When I was writing the last post about penny stock brokers it really hit home with me how important it is to trade shares for the long term. Penny stocks can be such a gamble even when you are dealing with such little amounts of money. If you look at buying stocks long term the whole process becomes so much more worthwhile. Rather than relying on quick trades to make some cash you should really be thinking long term and investing a sizeable amount of money in unvervalued stocks. Then keep this stock for the foreseeable future where you should hopefully see it grow in price. I know people make money from penny stocks but it just doesn’t make sense to me. Why put so much effort into researching an investment just to trade it away in a few days time? No ones going to keep penny stocks long term are they?

The big thing about trading stocks long term is that so many people find it difficult to keep emotions out of the market. They watch the stock ticker all day long and when there’s been a sharp dip they’ll sell off of their holdings as quick as they can. I know a lot of people who have done this with BP stock recently as well as a few other oil companies stocks. In this case it’s a little different because of the environmental disaster and it does look like BP will struggle for a few years to pay back the money to the U.S Government. But if you’ve lost half the value of your holdings why not hang on in there until they get things sorted out. They still have the oil pipeline and will eventually turn this around into profit. That’s up to them of course, I wouldn’t dream of telling anyone which stocks to buy and sell. I’m sure BP stock will come back up in value but how many people would have hung on to them for this long?

I’d also come back to one of the main factors which affects my choice of stocks to buy. Do I understand their business? Take a company like Yahoo. Yahoo stocks always look like a great buy to me. They’re in a similar market to Google except the stock is a fraction of the cost of buying Google stock. The thing that always stops me from taking the plunge and buying in Yahoo stocks is that I don’t really understand their business. Yes they are involved in search and advertising. They’re also involved in a million other things that I have no clue about. Yahoo recently bought Associated Content which is an article directory so how does that factor into their overall plan? Take into account that they’re by no means number one in their market for search, Google destroys everyone in this and I have to ask what am I actually investing in? Would it be a long term investment worth considering? For the moment, probably not. I’d also say that Google’s stock price is extremely overflated at the moment but that’s for another post.

So if you’re planning to get involved in internet share trading anytime soon make sure you are thinking long term. Value investing is all about thinking long term and identifying stocks which are undervalued and represent excellent value for money. Make sure you understand the business and where the company is planning to go. If you don’t, how you can you be sure what you’re investing in? If you have it clear in your mind that there is a good investment opportunity there then its time to start looking at the trading options available. Don’t forget the value of mutual funds or index trackers as part of you investment portfolio.