Sunday, December 5, 2010

How to choose good stock in share market?

Recently one of my friends asks a question, “Market is quite high now, you see the Index almost reach all time high record of 1500, do you think I should invest in stock market right now?”

This is a typical question, yes; market is highly unpredictable and volatile. Let’s assume short tem stock price will move in 3 directions, up, down or unchanged. Hence, if you say stock price is high and expect it will go down, the chance for you to get it right is about 33%.

Economy will grow, population will grow and the great business will grow big too. Past records show that, banking, consumer product, Energy Company, health cares are growing bigger each year. The idea is to choose the leader in these industries and invest the first 20% of your fund if you afraid too high to invest now. Ask yourself a question, "if the share price of the company you invested going down by 10% in next few weeks, would you going to buy some more?" If the answer is 'NO' or 'NOT SURE', then you are not ready for the investment. If one really understand the great business, the decrease of share price is an opportunity to buy more shares. After all, you are buying the industry leader, why be fearful when stock price going down? Assume you own a great restaurant with a very good business, would you going to sell it if somebody predict the economy is not so good next year or Korean is going to start a war?

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