Are you wondering if you are more suited to invest in individual stocks, or should you stick with traditional mutual funds or exchange-traded funds? If you answer yes to all of the following questions, you will enjoy choosing stocks and building your own portfolio.
Are you passionate about stock investing?
Are you fascinated by stock prices going up and down?
It would seem that news is the force that moves stock prices, but it’s much more complicated than that. If a company earns more money, it will become more valuable over time, and its share price will eventually head higher.
In the short term, share prices are weighed down by bad news and lifted by good news. However, in the long term, prices follow the profitability of a company.
For example, Microsoft Corporation (NASDAQ:MSFT) traded sideways for a decade after the Internet bubble burst. However, many investors have forgotten about that, so it’s been on a tear since 2013, returning annualized returns of 22.5% including dividends.
A part of the reason for its exceptional performance is that it was trading at under 10 times its earnings at the end of 2012–too cheap for a tech giant with the highest S&P credit rating of AAA. It’s a rare gem; only one other company has that rating.
Are you willing to learn?
Does researching companies excite you? Are you willing to learn and build on your investing knowledge and skills? Are you willing to reflect on your own actions and learn from them?
Learning to invest is a lifetime endeavour. Sure, you can start by reading articles and books, and dip your toes into the market with your hard-earned money, but if you don’t continue to learn and look for ways to improve, you will never reach your highest potential.
You should also explore different styles of stock investing. Are you more income oriented or growth oriented?
Do you have time?
Having passion isn’t enough if you don’t have the time to learn, reflect, and manage your portfolio. In contrary to popular belief, investors don’t have to watch the market like a hawk every day. In fact, gurus will argue against that.
Ideally, you should review your portfolio every quarter or every year and see if it’s achieving your financial goals. Yes, before you invest in anything, you should set your goals; what do you expect to get out of each investment?
For example, if I buy Fortis Inc. (TSX:FTS) at a 4% yield, I expect it to continue paying me that income and actually grow that income every year going forward. If I buy Alimentation Couche-Tard Inc. (TSX:ATD.B), I expect it to continue its double-digit-growth journey.
Conclusion
If you have the passion and time to learn about investing, you should go for it. I assure you it will be rewarding as you see positive results. Always set goals and check back to see whether investments worked out or not. If they don’t work out, look for ways to improve your process.
