It is important for prospective investors considering the stock market to become as much informed as they possibly can. This means knowing businesses and their markets well, and the potential risks that come with investing in them. It’s instructive to examine some companies that have performed well, as their high stock prices would indicate.
Why You Should Invest in Stocks
Historical data indicates that stocks perform well, even after considering the effects of bear markets. According to Gateway Investment Advisers, nearly 20 percent of the 10-year periods of the S&P 500 had more than a 14.67 percent annualized rate of return, in spite of also going through a bear market (defined as a minimum 20% loss in value) during that same period.
This is a much better rate of return than fixed-rate bonds or CDs, none of which, according to Fidelity, has a rate of return in double digits. Savings accounts pay negligible interest at best, typically well below the rate of inflation.
Futures and commodities markets have a greater potential for return, but can be extremely volatile. You can lose more than the principal investment, and in the case of selling short, the maximum potential loss is infinite.
Because of exchange rules, if the price of a future or commodity contract increases or decreases beyond a certain threshold, conditions known respectively as ‘limit up’ or ‘limit down’ apply and no trading can occur. That’s a tough spot to be in if you have a long position on corn, the market goes limit down for a couple of days in a row, and you can’t sell.
Although stocks generally have less volatility than commodities, the purchase stock price of many may be too high of a barrier for investors who don’t have deep pockets. A good example of this is the Intuit stock price. Fortunately, there is a great alternative to buying stocks directly: binary options. With binary options, you are basically betting that the price of a stock or commodity will either rise or fall by the time the option expires. The price of a single option is less than the price of one share of many company stocks and you can never lose more than what it cost you to buy the option.
For more information on binary options, click here.
Companies With Higher Stock Prices And How They Got There
At over $194,000 per share Berkshire Hathaway Class A stock (BRK.A) costs more than many houses. The Omaha, Nebraska-based conglomerate owns GEICO, Dairy Queen, Fruit of the Loom and has holdings in Coca-Cola, IBM, and Wells Fargo,
One reason the stock price is so high is that it never splits, but that means nothing if the price does not increase substantially over time as BRK.A has; so it’s important to know why.
Basically, one of the best CEOs, Warren Buffett knows how to pick a winner. He uses sound investing principles, and is in it for the long haul when he buys something. Whether in stock or owning other companies outright, the company portfolio covers a diverse set of industries.
If you look at the stock’s history, it has had two periods where its price tanked, once around 1999, and another time during the 2008 global financial meltdown. Although both times the stock lost about 50 percent of its value, the price went beyond a full recovery.
A couple of other companies worth examining basically took over an industry.
Priceline (PCLN) stock is in the $1,000 per share range on the strength of its brand in the online travel industry with commercials featuring the ageless William Shatner. The company struggled after the ‘dot bomb’ era of the early 2000s. It did a reverse stock split around that time in an effort to drive up its price. Priceline stole a page out of Warren Buffett’s playbook with some intelligent acquisitions of other companies in the travel and hospitality industry.
Alphabet Inc. is another example of industry domination. It not only became good at helping people find what they wanted online, it also created a business model that allowed them to make money in the process. Today the company dominates the Internet and mobile phone markets.
Most people know the company as Google (GOOG), whose shares trade at over $700 each. Alphabet Inc. was created late in 2015 as a conglomerate to better organize the Internet and non-Internet businesses that Google owned.
While no investment, including the stock market, is not without risk, stocks seem to have a good mix of risk and return that other types of investments don’t have. Thanks to investments like binary options, you don’t need a six-figure salary to participate in the stock market either. With diligent research, wise decisions, and consistent effort it’s a great way to grow your wealth.
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