Now that you have some of the basics covered in the earlier sections, you need to decide what to invest in.
As a rule of thumb, every time you cannot decide what to buy, you can fall back on a broad market index. Vanguard's broad market index is a good one we typically pick as a fallback option. It's low-cost, and not one actually picks stocks. It's a bet on humanity's progress that is being reflected in the overall stock market index.
People typically argue and spend way too much time on deciding whether they are stock pickers or index investors. In reality, you don't have to be a stock picker or a fund investor or a bond investor. You can do all of them in parallel, granted that you have enough time to get yourself familiarized with what you are investing in.
How do you actually evaluate different investments and make the final decision?
At Stock Card, for now, we are focused on individual stocks. In this section, we share an overvalue of how we go about making an investment decision. We are mostly long term investors. There are many different ways you can make the final decision, so if you'd want to be a trader, you have to look things up elsewhere.
If you are a long-term investor, your focus is on finding well-managed companies in growing markets. You'd want to evaluate whether the company can continue to grow itself and grow your investment with it.
Typically we look at a few things:
- Market opportunity
- Strength of the company's operations
- And, whether there is opportunity to invest in the company at a fair price (relative to its future value)
In the following video, our CEO talks about the four questions you need to answer when evaluating a stock as a long-term investment:
Action: Take a piece of paper or open your notetaking app. Pick a company, any company. Perhaps, a company you have always wanted to invest in. Put the name on top of the page, and split the page into four sections. The goal is to write down as many things as you know or can gather about that company using the four questions discussed in the video. Once you are done, look up the company on Stock Card by searching the name in the search box on top of the "Discover Page" on our website.
Compare your results with what the Stock Card shows you. This exercise should help you understand the foundations behind how a long-term investor makes investment decisions.