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January 8, 2010
Smart Stock Investing

The best measure of smart stock investing is whether or not it is successful in the end. Successful investing strategies may be based upon value investing and successful trading strategies are often based solely upon technical analysis. In each case smart investing often includes candlestick analysis with a firm grasp of candlestick chart patterns. Successful stock investing involves knowing when to diversify and when to invest more heavily in a unique opportunity. Smart investing in stocks is based upon up to date knowledge of the stock market and buying stock or selling stock at the right time.

For an example of smart stock investing one may look at the likes of Warren Buffett. The multibillionaire continually preaches value investing. Value investing is basically buying stocks that are undervalued based on a fundamental analysis of the company and its prospects. The news is constantly full of Mr. Buffett’s acquisitions such as the recent purchase of Burlington Northern for $26 billion. For mere mortals the point is not the size of the purchase but that Mr. Buffett saw unrecognized value in the railroad and bought at what he felt was a low price. Average investors do not have to buy whole companies, only buy stock in undervalued companies in order to profit from the company’s fundamentally sound business.

Smart stock investing is buying stock when “there is blood in the streets.” This is an old saying attributed to Baron Rothschild in 1871. During a panic in the French stock market everyone was selling and Rothschild was picking up cheap deals right and left. When the market recovered he was substantially richer. During last year’s stock market meltdown smart stock investing had to do with selling stock before the market collapsed and buying stock when the market was at its lowest. Smart stock investing has to do with letting the market tell you what the market is going to do. This is what candlestick basics are all about. Market fundamentals were unstable before the market began to fall and those who used effective stock market analysis and avoided market psychology got out in time and bought into the market rally early.

Successful stock investing can include options trading or it can include buying bonds. In a bull market, a bear market or a very volatile market, buying options can be very profitable. When interest rates are very high and descending, buying bonds can be very profitable as a bond with an interest rate above the current yield will sell at a premium. Smart investors made money on bonds all through the 1980’s as rates fell.

There are two ways to evaluate stock investing. The bottom line method is to look at results. However, the learning method is to look at process. Smart stock investing comes from constantly looking for information and looking for more effective ways to invest. Whether investing in growth stocks or hedge funds, hot penny stocks or corporate bonds, smart stock investing means keeping track of how one came to a decision to buy or sell so that the process can be more successful the next time.

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