There is only one time-tested fundamental strategy that can lead to guaranteed success in the stock market. If you make your investments in shares using this strategy, you are bound to make serious money over a period of time. The step-by-step elements of this strategy are described as follows.
Step # 1: Save Cash when Markets Rise
When the going is good, you must save as much money as you can. When the economy is going through a good phase, it is likely that you will make surplus money in your job or business. However, remember that when the economy is doing well, it is not the time to invest, rather it is the time to save. Do not over-spend and do not expand your household expenses during this phase. Frugality is the hallmark of people who eventually become millionaires. So save every penny and build a strong cash pile in good times.
During a boom period the stock markets are going to be high. Do not buy shares when the share prices are rising every day, and there is a very positive market sentiment all around. In such times, save your money in very liquid investments such as bank deposits which can be cashed at a short notice. Do not get tempted by stock brokers or the behavior of other investors. Everyone has a tendency to invest when the markets are rising, and things are looking up for the economy. Do not follow the mass instinct, and retain your cash in such times. This is the first fundamental step to making major profits in the stock markets.
Step # 2: Start Buying when Markets Decline
You have to maintain an interminable amount of patience and wait for the markets to go down. It may take a year or two or even more. But the ultimate winner in this game is the one who can keep endless patience and wait for the opportune moment to arrive. The law of nature is that whatever goes up must go down. The history of the stock markets has shown that they will always come down after a point of time. Stock prices will never keep going up and up infinitely. Stock markets and economies are cyclical, so wait for things to turn a full circle.
The moment stock markets begin to decline, it is your time to get ready with your pile of cash. As the decline gets steeper, you start purchasing blue chip stocks when everyone else is selling in panic. When the market sentiment is at the rock bottom, and panic has gripped the markets, it is time for you to sweep the markets with your cash.
Purchase shares of fundamentally strong companies, when you see them become available at throwaway prices. Act diametrically opposite to what others around you are doing. Stay fearless and use your money to pick up the choicest of stocks when the things have hit the rock bottom and it appears as if there is going to be no tomorrow.
Step # 3: Sell when the Stock Markets Revive
Once you have done your purchases in the times of economic doom and gloom, sit tight and wait for the dark clouds to disappear. Once again, patience will see you through the phase of economic despair. Do not sell out cheap, and do not get tempted to exit with only small profits when the markets begin to move up once the gloom phase ends. Remember that you have bought only the best of the best blue chip stocks, so you cannot go drastically wrong with your investment strategy anyway. So hold your stocks close to your chest and wait for the sun to rise and shine in its full glory once again.
The moment you know that your investments have multiplied substantially and the market sentiment is again on a high, it is time to make an exit from the markets. When the economy is again strong, and stock investors are in a heavy buying mode once again, you need to get into a selling mode. Do not get emotional about your stock holdings, and do not get complacent about your gains. In the stock markets, the real gain comes only when you sell. Otherwise you have only paper profits that are an illusion which will take you nowhere in the end. Therefore, sell out your entire holdings when the fruit has ripened, and make a super profit.
Fundamental Wealth Multiplier Strategy
Keep a close watch on the economic cyclical trends and continue to repeat these three steps as and when the right moment strikes. This is a logical and knowledgeable way to make money as an astute stock market investor in a free market economy. It is not blind speculation or gambling. It is approaching the markets with deep restraint, discipline, self-control and fundamental logic. It is a fundamental wealth multiplier strategy.
This article represents one person’s opinion about investing. It is not advice you can rely on in isolation, without doing your own further research. This article is not a substitute for individual, specific professional advice. Do not rely on it for that. There are no guarantees that this method, or any investment strategy, will always work.
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