The more I try to learn about stocks the more I think it’s gambling
Thus spoke my German friend who has never bought a stock in his life. His comment got me thinking. How can I best explain that investing is not the same as gambling? And what are the safest companies for people who are new to stocks and afraid of investing?
WHAT NOT TO BUY: For starters here’s what to avoid like the plague. Stay away from junior gold-miners, offshore drillers and Brazilian airlines. In short, anything that’s moved up or down by 10-20% in a trading day over the past six months. Yes, you can double or triple your money in no time with such stocks, but most likely you’ll lose it all. It’s paramount you don’t buy such companies, at least in the beginning.
Always the daredevil I once doubled my money on a Brazilian airline (GOL) by trading in and out five times over a six month period. A year later I learnt my small cap lesson when I lost 94% of principal on the offshore driller (NADL) after Western sanctions on Russia derailed that company’s expansion plans.
Note to self: volatile small cap stocks are 50/50 propositions. It’s gambling!
WHAT TO BUY: Invest only in companies with a strong track record of earnings growth that have not financed said performance by taking on excessive debt. In other words, stocks with serious staying power that will soldier on regardless of any short term headwinds in the wider economy. Below are three such stocks that I consider safe long term buys you can hold forever. Images are of the respective companies’ 10 year chart.