The financial mine field that is stock investments isn’t meant for everyone. For those who are fortunate enough to be business savvy and managed to secure a profitable stock, it has been very lucrative. What seems to be a recurring theme in the stock world is that it is a long term investment that has the potential to grow over time. So how does choose the right stock to invest in?
Let’s breakdown what stock investment is. Stocks are essentially sum of your investment. They represent the portion of what you own from a company’s earnings and total assets. When a company loses money it means that your stake in that company is affected as well. If the company experiences a good year, this means that your investment grows as well. You get two types of stock common stocks and preferred stocks. The former offers its investors/shareholders voting rights, however they do not guarantee compensation in terms of dividend payments. The latter does not offer its shareholders voting rights hence their willingness to give investors dividend payments. What are dividends? Dividends are payments sourced from profits procured by a company or business entity. They are paid to shareholders usually on an annual basis.
Choosing the correct stock
Investing in stock has become increasingly complicated in the last decade. Due to the sheer amount of start-ups coming out of the wood work and going public, it’s hard to keep track of which ones will be worth-while. The formula to making sure you make an informed decision when picking the right stock is simple. The answer lies in the old saying “ Those who do not observe history are doomed to repeat it” . If you had invested $1000 in Netflix shares in April of 2011 they would be worth $15,252 which translates to a growth of 1,425% according to CNBC.
If you look closely at this example you will notice that Netflix caters for a specific human need, entertainment. Its target market is a very profitable one. Therefore it has a unique advantage in terms of sustainability. This is largely due to the fact that it offers its users a range of benefits. Netflix users are able to binge watch their favorite shows from the comfort of their own home. The cherry on top is that they only need to pay a faction of what they would pay at the cinema to watch a couple of movies over the weekend. This has resulted in Netflix becoming a profitable stock.
The corporation has grown exponentially in the past decade, this largely due the demand factor it exhibits. The company even hit a growth spurt during the Covid-19 pandemic, which says a lot considering how this time could be likened to the great depression era. This caters for a specific human want, shopping. People are now able to do their shopping online from anywhere in the world and have their parcels delivered at their doorstep. Moral of the story: the above mentioned companies offer services that make our lives easier and convenient. The more people are drawn towards these services, the more they will grow. Hence the exponential growth of said companies’ stock.
In-order to make the most of your investment be sure to take profits within the range of 20%-25% in terms of gains. This way you give yourself the chance to look for other stock opportunities or to wait for the same stock just as it is ready to plummet for a sale. You should also bear in mind the safest stock options exist within the context of proven necessity. This will in turn prove whether said stock will stand the test of time, which is the essence stock investments.