Here’s the most common recommendation given to equity investors: “Put your money in high-quality stocks, closely monitor their performance, and maintain your investment for several years.” It sounds like a straightforward task. Now, let’s flip this recommendation for a moment: “Steer clear of investing in poor stocks. Whatever is left is of good quality.”
Doesn’t sound very thrilling, does it? There’s no sense of accomplishment in merely avoiding bad investments. Surely, the key to earning substantial profits in the stock market is to identify exceptional companies; the more exceptional, the better. If you ponder on it, both approaches are identical, but one is simpler. Can you guess which one it is? Let find out.
Good vs bad Stocks
The main idea is that it’s extremely challenging to select between good and good, but it’s simple to select between good and bad. You have to consider numerous factors to determine if a company is worth investing in, but even one or two significant drawbacks are sufficient to determine that you should not invest in the company regardless of how favorable the remaining factors are.
The issue is that requesting someone to recognize and purchase ‘high-quality stocks’ is akin to asking them to purchase at a low price and sell at a high price. In the realm of stock trading, the fundamental principle every investor adheres to is to solely invest in stocks they deem as ‘excellent’.
The majority of investors are entirely fixated on corporations and contemplating the finest stocks to allocate their investments in. Intuitively, they sense that this is the correct course of action. There are numerous commendable choices, however, undoubtedly, we must seek out the utmost superior.
I discovered comprehensive perspective on how stock experts categorize the universe of tradable stocks captivating and valuable. As experts explains it, the initial step is to categorize the companies as favorable and unfavorable. Thus far, it’s going well. Everyone accomplishes this task. No, not everyone does correctly. In reality, scarcely anyone ever accomplishes this task.
Finally ‘Good’ is an incredibly subjective term in the realm of investing. The interpretation of what constitutes as ‘good’ can differ greatly from one investor to another. However, they all abide by the same principle; they allocate their funds based on their convictions. These convictions always revolve around the idea that the stock they are investing in is a ‘positive’ one.
However, the same is not valid for a poor and bad stock. It is much simpler to confirm that a stock is poor. With this single factor alone, one can remove fifty percent or more of the initial universe of investable options. This is an excellent initial step, accomplishing just this many places you ahead of the average investor or the overall market. Now, the remaining task is selecting between good and excellent.
However, a mistake in these favorable versus favorable options will not have a bad effect on your investment. You may perform admirably or slightly better, but you will be in good shape. You will achieve your financial objectives. The task will be completed.