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Picking Stocks You Know

When you are a novice investor, there are a lot of things that can make investing difficult to understand. It does not help when you aren't interested in the company who you have invested all of your hard earned money. A simple way of making investing fun and profitable is to pick the companies that you deal with everyday.

These are the types of companies whose products you know and use and, more importantly, trust. An example of one of these companies is McDonalds (MCD). McDonalds is a company who virtually everyone knows and/or deals with at one time in their life. McDonalds is just one the many company's who is catered to the young investor. What that means is that we (as young investors) buy the products that the company makes and we are familiar with the companies trademark (i.e. Golden Arches).

A great example of companies which young investors deal with everyday is the Young30. The stocks profiled in the Young30 are excellent examples of stocks that are destined for earnings. Although you might have noticed they have not been that very profitable yet, they're future earnings are yet to be determined. One thing that you definitely have to keep in mind when you are picking your stocks is that you can't expect instantaneous results. The best thing about being young is that you have time on your side. This means that maybe you don't make money one year but the next year you double your money. You are in it for the long-term, so immediate results are not applicable for you. Generally, we all like to see that our stocks are doing well and showing us that by making us a profit. However, there are times when the market is in a recession and is not going to matter how well the numbers look because no one is going to make money.

Now that you know about some of the reasons why you can't expect instant results, it is time to learn how to pick a stock that works for you. The first thing you need to do is to decide on the company in which you would like to buy partial ownership in. As you were told before, a company that hits close to home is generally a good investment. The best way to do this is to pick 5 to 15 companies and start to watch them. What I mean by this is to follow how the company is doing. A really good way to do this is an investment contest. You can start your own with friends or join one of the many that are currently all over the web. What this entails is your own imaginary money that you have in which you choose the companies that you think are going to do well and you buy them. By doing this you get excited about following them and you can see paper results. After you do this for a while and you start to get the hang of it, that is when it is time to use your real money. I think that the most affordable way for a young investor to get started is though a DRIP (Dividend Re-Investment Program) where the commissions are relatively cheap. Most of the companies that offer DRIP's are generally good performing companies. So here it is in a nutshell:

1. Pick the companies you know and like.
2. Stay positive and don't worry about instantaneous results.
3. Practice with fake money (investment contests) or other ways to follow the companies you like.
4. Find a company you like and buy it (DRIP).




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