The right stocks!
Wait! – Before you close this post and go back and admire your auto invest low cost index fortune take notice that we didn’t just write stocks, but wrote the right stocks.
Okay so this one will probably be one of the extraordinary investment opportunities that will be hardest for you to apply to your own life. Nevertheless we have to mention stocks as the stockmarket is a wonderful thing that have created many fortunes. The only little problem with the stockmarket is that at first sight it doesn’t fit any of the characteristics for extraordinary investment opportunities that we set up in our last post Extraordinary investment opportunities – Part 1. The stockmarket seems neither new or rare and it is very accessible for the public and highly scalable. So basically the worst place to look if you want to find something extraordinary. At least on an aggregated level. The exiting part about the stockmarket when looking for extraordinary returns is however its fragmentation, variation and dynamic behaviour!
The fragmentation (the fact that there are so many companies to invest in) and dynamic behaviour creates extraordinary investment opportunities all the time. The problem is however that they are hard to find (rare) and sought after by an extremely competitive and large crowd.
So how do you find the investments that beats the market? There are unlimited opinions on how to pick stocks, and the best thing you can do is probably just to be lucky, but when taking that out of the equation there are some things that could set you aside from the crowd.
One is avoiding the largest stocks. The largest stocks has a lot of smart professional analysts spending all their awake hours analysing them, so these stocks are most likely as close you can get to a fair investment. Neither very good or very bad – just fair. Companies with a smaller market capitalisation (worth) are however less analysed by analysts as there are less money in small companies for investment banks and portfolio managers in big money funds. They try to avoid them as they are illiquid and therefore hard to navigate in and out of with many millions or billions (lacks scalability). These characteristics creates some opportunities, but one should however also be aware that the lack of research also might result in too high prices. For the thorough investor the mispricing can however be an opportunity.
With our interest in the stockmarket we could write many pages on our opinions and ways of looking at the market, but the truth is that it might not help you as we could be wrong on it all. The stockmarket is, as mentioned before, extremely competitive with many very intelligent people spending all their lives looking for an edge, so it is most likely that you over time won’t beat the market. It had, however, to be mentioned that their lies many extraordinary investment opportunities in the stockmarket and due to its variability there will be many more in the future as well.
Well that was the inapplicable one. The coming posts in our Extraordinary investment opportunities series won’t be as generic.
Happy stock hunting if that is your thing!
Extraordinary investment opportunities series:
- Extraordinary investment opportunities – Part 1
- Extraordinary investment opportunities – Part 2