Your bother has 1,000 and a one year’s investment horizon and asks advice about whether he should invest in a particulate company’s stock. What information would you suggest he analyze when making his decision? If there an alternative investment strategy to gain exposure to the stock market you might suggest he consider?
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I agree with #7; lots of low-value stocks can add up over time, especially if you're willing to do the hour-to-hour work buying and selling. You know those "penny stock" commercials that promise huge returns? They don't work by investing and sitting back; you have to sit in front of a fast computer and continuously buy and sell, bit by bit, until you come out ahead. Individual profits are tiny; collective profits add up. If the brother was willing to put the time in, this might be the best method.
I think it is always safer to invest in your money in a number of different stocks and shares rather than just one. Obviously, stocks and shares is very unpredictable, and you never know what is going to happen as a result, or whether the company's value will go up or down. One way of minimising this is through spreading the risk in different companies.
The advice given above is extremely insightful. I might advise him to look seriously at precious metals. I heard the other day that they are expected to go still higher, hard as that is to believe. Five years ago I would never have believed that they would go as high as they have already gone, and, as the advertisements say, they are never worth nothing.
1,000 is not too much money to invest. For example if a stock goes up 10% in a year, he would only be making 100 dollars. In light of this, perhaps he would like to invest in options and invest in sectors. So, if he feels that precious metals would go up, he can buy an ETF that focuses on metals. Moreover, he can buy options. Options are far more volatile, but you can make so much more.
Since he only has a one-year investment horizon, surely he's looking to maximize his earnings. I would advise him to look into the most-anticipated IPOS (initial public offerings.) It can be risky, but it can also be very rewarding, as the recent Facebook IPO demonstrated.
The most important thing for him to look at would be the price to earnings ratio, I would think. That would tell your brother something about how the price of the stock relates to the amount of money that you typically get on your return. Your brother should compare the p/e ratio of the stock he is interested in to those of other companies in the same sector of the economy. This gives you a way to think about the likely value of the investment.
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