What is your biggest fear when it comes to investing? For most people it is the fear of losing their hard earned money. It is the fear that they’ll make a mistake and make the wrong investment. The solution is to invest wisely and not haphazardly.
The investors who have the most to fear are the ones that:
- don’t know what they are doing
- focus too much on the media noise (internet, radio, tv, magazines, newspapers)
- take “hot” stock tips from friends and co-workers
- blindly hand over their money to mutual fund sales people to invest for them
- are looking for “get-rich-quick” stocks
Wise investing is simple and before you invest in any company answer the following questions:
1. Will people still be using this company’s product or service in 20 years?
2. Does the company have a history of consistently increasing earnings over the last 10 years (check the earnings per share “EPS” values)?
3. Does the company have a history of consistently increasing dividends over the last 10 years (check the dividend per share values)?
4. Does it have a low P/E ratio?
5. Does the company have low debt (check the Long-term Debt-to-Equity Ratio)?
6. Is the company’s current dividend yield greater than its average dividend yield?
The above 6 six questions can save you from making mistakes and losing your hard earned money. The above questions are simple but powerful, in essence they help you find companies that are:
- Essentially recession proof
- Consistently profitable and consistently return cash (dividends) to shareholders annually
- Carrying low debt
Understanding what you are buying will help to alleviate your fears about investing.
Focus on quality companies when they are undervalued, and you’ll minimize your risks and increase your gains.
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