The New Year has recently come and has brought a disagreeable close to 2008. Christmas sales were down, stimulus packages were being discussed, every industry was affected, and like the finance industry, wanted money to treat their wounds. What happen to good old fashion capitalism? Where companies fail and new growth companies sprout from the ruins of their predecessors? For investments, though, 2009 could not be a better year. We have stocks whose prices are being depressed and we have hindsight to protect ourselves making the same mistake twice, a gorgeous phenomenon. Here are a list of tips that are not specific to the year 2009, as an investment discipline should be able to carry you through the good times and the bad times. While these tips are not specific to 2009, it may be handy to be refreshed on a couple of points.
Take advantage while many industries are unrightfully affected by the current economic turmoil. As with all panics or crashes some other companies lose value in their market price when those companies have not been affected or have been in a superfluous way. An investor could not ask for a better bargain.
Remember all that has fallen is not undervalued. On the opposite note there are going to be a lot of companies that really are drastically affected by the panic or crash. The best thing to do is look at their competitors and compare. If it seems their competitors are now more efficient, and certainly if they are a low cost provider, their competitor may be the better investment. Avoid the value trap.
Competitive advantage is the next area to pay close attention too. Where does this company fit into the industry? Check to see if it is the low cost provider or maybe its products are just enough different from their competitors to be differentiated. On that note, make sure it is tough to enter the industry. A solid competitive advantage in a tough to enter industry is a recipe for profitability.
As we have mentioned, a lot of stocks have been undervalued, which makes it a great time to invest, but not necessarily do business. Keep a long term investment horizon. At least three years. Such slow wealth accumulation may be tough to bear, but think of how it must feel to lose it at a rapid rate.
There are three areas to pay attention too. Valuation, but with just valuation you could end up buying a cheap company, as opposed to an undervalued company. Competitive advantage of the company and the strategic dynamics of the industry. Management, the last component. It takes a tough and smart team to survive a panic or crash. Make sure there is a great team that has proved themselves time and time again.
The economic situation has brought many deals, but like the department stores after Christmas, those deals will be gone shortly. These "tips" may not look like tips, they may be what you have heard your whole life or are part of your investment strategy. The truth is there are no tips to investing, there are no hot stock picks of 2009, what there is a general set of criteria that will make you profitable, do your research following these tips and you will be on your way to profit handsomely.
Mike can be reached at
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