Can You Get Rich Fast With Stocks? When COVID-19 was classified as a pandemic in March 2020, no one realized how much the world would change. It was the start of a years-long journey that would permanently transform daily life and impact entire industries.
The transition to working from home, learning from home, and participating in special events online caused tremendous financial hardship for industries like hospitality and dining. Other sectors like e-commerce and cloud computing saw unprecedented growth as demand for their products multiplied exponentially – practically overnight.
Once the pandemic was underway, market experts were reasonably successful in projecting which industries would suffer and which would prosper, given efforts to mitigate the spread of the virus. However, no one predicted the meme stock phenomenon, which completely upended the fortunes of select companies.
It started with GameStop in January 2021. Retail investors banded together to buy large amounts of the stock, which sent share prices soaring.
The struggling company went from less than $15 per share to nearly $500 per share in a matter of days. Retail investors, spurred on by social media sites like Reddit, poured their cash into the company. The traders who got in early made small fortunes, but the folks who didn’t time their trades just right lost money.
The internet-famous stories of windfall profits from GameStop trades have made new investors curious. Can you get rich fast with stocks, or did the GameStop investors just get lucky?
How To Get Rich From Stocks
There is good news and bad news when it comes to making money through stock trading. The good news is you can get rich with stocks. In fact, investing in the stock market is one of the most reliable ways to build wealth.
The bad news is that very few people get rich fast with stocks, though it does happen from time to time- For example, shareholders in companies that make important scientific or technological breakthroughs might see the value of their stock increase dramatically.
Occasionally, those who are in the right place at the right time to profit from a meme stock might enjoy high returns on their initial investment. The trouble is that the only way to get rich fast with one of these companies is to buy the stock before it goes up. Once the breakthrough product is announced or the stock gains a social media following, it’s too late – the market adjusts almost instantly, and the potential for dramatic profits has passed.
Though traditional methods of investing in the stock market don’t offer the sort of excitement that comes with meme stocks, going back to basics is the best way to get rich from stocks.
How To Pick A Stock
The world’s best investors have developed proprietary methods of picking stocks through decades of experience, and some of their secrets may never be made public. However, there are six characteristics that almost every successful investor looks for in a company before committing to buy.
History has proven that long-term growth depends on a solid foundation, so the first characteristic to look for in a stock is strong fundamentals. Begin with the basics – is the company financially sound? Does the current stock price accurately reflect the company’s intrinsic value?
At Financhill, you can check out a company’s fair value according to consensus analyst estimates too. Here’s what it looks like for Apple:
Most of the information you need to conduct a fundamental analysis can be found in the financial statements. Revenue growth, earnings growth, and margins are all key metrics to assess.
For example, the price-to-earnings ratio (P/E Ratio) shows how the stock price compares to the per-share earnings. The stock may be undervalued if this ratio is lower than usual or low compared to the industry average.
Growth stocks don’t always turn a profit when they are starting out, so the price-to-sales ratio (P/S Ratio) can offer important insight into these companies.
Keep in mind that the actual ratio is meaningless in isolation. The question is how today’s P/S Ratio compares to the company’s P/S Ratio history.
If it is higher or lower than usual, try to determine the cause. Are there outside factors like the anticipation of product releases or a change in the regulatory environment that explain any departures from historical figures?
No examination of a company’s fundamentals is complete without a review of the debt-to-equity ratio (D/E Ratio).
This calculation shows whether a company uses debt to finance operations or its own resources to cover expenses.
A low D/E Ratio demonstrates that the company has the financial means to pay its bills outright, rather than taking out loans and incurring interest expenses.
Growing Cash Flows
Cash flows are another critical measure of a company’s overall financial health. Essentially, cash flows refer to the amount of money flowing in and out of a business.
Growing cash flows suggest that the company is growing, and positive cash flows mean more is coming in than going out. Those are good signs that the company is positioned to create value for shareholders.
A company’s “moat” is its competitive advantage – the features that set it apart. Is there something unique about the products or services provided, or are they easy to duplicate? Is there anything special about the company that ensures customers remain loyal?
For example, Google search has perfected a set of advanced algorithms that deliver relevant, reliable results in seconds. Other search engines can’t match Google’s technology, which gives Google a competitive advantage.
Facebook’s moat is based on its network of users. Billions of people have profiles on the site, and each user has built a network of contacts.
Other social media sites struggle to compete because new users must recreate their networks from scratch. More importantly, users are less likely to find the individuals and businesses they want to connect with on smaller, less popular sites.
Picking stocks in companies with wide moats increases the likelihood of long-term returns. If would-be competitors can’t pull market share away from the industry leader, then the industry leader will continue to grow.
Poor leadership has taken down some of the world’s largest, most well-established companies, so you can’t overlook the management team when picking a stock.
- Do the company’s leaders have the experience and skills to protect the company’s interests?
- Are they the sort who drive innovation, quality, and culture, or do they sit back and watch when things go wrong?
Don’t put your portfolio in the hands of a poor leader – choose stocks in companies with a proven management team that you can count on to grow the business responsibly.
Spirit Of Innovation
No discussion of how to pick stocks would be complete without looking at intangibles – for example, the brand’s value and the community’s goodwill towards the company. It is nearly impossible to assign a dollar value to a company’s spirit of innovation, but it’s still a critical element of long-term success.
The world is changing all the time, and companies that can’t flex and adapt will be left behind. Keeping up with the pace of change is critical for any business, but that’s not enough to earn a place in your portfolio.
Look for companies that are leading the change – the ones that are committed to innovation. As these companies create the products and services of the future, shareholders may find themselves in the right place at the right time to profit when there is an innovative breakthrough.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.