How To Find Hot Stocks To Watch And Make Money In The Stock Market

July 11th, 2009

Finding Hot Stocks To Watch Depends On Your Investing Strategy

Many people who want to make money in the stock market think they will do so by just finding hot stocks with excellent growth prospects and that’s all there is to it. Of course, looking for the best short term stocks to buy while failing to put together a sound investment strategy is certainly not the right approach. Before you start learning how to read stock charts and learning about ways to invest in the stock market, you’d better sit down and think over your investment strategy, which will be defined by what three main questions:

How much money to you want to make?
How much money can you afford to lose?
How much money do you need to get started?

Pick An Industry In Which You’ll Put Your Money

Warren Buffet always says that you should stick to what you know. Why should you listen to him? Well he happens to be probably the most successful investor ever. Most of us have an industry we’re already familiar with, either from our education, our job, or our interests. This is probably where you should start looking for companies that are picking up some momentum. You’ll have the benefit of knowing a bit more than what’s out there in the press and that everyone else knows.

But if you don’t know where to start, or have a certain preference for an industry you’re not too familiar with, then you’d better brush up on your reading and start reading business journals. They will give you a good idea of which industries have plenty of “movers and shakers”, which represent your best chance for success because they have several stocks that are on the upswing.

Finally, you can adopt the simple approach of noticing which new products are coming out and gaining in popularity. You can then track the stock of the company that manufactures or sells it, and that can lead you to a hot stock.

Look For Companies With Solid Fundamentals

Whenever you’re considering investing in a particular company, you’d better make sure that it’s a financially sound business and that there are no foreseeable problems waiting to rear their ugly heads. Even when you take care of those two aspects, that doesn’t necessarily mean that the stock has growth potential, as it could be in a mature industry where things don’t evolve that much. After you’ve established that those companies are potential hot stocks, look to see if they’re in good company, meaning that the industry boasts a solid crop of similar stocks. Try and find companies that are leaders in their industries, track what makes them the leaders that they are (price, quality, customer service, convenience…) and look for companies that emulate these qualities but are just emerging.

Get Advice From Investing Professionals

Everyone is different and some people have a natural talent at analysis that makes it easier for them to go through all the data and pluck out hot stocks with excellent growth potential. Yet you should keep in mind that there are countless financial newspapers, magazines and newsletters that publish lists of hot stocks and that even professional investors read them. Why shouldn’t you? Find publications that mirror your investment goals and make your selection from their recommendations. You have to exercise some judgment though: some stock promotions are really just advertisements, where the stock’s potential is exaggerated.

Watch Out For Scams

While you should be careful for promotions in reputable publications, you should totally disregard some of the tips out there on hot stocks to watch, that are just scams targeting inexperienced investors looking to become millionaires overnight. As a rule, you should be skeptical when it comes to stock tips from someone who stands to earn an immediate commission if you follow their tip (makes sense, right?). Also watch out for OTC stocks (meaning stocks that are traded over the counter) or those traded via pink slips, as they typically don’t meet most investors’ requirements, at least not those trying to find good investment companies.

Making Money In The Stock Market

In order to make money investing in the stock market, you definitely have to treat it like a business, not a hobby. You need to set an investing strategy and investing rules that you will follow, otherwise you’ll be shooting blindly and you will lose your hard earned money. Now you have to understand that all stock market investors suffer losses; the successful ones simply manage to win more than they lose. Small losses are actually acceptable because they teach you what not to do: if you learn from them you’ll get better and better and increase your odds of winning big.