In principle, getting rich by speculating on the stock market is quite simple. The only thing you have to do is what all good merchants do, namely: buy low and sell high.
Suppose we want to invest in stocks. The choice of stocks we can buy is enormous. At the London Stock Exchange alone we can buy and sell securities of nearly 2,500 different companies. On the New York Stock Exchange we can choose from more than 8,000 securities. And of course we can also invest on the stock exchanges of Frankfurt or Paris, Tokyo or Hong Kong.
So we really have a choice – and that’s exactly why things get complicated: Which stock should we buy?
Prices of traded stocks vary constantly. If we want to follow the simple principle of buying cheap and selling high, a multitude of simple and banal questions arises:
Which of all these shares is now cheap? And which is expensive? After the price of this particular stock has fallen for weeks running, will it continue to fall? In other words: Will this stock that seems good value today not be even cheaper tomorrow? So should we buy now? Or would we do better to wait? And now that the price of this stock has fallen so much, will it start to rise again soon? And now that the price of this other stock has risen for several weeks, will it continue to go up? Can we expect further price increases if we buy now, or is it already too late? …
Similar questions arise when we hold stocks and want to sell them.
Even if these questions seem relatively banal: The answers are not; quite the contrary. When searching for the right answer, you should never forget two basic principles.