Monday, 20 July 2009

The Stock Market made easy

Naivety or profound wisdom?

Investing in the Stock Market need not be complicated, in fact as with a lot of things in life - keeping it simple is often the best policy.

I recently read an article about a financial journalist who was on a train and got chatting with a 20-year old student about the stock market and investing in shares.

The journalists proceeded to give their version of why the market had crashed and the reasons for the state of the economy as a whole. In what can only be described as a profound response the student asked two questions:

1. If people were happy to buy shares this time last year, why aren’t they buying more now given prices are 30% cheaper?

2. Surely cheaper is better, isn’t it?

Is it really as simple as that?

Well yes and no

Sure there are those that would say shares are not currently cheap, they merely reflective current valuations and the future prospects of the individual company.

We also need to consider investor sentiment and the adversity to risk e.g. risk of protecting income, their job or whether the market still has some way to fall.

Both perfectly valid arguments but the fundamental of what that student said is a key principle of this blog – the speculative investor should regard shares as cheap and research those stocks which have the best possibility of maximising investments. Shares in many companies are currently very cheap - Get in there now.

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