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Articles for Entrepreneurs

 

Investment Advice

 

Investing in Stocks

Written by Adam Roy for Gaebler Ventures

Investing in stocks is something that many entrepreneurs enjoy doing, once they've become profitable. We offer a few interesting ideas on how to choose stocks.

In today's markets, stability is altogether too difficult to come by.
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Stock prices jump or dive at the slightest hiccup abroad, U.S. companies face increased pressure from competitors at home and otherwise, and energy-driven investor fears have even corporate giants on their toes. All-in-all, business investors and money managers operate under difficult conditions in a market that often defies prediction.

While this atmosphere may be intimidating for many business professionals who wish to manage their startups' portfolios, it can actually be rewarding if navigated properly.

Those entrepreneurs who are willing to spend the time carefully crafting their portfolios will be rewarded with a financial stability that the market alone simply cannot provide. For those interested in finding such stability, knowing how to pair securities is an invaluable skill.

The basic idea behind pairing securities is to find pairs of stocks or funds that will both rise over the long term but will behave in opposite ways in the short term.

For example, let us assume that analysts expect demand for both soy milk and real milk to rise over the long term as consumers become more calcium-conscious. However, the day-to-day oneupmanship going on between the two industries is making it hard to predict what consumers will drink next.

In this situation, a skilled investor would not attempt to choose between the two, but would put money into both the SoyMilk 400 Fund and the Wisconsin Dairy Fund. This is a win-win situation for our nameless investor. His portfolio will remain relatively stable, as a drop in the price of one fund will generally mean a jump in price for the other. At the same time, he has not sacrificed profit, as both funds are gradually and steadily growing in price, leading to relatively stable and reliable growth for his portfolio.

While this dairy war may be fictional, there are plenty of areas in our markets that lend themselves to this practice. For example, the ongoing global warming dialog has set up a very profitable industry for environmentally friendly manufacturers and fuel producers. However, oil prices continue to rise, pushing up the price of petroleum-linked ETFs and stocks. As there exists a somewhat adversarial relationship between these two fast-growing industries, skilled investors can combine these two volatile securities to create a remarkably stable and profitable investment.

However, there are a few caveats for investors who seek balance in their portfolios. Even a balanced stock portfolio is ultimately a stock portfolio and, as such, it carries all the applicable risks and financial dangers. Entrepreneurs can mitigate this risk to an extent by searching out reliable stocks or sticking to more stable funds, but the underlying danger still remains.

Instead of using this strategy to replace simple good sense, money managers should use this as a method to render tantalizingly profitable yet dangerously volatile securities more approachable. If kept within their businesses' budgets for high-risk investments, entrepreneurs and small business owners can safely use this winning strategy to their advantage.

Finally, business owners would be wise not to oversimplify this strategy. Simply because two companies or industries seem like they should be adversaries does not mean that they will behave like adversaries. Going back to our earlier example, who really benefits when oil prices rise? While oil producers receive more money for their product, demand for alternative fuels often rises as well: its not as simple as yin and yang.

When the market seems intent on denying your business financial stability, all hope is not lost. The strategy of crafting a balanced portfolio by pairing securities can lend a measure of security to investments during even the most volatile times. With basic financial know-how and a balanced portfolio, you can look forward to plentiful and stable returns for your company.

Adam Roy is an accomplished writer specializing in business writing and topics of interest to entrepreneurs and small business owners. His own fast-growing small business, Roy Writing, is based in Northbrook, Illinois.

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