900+% RETURN FOR 1 INVESTMENT! SO HOW IS THAT A BAD THING?

by Matt B



How did I get a 900+% return on one stock? Luck. Pure luck
. There was a time when I would scrape together some cash and instead of putting it safely in a savings account and watching it grow, I would find penny stocks to invest in. This practice is about as safe as buying lottery tickets. There is a certain degree of difficulty involved with finding strong companies to invest in. Especially in these unpredictable and rocky times. If I were to add up all of the bad investments I’ve made and compared them to this one, I would be far in the red.

My former method:
1)Find a stock by price.
2)Research the company.
3)Buy the stock. (If I liked what I saw in the company.)

Looking for inexpensive stocks could not have been a bigger mistake. Cheap stocks usually mean cheap companies. Always remember, there is a reason for the price.

Another important thing to remember is that stock price doesn’t matter. If I own 100 shares of a company that trades at $0.10 per share and it rises to $0.15, I’ve gained 50%. If I own a stock that trades at $50.00 per share and it rises to $75.00, I’ve gained 50%. Honestly, the $50 stock is more likely to rise than the $0.10 stock. It is more likely a much stronger company. Not to mention that at a price like that, it may pay dividends. My point: Don’t look for cheap stocks to purchase. Look for good, solid companies. Although a 50% ROI is unlikely in either scenario, it is more likely with a company with a good foundation.

My current method:
1)
Research companies first-pay attention to earnings, expenses, and reputation.
2)Don’t involve yourself with hype. Constant news flow can be a bad thing and you should be investing for the long term.
3)If you have invested in a company that pays dividends, always reinvest. They pay you to buy more of their own company!

I do all of my investing myself, through Sharebuilder. They have a great automatic investment plan, research tools and portfolio organization that makes trading easy. Now when I am choosing a company to invest in, that is exactly what I am looking for. A company. Not a price, not volume, not “the next google”. Those are pipe dreams.

Set up an automatic investing plan, and stick to it. As long as you aren’t day trading, this will work out well for you over time. Just set it and forget it, as the old saying goes. I would gladly trade all of the poor investments I have made over the years for “safer” ones. I would rather add to my savings than buy lottery tickets, and you should too.

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