Investments in Blue Chip Stocks
Stock investments require high degree of financial knowledge and the understanding of market realities, but only if you are seeking for the most efficient result. Yet, the reality is that there are millions of people who are investing in stocks without any background of financial analysis, and most of them even do not know how balance sheet looks like. And the funny thing is that those investors may also achieve good results from stock investments if they are following few simple rules:
- Are not taking too risky decisions
- Are investing in known stocks
- Are not trading too often (the approach of long term investment)
- Carefully but critically follow the recommendations of analysts
The true is that such investment in stocks is “half-blind” when investor does not perform any financial analysis. An investor of this kind is reading some news about the company, is watching stock charts, is talking about the stock with other investors, but he still does not understand the full situation of the company because he ignores a deep financial fundamentals of the company. And this might be natural because not all people are capable of that. And yet, such investing might be okay if investor does not choose small cap investments because those can be unpredictable.
As long as “half-blind” investor is investing in well known stocks as blue chip stocks, he may enjoy sufficient results because well known stocks are efficient enough to be priced fairly according to the financials of the companies. In other words, the financials of the company are already analyzed by hundreds professional analysts that are working at investment banks, and those analysts have enough of influence to make those stocks fairly priced in stock market according to the financial data.
That means if a small retail investor will start to deeply analyze the financials of such stock, it is hardly believable that he will see something new and will create added value by his analysis. That is an answer how investors can invest in stock without financial analysis at equal success rate.
What investors still can do (if they ignore financial analysis of the company) to beat the stock market:
- Predict economical slowdown or upturn. You don’t need to be a financial analyst to predict economical slowdown. Actually, sometimes analysts are so deep in the analysis that they are losing the sense of reality. The facts and rumors are always priced in the stock market, so you have all the chances to create your own prediction.
- Use inside information. Of course, it is illegal. But many are trying, and some of them are going to the jail for that. However, the successful insiders make millions. Of course, I would not recommend using inside information…
- Analyze company’s management. Maybe you are good to grasp people and their capabilities. You may check company’s management in meetings for investors or in media. Company’s management is important for the results of the stock. Especially important are the changes in management.
- Analyze new products. If company is placing new products in the market, every investor may decide by himself how successful that product is going to be.
- Watch direct indicators before financial stock data comes out. Main financial data are coming only once in a quarter or once in a month. But every investor may watch live results for his stocks, for example, number of visitors in the shops or similar.
- React to stock news faster. Well, this task may be harder than it looks. If you will sit all day on “sell” button you may miss the news. News of large companies is taking affect in the stock exchange immediately, and often they even overreact to the real scale of event.
However, if any investor will start to invest in small cap stocks, it will be inevitable to analyze company’s financial data much deeper.