Posted by: hukka_nepali May 8, 2006
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One interesting fact on Buffet is that he isn't much into diversification, which is what sets him apart from other big named investors. I don't mean he only owns one stock but what I mean is once if you do your research well; to get the maximum return on your investment you need maximize your initial investment as well. The reason I bring this point is, as we are starting to see more folks here interested in investing but not knowing much about the stock market might want to use this strategy.
Since, you have limited fund available to start with, you might want to find that one stock you like and see potential for the future and do your research on it (i.e. look at the stock chart, balance book, management, clients, competitors, etc). So, as a starter you are not overwhelm by trying to find a bunch of stocks or having to follow them or worry a lot about stock charts.
This strategy has worked for me that's why I thought it would be wroth while to mention it here. I had to learn this the hard way when I first started investing couple years ago. Right out of college and in my early 20s, I felt like I was ready for the world and knew exactly what I was doing (i had read my investment books, i had observed the market, i did my "some what of a" research on the stocks i was intersted in) but it turned out I wasn't yet prepared for the stock market. Started to notice a trend in my portfolio, I would lose some on few stocks and gain some on other stocks. So, all in all I wasn't making much profit at all and even loss at times. So, sold most of my stocks and kept only 4 stocks that I had researched well on really liked for its future potential and changed my strategy to add 1 new stock every 3-6 months after doing my research and the stock's market analysis. So, I guess the lesson I learned is that diversify but not at once...take time to do so. I'm glad to say this strategy has really worked well for me. I added metal stock (NYSE:TIE) about 4 months ago and its price has more than double since then. My mindset then was we are in a construction and destruction era and you need metal for both. Just recently I added an ethanol stock (NasdaqNM:PEIX), considering the gas prices, sooner or later consumers will be forced to look into an alternative and ethanol looks in the front runner for that. This stock has gone up over 25% in less than a month.
Well anyhow, that my investment story so far and I really hope this more personal and realistic approach will help understand the stock market in simple ways to our novice investors or anyone else who is interested in this topic.
All advice / analysis in good faith. Goo lucks!
P.S. BriLLiaNt-BruNeTTe, sorry don't know much about the automotive industry or oil industry or else would have love to help you out with it. But one thing to note as you do your research is never you will see both of these industries at its peak. Right now automotive industry is suffering due to high gas prices where as old industry is making record profit. So, just based on that fact I would love to see mergers and acquisitions of automotive industry by oil industry and vice versa. I think that would be really good for the consumers.