. And there are several categories of stocks to fit investors' goals, such as:
Growth stocks, which have good prospects for growing faster than the economy or the stock market in general. Investors buy them because of their good record of earnings growth and the expectation that they will continue generating capital gains over the long haul.
Blue-chip stocks, are a more loosely defined universe, including solid performers that could also be classified as growth stocks. Investors with an eye on the long-term and with little tolerance for risk buy these stocks for their undeniable high quality. They tend to generate decent dividend income, some growth and, above all, safety and reliability.
Income stocks, worthy of the name, pay relatively high dividends and also raise them regularly. Electric utilities and bank stocks fall into this category, which is favored by retirees and others in need of a relatively high level of income from their stocks.
Cyclical stocks, are called that because their fortunes tend to rise and fall with those of the economy at large, prospering whenever the business cycle is on an upswing, and suffering in recessions. Auto manufacturers are a prime example, though there are other industries whose profits are also sensitive to the business cycle and these include the airlines, steel, chemicals, and businesses dependent on home building.
Defensive stocks, are theoretically insulated from the business cycle because people go right on buying their products and services in bad times as well as good. Utility companies fit in here, as do companies that sell food, beverages, and drugs. In order to maximize profits, you need to buy these stocks on the verge of an economic downturn, which requires an ability to predict, that is rare even among the so-called experts.
Speculative stocks, don't pass the usual tests of quality, but for some unknown reason, they tend to attract investors anyway. They may be unproven young companies. They may be erratic or down-on-their-luck older companies exhibiting some sort of spark, such as the promise of an imminent technological breakthrough or perhaps a brilliant new chief executive. Most speculative stocks don't do well however, so it takes big gains in a few to offset your losses in the many.
The secret to choosing good stocks is that there really is no secret to it. The winning techniques are tried and true; it's how you assemble and apply them that makes the difference.
Information is the key. Having the right information about a company and knowing how to interpret it, are more important than any of the other factors that you might hear credited for the success of the latest market genius. Information is even more important than timing. When you find a company that looks promising, you don't have to buy the stock today or this week or even this month. Good stocks tend to stay good, so you can take the time to investigate before you invest.
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posted by Bob Moser at
6:58 PM
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