Note: None of the companies listed below are a recommendation to buy or sell. They are for informational purposes only.
Keep an eye out for new trends
The easiest way to take advantage of an investment opportunity is to simply take notice of the things that perhaps you and others are beginning to embrace. For example, I like movies. So, what's the big trend taking place there? Blockbuster, Hollywood Video—basically your "brick-and-mortar" rental stores—are going belly-up to be replaced by companies with more convenient models like Netflix and Redbox. If you were one of those people who took notice of this switch and, say, invested in Netflix a couple years ago...well...the chart speaks for itself!
Source: StockCharts.com
We could add to the list: Apple, Panera Bread, Google, Green Mountain Coffee (think Keurig coffee makers...everyone has them now!), and all sorts of companies that you've probably either bought stuff from, through, or know of people who have. Note: it is a little over 9 years ago from today that Apple first introduced their iPod to the public. Since then, their stock has appreciated over 3700%!!! Point being, this was a trend that unfolded over almost a decade’s time and didn’t just happen overnight. However, there are thousands of people wondering why they didn't ever buy this stock. Don’t let yourself be one of these people when the next Apple comes around.
Listen to others: Admit it, you're just one person experiencing life through a single pair of eyes. Although you can discover quite a bit by yourself, imagine all that is being experienced by everyone you know collectively. They are all feeding you information...for free! I'll give you an example: a certain member of my family LOVES guns. Whether it is to collect them, shoot them, or just drool over their man-power, he'll probably keep snapping them up until its illegal. So, being the avid gun-show attendee he is, he alerts me to the fact that every gun show he's been going to is selling out of guns and ammunition. That people are going crazy trying to buy as much as they can before (insert conservative rant here). I could've just said, "Huh, that's interesting", and walked away. Or, I could've asked him a few simple questions like, "What guns are most people buying", "Who's the largest supplier of ammo", etc., etc., and basically done a little research and noticed that they were about to pop. Did they? Yes. This was a trend that was taking place in response to fear over government. Was it legit? I don't know. But people were acting on it and gun manufacturers were doing quite well in response. Cause and effect.
Source: StockCharts.com
Find a good online brokerage company
If deciding to manage your own money, I recommend any of the various online brokerage companies like E*Trade, Scottrade, Charles Schwab, etc. I personally use Charles Schwab and pay a little under for each transaction. There are, perhaps, one's for lower cost but you have to make a personal decision between how much value you place on the information they provide vs. how often you plan on trading. In the case of Schwab, I was able to do a screen of all the precious metals companies in their system and stumble upon a highly successful and fundamentally sound company that had somehow escaped the attention of many other analysts. Therefore, being underpriced, it eventually got bought out by a much larger company and turned out to be an extremely successful investment. All thanks to a screen I did through Schwab! Often, the information, analytical tools, and research reports are extremely useful in weeding out the good from the bad. Of course, this is also true with a money manager. Just make sure you agree with their investment approach, philosophy, and/or style.
Know the basics
There are few basic tools that every successful investor should know. I think a really good place to start is knowing how to read a chart. First though, you have to find a good charting program you like. I recommend StockCharts.com and will refer to them a few more times too.
The issue is, you may find a good company to invest in but knowing when to buy (or when to eventually sell) is another matter. Some basic momentum indicators are extremely helpful in determining either of these scenarios. Two of the most popular indicators used by traders, investors, and analysts of all stripes are the Moving Average Convergence-Divergence (pronounced “Mac-D”) indicator and the Stochastic Oscillator. For an extremely good explanation on both of these I recommend reading this tutorial from stockcharts.com on the MACD here and the Stochastic Oscillator here. Just as an example, here’s a chart of Yahoo showing how the stochastic oscillator can show when a stock is overbought or oversold, and when you should either be buying or selling, taking larger positions or taking profits.
Source: StockCharts.com
StockCharts.com also offers a free chart school that covers the basics on every different type of technical indicator and also some very good information on technical and fundamental analysis. I highly recommend digging through as much of it as you can.
Minimize your losses!
Some people minimize their losses by simply not investing at all (reminds me of a parable), however, there’s actually a way you can get your feet wet and ensure that you only lose so much. This is through stop losses. As far as I know, every online trading platform (Schwab, TD Ameritrade, Scottrade, etc.) allows the use of stop losses when buying stock. How does it work? Let’s say you want to buy 100 shares of XYZ company, which is currently trading at , leading towards an investment of 00. Once purchased, you decide that you want to limit your downside risk to 10%, or 0. So, let’s do the math really quick. 00 - 0 = 50. 50/100 shares = .50. That is, you’d like your online broker to automatically sell the stock once it drops to that price. So, you set a stop loss order to sell at .50 that is executed as a (this part is very important) “Good to Cancel”. That means it’ll sit in your account waiting to be executed until you cancel it, otherwise it’ll cancel that day and you’ve just lost .95 or whatever the trading fees are. Think about it, you spend as insurance against any loss exceeding 10%. Still too risky? Try 5%. Just keep in mind that the tighter the stop loss is to the current price, the more likely you are to get "stopped out" (that is, sold out of a position).
You can actually be much more strategic than simply setting some arbitrary maximum loss of 5 or 10 percent too. Look at the chart. Can you see any trendlines or support levels. Make sure your charting program shows 50 and 200 day moving average lines. These are crucial in determining whether trends are positive or negative and also where a good price may be to set a stop loss. If there's a certain price where a company hasn't gone below for a year (that is, a support level) but you know that if it does it'll most likely go lower, then set your stop just below that price. You stay in if it continues to go up, but get sold out if it breaks support. Not only can this be very handy, but it can also save you a lot of money when the stock market tanks.
Be prepared to do a little research
Let’s admit it, most people are lazy. If you want to succeed at anything you have to be willing to do some hard work. In the past, i.e. before the internet, finding the necessary books and making your own charts in excel was grueling work. This is no longer the case. Now you have information at your fingertips. Everything you want to know about investing can be found online. As I recommended before, StockCharts.com has an excellent free charting school program that covers all you need to know about reading charts. You can also use Google Finance or Yahoo Finance to screen companies, look at various sectors, or just use keywords like “rare earth elements” to find companies that are related to whatever you’re interested in. However, don't stop there—do some company comparisons. Look at the company's website and scan the information they have available. Most often, companies have a corporate presentation that will give you a full picture of what they do, where they're located, their main products, etc. Get a good feel of them first.
Above all, keep in mind that new trends are constantly emerging. If you failed to pick up on one, there’s probably ten others you just haven’t found yet.
