Understanding Market Signals and Their Effect on Investment Opportunity

Investing is just like a balancing act.  If you get it right, you’re sure to wow the crowd and reap the rewards of your hard work, but if you get it wrong, you can easily come tumbling back down to Earth with less than you started with.

Often times, making the right investment comes down to seeing the market signals, and jumping on or off the boat before the rough waters start.  The only problem is, how do you tell when the waters are clear and when the going is about to get rough?

To help you fight against investing your money into sinking ships, we put together a few of the lesser looked at market signs that have a big impact on your investment opportunity.  So, if you want invest your money into the economy, you need to be aware of the outside factors that can directly affect the results of your investment.

Understanding Market Signals and Their Effect on Investment Opportunity

Buyers Market or Sellers Market

Understanding where the market sits as a whole will help you know if it’s time to buy, time to hold, or even time to sell. Trending market habits tend to be that way for a reason. If people are buying tons of stock, there is probably a new market opportunity that has a huge impact on the industry as a whole. On the other hand, if there is a large amount of sellers for your stock, it’s probably because of a foreseen plateau that is expected to lead to a major fall in the stock.

Having the ability to determine if you are in a buyers market or a sellers market will help you scope out the right opportunities for your investment.

GDP and Inflation

When the GDP is up, getting funds from lenders is cheaper, so companies can easily expand if they choose to. That raises the GDP.  High GDP numbers means you can expect stock prices to rise, so investing on the upswing of GDP could result in you making tons of money on a natural economic upswing.

You have to pay special attention to inflation as well because of its intense effects on investment potential.  As inflation rises, your money is worth less, and that means stock prices are more, even if their purchase prices doesn’t change.  Inflation also happens for many different reasons such as lending rates, current debt, and supply and demand.  As demand rises above supply, we see an inflation in prices as a means to level the demand, but if you take it too far one way, the bubble will pop if incomes can’t compete with prices. That sends us right back to the 2008 housing market crash, and means you might not have a job.

World Disasters

World disasters are often overlooked as a cause for investment changes, but they are great indicators for the savvy investor. Reason being, they tend to show the world outlook about situation at hand through economic action.  These disasters also directly affect the prices of raw materials in those regions, and ultimately, the prices the end consumer sees at market for the products affected by those events.

Let’s take a look at the BP Oil Crisis as an example. When the spill occurred, prices for raw oil skyrocketed because of a hit to the potential supply that project was looking to create, and the need to import crude oil to make up for it.  When this happened, people around the world felt the price hikes at the pump.  Lower supply met growing demand, and inflation was the only outcome.  For the investors of BP, this meant a huge hit to their stock value, but for Dawn investors, it was a total opposite effect.  Since, in many ways, Dawn accidently ran marketing around their efforts to help with the spill by cleaning up the wildlife, their stocks grew in value. On the buyers side of the journey, that was a great time to swoop up BP stock as they were a huge company that was going to invest in revitalizing their now tarnished name. The BP cleanup ultimately lead to an economic boost because of the job creation and market potential for other companies.

Industry Growth As a Whole

A growing industry means huge investment potentials. Especially when the industry as a whole is brand new, like the marijuana industry in legalized states or the Bitcoin revolution, the potential for growth is exponential. Jumping in a newly christened boat like these could lead to economic wealth beyond your wildest dreams.

This is a challenge to find, though, because many of these crazy growth investments are extremely short lived, or they grow so fast that the bar to entry gets set so high you could never hope to profit from your investment. Make sure you aren’t jumping on board a fad, and instead, look for new stock opportunities that can turn into long lasting industries.

Cost of Investment

Going into an investment strategy with under $5000 in your pool doesn’t really work out for those looking for investment growth. Typically, investors tend to recommend you start with at least $5000, but have more room to help you grow with $10,000. No matter where you start, you need to make sure your investment is worth the money.

Say you find two companies that produce similar goods in similar industries. Both have great growth potential and they are growing at similar rates. The difference? Their investment prices. If you can get more stocks for the same money for similar investment opportunities, that’s probably the better option to take because you have more room to grow. The more stocks you hold, the more likely you are to see a positive investment on an exponential scale.

Conclusion

Investing can be risky, especially if you aren’t watching for the signs of a market affect. If you do watch for these signals, you have a better chance at swooping up investment opportunities that can impact your bottom line enough to change your tax bracket.

What signals do you watch for in the market that help you find the best investment opportunities? Share your tips and tricks in the comments below.

Posted in: Investments, Marketing, Stock Market