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Wednesday, August 18, 2010

Making Right Decision in Stock Investing

The ability to see through some majority opinions and to find what facts are really there can bring rich rewards in the field of stock investing.

There is one factor which all of us can recognize and which can help in not just following the crowd.

This is the realization that the financial community is usually slow to recognize a fundamentally changed condition, unless a big name or a colorful single event is publicly associated with that change.

X Company's shares have been selling at a very low price, in spite of the attractiveness of its industry, because it has been badly managed. If a widely known man is put in as the new Director, the shares will usually not only respond at once, but will probably over-respond.

This is because the time it takes to bring about basic improvement will probably be overlooked in the first enthusiasm.

However, if the change to a superb management comes from little-known executives, months or years may go by during which the company will still have poor financial repute and sell at a lower ration to earnings.

Recognizing such situations, prior to the price spurt that will inevitably accompany the financial community's correction of its appraisal, is one of the first and simplest ways in which the investor can practice thinking for himself rather than following the crowd!