Most stock market coverage focuses on what’s happening in the moment. Why did shares in this company go up (or down) by a few percentage points? What will some piece of news mean for this company or that company?
A lot of people make money trading based on technical reasons or following other short-term strategies, but a lot more people lose money by trying to find a short-term edge. Usually, when a stock moves by a few percentage points, the reason is that an analyst or someone on television said something about the company.
I can go on TV and talk about how rising beef prices may be a drag on McDonald’s (MCD) – Get Free Report profits in the coming quarter. That may be true, and it may lead to the fast-food chain’s stock dropping, but it also may not as share prices rarely move predictably.
In reality, knowing that rising beef prices will hurt profits at a fast-food chain shows no real insight. What you actually need to learn/understand is how the company handles bumps in the road as they will inevitably occur. Yes, you might be able to make some short-term money if you can predict how the market will digest the beef prices/margin news.
But, you can get rich by identifying which fast-food chains (or any other sort of business) will handle problems well. The media — and pretty much anyone talking about stocks on television — wants you to keep score daily. The reality is that the only standings that matter are the long-term ones.
People make a lot of mistakes when it comes to investing, but these are the three I see get repeated the most often.
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1. Thinking Opportunity Is the Same as Success
Sometimes, a company finds a market or a problem where real demand exists. That’s a major step in becoming a successful company, but opportunity alone does not equate to success.
Just because electric vehicle sales will explode over the next few years does not mean that every startup making a needed component for EVs will see growth. Yes, it’s possible but so are other ourtcomes. The car makers, for example, could back another source or decide to…
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