A common piece of investor vocab is “man, I wish I bought/sold that at this exact time”. While its fun to think of ‘what if‘ scenarios, this mindset can actually negatively affect your stock investing. Its called the Regret Theory, and this theory states that “people anticipate regret if they make a wrong choice, and take this anticipation into consideration when making decisions. Fear of regret can play a large role in dissuading or motivating someone to do something.”
For example, if you regret making a riskier purchase that leads to a loss, you may not invest in these types of stocks anymore. Sometimes that could be great because trading some stocks ( ie. penny stocks) is no more than gambling. But, this could prevent you from making investments that could have a high return. There are a few ways to overcome this; 1) tell yourself that its all part of the game. It really is. Some days will be good, some days will be bad. That’s the nature of the game. 2) Invest money that you can afford to lose. This should be the case all the time but is especially true in riskier investments.
During my first major loss, I experienced ‘investors regret,’ and wanted to move all of my money into a low return index fund, eventually doing so. Over time I realized that there were so many missed opportunities because of this, and decided to move it to a high return mutual fund, and invest in some other high return stocks. As a result of this, I made +150% on SEDG in about 6 months and +130% on EXPI in only 1 month! If I still had a case of ‘investors regret’ I would have never made this profit.
However, it is fun and beneficial to look back at what we ‘should’ have bought, if given the chance. Here are 6 that I wish I could have bought, if I were around in the late 80’s. Each stock has about 5-8,000% return since then.
Created AIDs medication, then used the newfound capital to create dozens of other drugs. They succeeded because they reinvented.
Created supurb hardware, then matched it with user-friendly hardware. Made computing accessible to the masses.
Created an OS that you could do anything with, then reinvested in other various problems.
Started with search, reinvested, and became a leader in tech. Focused on the future, and tried to solve problems.
Addressed the issue of microprocessors being in low supply, and created their own.
The Amazon effect. Enough said.
Note how all of these companies reinvested.
How To Find Stocks With Potential Today
Unfortunately, a lot of these really high return plays all come down to luck and the willingness to take a risk. Many of these major return companies have had multiple ‘sink or swim’ moments, like Microsoft’s decision to go into Xbox, or Apple’s 1984 Super Bowl XVIII ad series, and if they didnt make that one choice, might not have been around (hence the risk). However, there are some ways to figure out if a company could pop in the future. (I have a major guide to stock analysis coming up in the future, so stay tuned for that.)
Companies that could see Apple-like growth in the future are usually classified as undervalued. To find potential high returns, you need to look for an undervalued stock. The actual definition of undervalued (in an investing sense) is, “a security or other type of investment that is selling for a price presumed to be below the investment’s true intrinsic value.” You need to see more upside potential then the market is portraying. You can see if the stock is undervalued by looking at a verity of things. Financial statements and Earnings Reports contain great information, such as cash flow, earnings growth, and fundamentals, which you can analyze to see if it’s a good investment. Also from my personal experience, if you have a gut instinct that this is a good investment after doing a large amount of research on the company, it probably is.
To learn more about finding undervalued stocks, go here: www.fool.com/investing/2016/05/31/5-point-checklist-to-finding-an-undervalued-stock.aspx
In addition to the stock being undervalued, it needs to have awesome future growth prospects. This is perhaps one of the more difficult parts, because it requires more speculation then determining the value of the stock. For this, you want to figure out if the company will grow in the future. Will it take a larger market share? Will demand increase? Will it be able to scale with the markets? If your research proves that the company can, it is probably a good buy.
The best kind of companies solve problems. Each of the 5 companies that I listed above solved a fairly large problem, and did it extremely well. In many cases, they created their own market. If you can find an undervalued company, that will see an ever-increasing demand, and hold up on most any market condition, then you are set. And, as stated in the beginning of this post, you cannot be risk adverse. Each one of these stocks was labeled as ‘going nowhere,’ and now look at them. Without risk will be no reward. Remember, I will be publishing a guide on how to completely analyze a stock in the coming few weeks, so stay tuned for that.
Remember, A Lot Of Research + Gut Instinct Usually Equals Profit.