How To Turn High Risk Stocks Into Cash Cow?
High risk stocks should be in everyone’s portfolio since they can provide a substantial profit. Conversely these same stocks can make dramatic drops in value. Investors need to work with a highly knowledgeable financial advisor to keep these stocks from taking over a financial plan.
Playing the stock market involves risk, but if you invest in low risk stocks through established companies these stocks will increase in value over a long period of time. They can also take a sudden downward turn because of industry declines, company issues or general market problems. However with low risk stocks you can regain your investment. These types of stock options are unpredictable and include new companies or stocks that are underpriced compared to the history. These stocks are considered high risk because of legal, business or financial problems. Penny stocks are also in the high risk category and most investors avoid penny stocks. Remember, however, that Microsoft sold for $2.50 a share in the 1990s but now is worth well over $50 a share. This is one example of a high risk stock turned into a virtual cash cow. Overpriced stocks are also high risk. There are theories that high priced stocks tend to price higher, but overpriced stocks can crash. One example, Amazon at one time was listed at $110 per share, but by 2000 was trading at only $15 a share.
Some stocks that have crashed can be potential cash cows. Again take Amazon that now trades around $100 per share. The volatility of high risk stocks do make them very attractive for the informed investor. Watch the current Facebook stocks. Although they are trading low there is always the possibility that the prices will skyrocket and those who hold shares can become millionaires.
Another way to turn your high risk stocks into cash cows is to sell or trade them. Investing in the stock market is a great way to build wealth over time, but if you have appreciated stock you do need to use that money and invest it into safer investments like government bonds and bank certificates of deposit.
Still another way to hedge the stock market is investing in emerging markets which is currently 20 percent of world capitalization and valued at $9.9 trillion. Emerging markets are those countries that are experiencing rapid economic growth and are opening their markets up to foreign investments. Governments are becoming liberalized and shaping their market structures. These stocks can be cash cows, but do carry heightened risks.
Follow new stocks that trade on the exchange and are offered to the public through initial public offerings. These new stocks tend to get investors excited about getting on the ground floor and possibly making high future profits.
Commodity trading is another way to diversify your investment program. Commodities are precious metals, meats, oils, raw materials and grains. Commodities are physical goods that are bought and sold through commodity papers.
Turning high risk stocks into cash cows require knowing when to hold stocks and when to sell them. Watch the trends, read the charts, and listen to experts. There is no hard and fast rule when to sell stocks but do remember that speculation can also bring about wealth, or ruin. Learn from the lessons of the famous stock market crash in the 1929s and the “crashes” of 2008 and 2011. All followed speculative booms that had investors borrowing money to buy more stocks. Stick to the rule to only buy what you can lose.