Get Rich Slowly: The Basics of Investing

There are a lot of people pulling out of the stock market nowadays. It seems that just a few short months ago everybody thought that the stock market was the best way to get rich overnight. There were seminars being held all across the nation that taught people how to "buy low and sell high" by just looking at a computer screen. Now, most people realize that the stock market is not the financial genie in a bottle that some people tried to make it out to be.

Hopefully you are not one of the ones currently running from the stock market in fear. Sure you have probably lost money over the past few months. But as the legendary investor, Warren Buffett, always says, "Be fearful when others are greedy and be greedy when others are fearful." What the Oracle of Omaha is telling us is that whenever we see everybody running in terror, that is the very time that we should be getting in, not out.

That basics of investing are the same as they have always been. But somehow whenever publicly traded companies start looking like a reenactment of Pamplona's running of the bulls, people lose sight of the fundamental aspects of investing and try to get rich quick. They think that they can jump on any old bull and ride it to financial freedom and great financial returns. The truth, however, is that great returns are a product of great companies.

Finding great companies that produce great returns might not be as flashy as most people would like. They will probably not qualify for the hottest stock pick of the year. But what they will do is help you to accumulate wealth over the long term. After all, if you pick a high flying stock that ends up falling out of the sky, you will ultimately be left with nothing. Remember, any number times 0 is always going to end up being 0!

The way to find the stocks that will last for the long term is simple, but it isn't necessarily easy. Just remember to follow the ABC's of stock market investing.

A. Analyze Management - Companies that make it are the ones that have competent and honest managers that treat the business as if it was their own. Case-in-point, Wal-Mart. Sam Walton started the business from scratch and nurtured its growth until the day he passed away. Most of his net worth was tied up in Wal-Mart stock. That meant that his financial well being was tied to the success of the company. If the company failed financially - he failed financially. So when you are looking at a company to put your money into, first find out if management has at much at risk as you do. If not, don't waste your time. If so, then at least you know that they will do everything in their power to make the company succeed and hopefully produce profits for you and for them.

B. Be an Owner of the Company...Not just the Stock - When you buy a stock you are buying ownership into a company. A share of stock is not a self-sustaining piece of paper that can produce financial returns apart from the company it represents. This might sound silly to have to say, but some people don't think of stock ownership as fractional ownership of a company. Buying stock must be the result of wanting to actually "own" a company. If you buy a stock then treat it like you would if it were your very own business, because it is exactly that. Yeah, you might share ownership with thousands of other people, but you are still an owner. If you remember this then you will be more likely to put your money in more sound places and will ultimately make more sound investing decisions.

C. Competitve Advantage is the Key to Long Term Growth - Look for companies that have something that separates them from their competitors. A good example of this right now would be Google. Sure there are many different search engines out there for people to use. But how many times have you heard of somebody "Yahooing somebody?" Google has become a household name and is the search engine of choice for many people. This gives them a strong advantage over their direct competitors. The companies that will last the test of time are those that are etched in the minds of people and those that people think of first. If you are putting your money into a company, make sure it is a company that will not be easily knocked off their throne. If your company can stay King of the mountain then there is a great chance that your portfolio will share in the victory as well.

Investing isn't mysterious. Buy good companies that make money and then let them make money! When they make money, you make money. Getting back to the basics will help you to avoid the emotional ups and downs that can come with investing in the stock market. After all, if you are in it for the long haul and you follow the ABC's of investing then the ups should eventually win out anyway.