Be your own advisor - Investing in Stocks for Beginners

Most of us depend on external sources for stock investment advice but we are not sure if it works or not. We hope for the best leaving the decisions about our investments to others and we think that it is very difficult to understand stock market. But what if you get a stock investment advice, that is simple to implement, beats the market by more than 100% and best of all free and to top all this, you don't have to depend upon any one else for this advice?

Investment author Joel Greenblatt explains how to get this stock investment advice yourself in his book 'The little book that beats the market'. He gives out a simple formula which he calls magic formula and this is the formula that gives you a regular stock investment advice which is proven to be very effective over the past many years. He says that if we have to beat the market and get high returns, we need to do ourselves and we can not depend on any external advisers. This is a book about investing in stocks for beginners, without depending upon anyone and a formula which gives great returns over time.

Let us start with some basics considering the beginners in stock market:

- Having a share in a company means you are having a share of business in that company. Naturally, you expect the company to grow and you want to share good profits.
- If you deposit your money in a bank, you will get assured interest prevailing at any time. So if you are investing in shares, it should be for a much higher return than bank deposits, considering that there is higher risk involved in share investing.
- So when we buy shares, we want to invest in companies that grow much higher than most others and in fact the best companies if we can identify.
- Because of the nature of the stock market, share prices fluctuate over a wide range. So we want to buy shares at a bargain price, when the prices are lower in their cycle.
- Summarizing last two points, we want to invest in companies (a) with highest return on their investment (b) at a bargain price, that is when the earning is high but the price is low.

This logic provides the basis for the sound stock investment advice in the name of magic formula.

In his little book Joel Greenblatt provides the exact formula. You can either directly invest yourself or through some investment firms which use this methodology, the details of which are given in the book.

The stock investment advice derived from Joel's formula is for long term investments. Joel gives statistics about the performance of his formula in this book. During the years 1988-2004, while US stock markets gave an average yield per year of 12.3%, magic formula gave 30.8%! Do you think the results are amazing? While Joel gave examples from US stock market, this formula can be used for investing in any other stock market across the world, with the same effectiveness. Because this stock investment advice is based on simple concepts and common sense. Even a beginner in stock market will find investing easy with this method.