If you’re a young person learning to invest, you might think that during a recession is a bad time to put your hard earned dollars into the stock market. However, according to the greatest investor that ever lived, Warren Buffett, right now is exactly when you should strike. When people are fearful, they tend to make irrational decisions and sell stocks at a price below fair value. If you have cash and time on your side, you can do yourself a great favour in picking blue chip stocks on firesale. However, how can one differentiate good stocks from bad ones? After all, even with so called blue chip stocks, the company can be poorly managed. Just look at all the big American banks in the recession that went bankrupt and were later sold off. If the so called experts in the area of finance could have gotten it so wrong, how can the general public do better at stock picking?
This is where common sense and a lack of ego come in. If you can’t describe in a few words what the company does, don’t invest in the company. It is as simple as that. People tend to think differently when they own shares and they don’t think like a business owner. However, being a shareholder, a business owner is exactly what you are no matter how few shares you own. Thinking about it this way, would you want to own a company that you know nothing about? Most people would say no.
Undoubtedly, buying stocks requires thorough investigation of the company in which you want to invest. Even for those who are very good at it like Warren Buffett can make mistakes. If you are queasy about investing in stocks or don’t have the time to do the research, Buffett actually recommends buying index funds or ETFs (exchange traded funds) that track the markets. Instead of having invested in specific companies, you will be investing in all the companies that make the market. Eventually, the markets will bounce back and by getting in right now when the price is low, you will be making money. After all, isn’t the way to make money to buy low and sell high?
Nicholas Began is a freelance writer for Warren Buffett Stock Picks http://warrenbuffettstockpicks.com/. Being the best investor in the world, lots of people follow Warren Buffett stock tips to make money.