Picking the Right Stocks

It is undeniable that the stock market is a great place to create wealth. Warren Buffet and Rakesh Jhunjhunwala, for example, earned a fortune from it. Anyone can enter the stock market as long as you have the money and discipline. Ever wondered what secret formula do successful investors like Warren Buffet and Rakesh Jhunjhunwala possess to consistently outsmart the industry? There are some excellent investment strategies on buying the right stocks at the right time, by Warren Buffet.

Before entering the stock market, you must have the right mindset. If you want to be very successful, you have to remember that investing in the stock market is a serious business. Every investment decision you make should be based on tried and tested investment strategies. With this, let’s get down to the first strategy.

1. Buy low, sell high. This rule is the most fundamental investment strategy that applies when you buy stocks that are beaten down or have corrected significantly from their highs. This automatically adds a margin of safety to your investment and significantly reduces your chances of making a loss on that particular investment. The buy low rule can be employed to purchase stocks in economic downturns, market crashes and even during tragic events like war, civil unrest and natural calamities. In times like this, stocks are heavily oversold and in many cases, way below their fair values. For that reason, it is ideal and logical to buy stocks when they are cheap and beaten down. In short, avoid investing in stocks when they are trading at their peaks. 
   
2. Buy when the management is buying. A good indicator when to buy stocks is when you notice the company’s management snapping up the company’s stock. This situation means that the company’s key management feels that the stock price is undervalued in relation to current performance or future prospects. This makes, in most cases, any sort of insider buy that company’s shares. This strategy generally ensures decent appreciation and reduces the probability of financial losses in the medium to long term.
3. Buy when the News flow is bad. This strategy is especially true for well-managed companies that have been beaten-down through negative news that is usually linked to below-par quarterly results, unexpected charge-offs, minor accounting scandals and a few others. Do ample research and see if the company under the microscope has sound management and a good track record. If it does, there is a great chance that the company will bounce back in no time. When a flow of bad news takes place, stocks become  generally available at a significant discount, making them very attractive for investment. A decision like this usually pays off in the long run.

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