Researching Stocks for Investing

Why Invest?
After the economy declined in 2008 and the creation of the Card Act of 2009, the banking industry is no longer offering interest rates on savings tools that are profitable.  Banks are only offering 1-2% interest at best on our savings. Gone are the days of a 4-5% CD or money market deposit account. Needless to say, this is forcing all of us to invest in the stock market.

According to Peter Lynch, former portfolio manager for Fidelity Magellan Fund, you should invest in those things you know. What are the products you really like? What is popular among your friends? Who makes it? Do you think it will continue to be popular? You may not realize it, but stock tips are all around us.

Go with What You Know
 Peter Lynch has other good advice:

1. Take advantage of what you already know (the companies you patron, the products you think are great).
2. Look for opportunities that haven't yet been discovered and certified by Wall Street.
3. Invest in a house before you invest in stock.
4. Invest in companies, not in the stock market.
5. Ignore short-term fluctuations.
6. Large profits can be made in common stocks.
7. Predicting the economy is futile.
8. Long-term returns from stocks are both relatively predictable and also far superior to the long-term return from bonds.
9. The average person is exposed to interesting local companies and products years before the professionals.
10. Having an edge will help you make money in stocks.

Economic Conditions
Of course, the stock market does have its economic cycles. When the economy is prosperous, people are buying things and have jobs. When the economy is slowing down, more people than normal are out of work, businesses cut back on spending, and luxury items are eliminated. But, people do still buy products--to live. Buying stocks in a variety of sectors and industries, along with understanding the economic cycles, will help you make choices about which stocks to buy.

Stock Market Game Strategy
Selecting stock for a stock market game is different than buying real-life stock. In real-life, we would not take the same risks with our real money. Once you join, you will be able to have this account for one year so you can see how your 'fake' stocks are doing. That way you will be able to practice trading stocks.

Sources:

• Learning from the Market, 2004, National Council on Economic Education, New York, NY.
• One Up on Wall Street, 1989, Peter Lynch
• Financial Education, Family Economics