Investing is all about taking appropriate risks. Gamble on the right investments and they’ll pay off monetarily, either all at once or for years into the future. Choose the wrong investments and you can kiss your hard-earned cash goodbye as it poofs into thin air. All of these ups and downs can make many people wary of investing altogether; they assume it’s too risky, too dangerous, or a surefire way to lose money every time.
Truthfully, there are ways to grow your money without taking high risks — and your growth won’t always be slow, either. High upside, low downside stocks focus on this exact benefit; plenty of improvement with very little risk.
Often, the stocks that best match this classification are new or newly rising on the market. Many investors overlook them, assuming that they are high-risk, but this is a mistake. Every stock profile starts off somewhere — even valuable stocks like Google, Coca-Cola, and Pfizer. The trick is to learn how and when to identify new and upcoming stocks with high upside, low downside in the first place.
Spot the Patterns and Work With Them
Investing is all about patterns; if you can spot the right patterns at the right time, you can better predict outcomes and make more money. Try to identify patterns within new stocks using a combination of current trends and classic results.
Some industries naturally produce better results than others — this includes fashion, pharmaceuticals, and energy sectors. Others, like technology or finance, can be very hit or miss. If you review the industry across a section of around five years, you’ll notice that most of the stocks within these industries sink, but they almost always bounce back. The upward and downward motion often coincides with trends and specific times of year.
Gold is another excellent example. Over the years, the price of gold has occasionally dipped, sometimes by as much as a few dollars. But looking at just the last century tells us that it’s still a reliable investment. The price of gold in 1917 was $20.67. Today, it’s $1060.00. By going back further than just a few years, you get a bird’s-eye view of the stock as a whole, not just how it’s affected by current trends.
Don’t forget that patterns often extend beyond just the stock you’re looking at. For example, many industries see an increase in value every year around Christmas, but may experience a slump in the months between January and April. Learn to identify patterns and use them to advantage across multiple industries.
High Upside, Low Downside
One of the most valuable patterns you can identify is the aforementioned high upside, low downside stock. These stocks come from businesses who either don’t have the publicity or have not yet been recognized by the public for their achievements. Prices often remain low for months at a time, but can suddenly explode once the business makes its way into the public eye.
To identify stocks from businesses that fall into this classification, study new businesses and their first-year financial reports. If you’re seeing a steady loss already, there’s an issue; the stock is too risky. Overlook it. If you see an income that’s much higher than their expenditures within the first year, and the stock is still low, it’s the perfect time to invest.
Keep in mind that intense early performance can sometimes be suspicious. Most businesses struggle a little bit within the first year; if it seems too good to be true, it probably is.
Investment Literacy: The Real Challenge
No matter what your investment strategy, improving your financial and investment literacy will improve your results. Remember that education and research is everything to investors; don’t be afraid to dig deep and follow your instincts, but use your smarts, too. Investing is as much an art form as it is a science, and it requires a holistic approach for success.