NotEinstein
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Mutual funds
A mutual fund is a group buy-in of several stocks. The stocks that make up the fund are controlled by the fund manager.
Fees will have a greater effect on your profits than anything. "No load" mutual fund are bought directly from the fund company. This means there are no brokerage fees charged for purchasing or holding the fund. This automatically means you make more money.
Index funds often perform better than managed mutual funds. These funds are made up of stocks in major stock indexes like the Dow Jones or Nasdaq. Since they don't require near the management of a traditional mutual fund, management fees are lower, increasing profits. They also tend to outperform managed funds.
Individual stocks
When considering a stock, there are three questions to ask:
Do they make anything worthwhile?
Think of companies as super villains. If a five-year-old can see a hole in the master plan, it will fail. Bubble economies are based on this thinking: no matter how ridiculous a business model may be, if enough people believe in it, it will make money ...for a while. For example, pets.com was one of the darlings of the dot com boom, but their business model had a huge flaw: when you need kitty litter or dog food, you need it now, not in a few days. They closed as soon as they ran out of venture capital.
Do they make a profit?
No matter how popular something is, you are talking about a business. Sites like Facebook and Twitter have enormous user bases and equally large "valuations," but until they are able to use this to turn a profit, they aren't sound. MySpace, which was once in this position, is now a profitable entity because they use their service to sell music.
Are they prepared for the future?
A company may be popular now, but if they don't have solid future products in development now, they won't make money in the future. Chrysler was put into this position when they were bought by Cerberus, who stopped their R & D. Without Fiat, they would have no future cars on the horizon.
 Posted 5449 day ago
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