Are there any good stocks to invest in left? With the state of the worldwide economy today, the attitude of many people with regard to the stock market is that it should be avoided like the plague. It’s true that it has gone up from the depths it reached in 2009, but the whole capitalist system is very unstable now, and what’s to stop the Dow from plummeting again soon? This attitude is very understandable, and yes, if you don’t have much money to spare for investing, you should stay out of the market. Likewise, if you have money to burn, but you are looking for some quick profits and you don’t know much about investing, don’t take the chance of losing a bundle. However, if you are careful, think long term, have a reasonable amount of money available, and do some research, now is actually a good time to invest.
Investing in the stock market loses a significant amount of its risk as long as you buy a variety of quality stocks and keep them for several decades rather than several weeks or months, and as long as you don’t plan to sell them all at once. This is because over long periods the market has always performed well as a whole. Certainly there may be major recessions and corrections in the market, and ever so rarely, an economic collapse or depression. So if you suddenly need your money and you have to sell at a time when stocks have significantly dropped in value, it may turn out to be a marginal decision at best. However, anything you hold can dramatically lose value. Even gold, which is often seen as “real money” can lose value dramatically. Even money itself is not 100% safe as money has and probably will continue to lose purchasing power because of inflation. If inflation is high enough, holding guaranteed interest rates on bonds still may not be enough. So there are risks with every transaction, or inaction that you make. Stocks are an investment in peices of a company, and as long as you think that business will continue to go on, stocks remain a decent investment provided you act like a business owner and you don’t panic.
For example, if you had bought stock in twenty or so blue chip companies in 1927, of course the value of your stocks would have gone way down when the Depression of the 1930s was in force. However, by the mid 1950s the value of your stocks would have rebounded to levels considerably above what you had paid. There has never been a period of thirty years in which stock values have risen more slowly than the official inflation. This means that good stocks to invest in are those that are from well established companies with good fundamentals, and that pay high dividends. The dividends allow you to earn an income while you sit on your stocks, while the good fundamentals ensure that the company is unlikely to go under completely in a severe recession like the one we are slowly climbing out of now.
Undervalued stocks are also a good choice for investments, although no one has a foolproof formula for determining whether a stock is undervalued. One formula that has a more rational basis than most is one that looks at the price to earnings ratio of a stock, with a lower ratio indicating it may be undervalued.
Right now is a good time to invest (again, so long as you think long term) simply because we have just had a market downturn and stock prices are relatively low now. Yes, they could go back down again unexpectedly, which is why you think in terms of decades, but still, it’s more likely that they will continue to go up for now.
Particularly good stocks to invest in now, as we emerge from the recession, are those that are most likely to benefit from the new, greener direction that the economy is starting to go in, as well as some of the stocks that took the biggest beating in the recession and have farther to climb. These stocks may be a bit more speculative since you are betting on the trend towards green to continue.
You may also wish to bet on commodity based names as they may be what leads us out of this mess, and if not, they remain a good hedge against inflation.
However, any company backed by solid earnings that can be had for a reasonable price, and that would make good business sense is worth considering. If you find a company that has earnings growth that is trading at 12 times earnings, but there are several other companies with the same growth rate that are trading at 8 times earnings, it would make no business sense to over pay for the one trading at 12 times earnings unless there was a huge competative advantage that that business offered you, that no other did.
But above all, buy many different stocks to hedge against the future’s uncertainty, and hold on to them for many, many years, no matter what happens, or else you may wish to find another form of investment.
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