You would think a cool chilled out chick like me wouldn’t be concerned about rules and structure, and when it comes to inventing new dance moves, you’d be absolutely correct. But when it comes to investing in the stock market that’s another matter entirely.
Having a plan about which companies to invest in is not only good sense, it’s also going to make you a better investor since you’ll know at a glance which stocks are worth your time and which ones to kick to the curb.
My first rule is probably the easiest one, and that is that you should stick with the big dogs of the company world. You know the big kahuna’s like Disney, Microsoft and Micky D’s. The mac daddies of stocks.
There is not only more info about these companies, but they’ve been around the block a few times and obviously know how to make a buck or two. And if they are making bucks for themselves, then there is going to be some for us, the stockholders as well.
Where to find these great companies?
You first place to look for the big dudes is in the big indices. That would be the Dow Jones Industrial Average (DJI) which has the top 30 companies based on market capitalisation, or if you want to play in a larger pool then the S&P500, which is the top 500 companies based, again, on market capitalisation.
Besides probably having heard about these companies, they usually have a stronger management structure in place and so you can be more confident that you know what they are doing. Come on, I did say USUALLY.
I know, I know, you are going to tell me that losers like Enron was listed up there with the big guys too. But did you know that you could have avoided Enron just by looking at the company’s Debt/Equity ratio? (Which is another one of my rules of course – I’m not a fan of companies that take on too many loans without making a profit – kind of like my ex boyfriends and look where they are now – not with me that’s for sure).
But where do I find out which companies are listed in the DJI or S&P500?
So that’s the first rule – only choosing companies that are the biggest and most well known within the whole stock market. Think you can handle that rule?
Awesome. You’ve just become wiser than 50% of the stock market investment community.
Rock on and let’s make some money.