Before reading this article, make sure to read When Not To Invest In Stocks to make sure that stock investing is something you really want to get into. If it really sounds like something that is your cup of tea, then read on!
In stock investing, just like in life, timing is everything. Even if you invest in a good company at the wrong time, you’re still not going to make any money. A classic example of this is stuff like real estate. While a real estate company make often be undervalued compared to what you can get if you liquidate it, investing in it while it’s just there languishing doesn’t actually do you any good. You know it’s undervalued, but unless it you buy the company or wage some sort of proxy war, there is simply no way for you to unlock that value. It’s a great idea, but just at the wrong time.
On the other hand, if you happened to have invested a couple thousand dollars in a couple of Stanford students working on Google because you felt like it was a good idea, you would most certainly now be a multi-millionaire. However, if you’d invested in Google in 2008 right before the market crashed for the same reasons, you would now have only about 50% of the money you’d started with. It all comes down to timing, but just exactly how do you go about figuring out the right time?
For advice on this subject, we should take a look to billionaire investor Warren Buffet who already has some very good advice about this particular subject. “Be greedy when others are fearful and be fearful when others are greedy”. In other words, don’t completely follow the crowd and don’t be afraid to invest when you see an idea and everyone else is scared.
That’s the whole story with the Google. Back in the late 1990s when they were starting search engine, they were competing with giants like Yahoo and Altavista. Do you think people were trampling each other hand over feet to give a couple of college grads money for their toy? Nope. People were afraid of the investment, which is why investing in them then would be so profitable. However, in 2008, Google has already developed itself as a reputable brand and everyone wants a piece of the pie. And of course, as soon as some people lost interest and the stock started to plunge, all the other greedy people got out with them and took the stock price down with them.
Of course, this doesn’t mean that you should invest in all the companies that people are afraid to invest in. There’s good reason people don’t want to invest in a biotech company that have 3 limos and a helicopter and is about to run out of funding. It’s only when other people are afraid of a particular company for no reason at all that you should take the plunge. For example, if a famous CEO of a shipping company died and the stock of the whole industry went down even though the business is solid, there’s absolutely no reason why you shouldn’t invest in the a related company. After all, what does this CEO dying have to do with a related company that has always had a good track record and is continuing to bring in profits?
Keep your eyes out for good opportunities and where peopole are afraid to invest, and you may just become the next Buffet!