Have you ever thought of dabbling in the stock market, but stopped yourself because you don’t have the skills of a professional investor or analyst? Well, guess what? You don’t need to be a pro.  

You can easily find investment opportunities that can multiply your money tenfold or more, and you don’t even have to stray far from home or work. It all starts with paying attention, and then doing enough research to increase your chances of a successful investment.  

You have what it takes to beat professional analysts and investors. 

Imagine this: You’ve been thinking about investing in stocks for years, and then you finally decide to do it. You find a company with potential and invest some of your extra cash. Then you wait. And sure enough, the company takes off and becomes the hottest thing in the stock market. You end up making ten times what you invested! Sounds great, doesn’t it?  

Well, you can be this successful in the stock market. And, despite what many think, you don’t have to be a Wall Street professional to do it. In fact, being an amateur investor works in your favor. 

Wall Street experts are restricted in how they work – and that often prevents them from noticing potential big winners and investing in them. One limitation is that they don’t pay much attention to a stock until it proves its profitability. They see established companies as safe bets, and won’t risk their reputations, or their clients’ money, on the unknowns. Unfortunately, by the time a stock gets Wall Street’s attention, its period of rapid growth has usually come to an end.  

Investment professionals have to follow rules and regulations. Some aren’t allowed to invest in certain industries, for example, or in companies that belong to labor unions.  

You have neither of these restrictions. And that sounds great. But it doesn’t mean that you should invest immediately. Before you take the leap, you need to consider three things that will determine whether you’re in a position to invest. 

The first is whether you own a house. Buying a house is an investment, and it’s not that different from investing in stocks. For example, you need to establish that the house is in good condition; in other words, you need to do the research, just as you would with stocks. Then you have to wait a few years before selling the house and making a profit.  

Next, consider whether you have money you can afford to lose. You shouldn’t invest any cash that you’ll need in the near future, like your child’s college fund, for instance. 

Finally, you should determine whether you have the qualities of a good investor. These include patience, decisiveness, and flexibility, along with two key abilities – the skills to do your own research and the character to admit when you’re wrong.  

You should also be able to ignore gut instincts or feelings of panic, as these can lead to rash investment decisions.  

Paying attention to your environment will help you spot investment opportunities. 

Here’s a question: How often do great investment opportunities pop up? If you think the answer is once in a lifetime, think again!  

Most people encounter great investment prospects two to three times a year. And these opportunities aren’t hiding in the stock exchange. You can discover stocks with the potential to grow ten times their value in your home, where you work, and even where you shop. You just have to look closely. 

When it comes to spotting investment prospects, you have two advantages. The first is professional knowledge of and insight into the industry you work in. If you’re in the chemical industry, for instance, you’re well-placed to notice a rising demand for a product. You’ll also know which companies have the resources to meet, and profit from, that demand.  

Your second advantage is that you’re a consumer. You see products and businesses entering the market and becoming popular. For example, Jack invested in Apple after buying a computer for his children and noticing Apple machines in his office building. If you keep an eye out for promising companies, you can buy their stock early and benefit from their growth. 

However, before investing your hard-earned money, you have to make sure that the success you’re predicting will actually have an impact on the company’s profits. For instance, a wildly successful product owned by a massive company won’t contribute much to the firm’s overall balance sheet. But a small company can profit incredibly from a popular item. 

Once you’ve confirmed that a company will make good profits, you should determine exactly what to expect, and when. How do you do that? You need to establish which of the following six categories best describes your chosen stock.  

Here’s the list: first, you have the slow growers. These companies grow at a rate of 2 to 4 percent annually. Then come the stalwarts. They’re multi-billion dollar companies that grow 10 to 12 percent annually. 

The fast growers can increase by 20 to 25 percent annually – and it’s in this category that you’ll find most tenbaggers, or firms that can up their value tenfold. 

Among other categories are the cyclicals, which experience regular periods of growth and decline; the turnarounds – they are struggling, but capable of fast recovery; and, finally, the asset plays. They own valuable assets, like real estate, and that can lead to massive profits. 

A company’s name, the state of its industry, and insider behavior will tell you whether a stock is a good investment. 

Let’s say you’ve noticed a product that people love. After some research, you discover the company that makes the product, and realize that it’s a potential fast grower. You might be eager to invest right away, but there’s more work to do. 

We learned about the six categories that can help you understand what kind of growth to expect from a stock. But if you want the best shot at a profitable investment, you need to know what makes a stock market winner.  

First, there’s the name. This might seem like a trivial detail, but it’s a very useful clue when you’re looking for a tenbagger. Companies with simple or even boring names are good prospects because they can easily go unnoticed by investment analysts. This allows you to buy stocks before popularity pushes their value up. The same goes for companies involved in dull, unattractive, or depressing businesses, such as waste management firms and funeral homes. 

The next thing to look at is activity in the industry. A company with few to no competitors can easily capture a big share of the market and maximize its profits. And even if there are already many players in the industry, some companies can still come to dominate the market. How? By producing things that no one else can. Just think of exclusive franchises, or firms that make patented drugs. 

One industry that’s particularly competitive yet still very attractive is technology. The products and customer bases of many tech companies are similar. To identify a lucrative tech investment, look for a company that benefits from using the tech, not one that manufactures it. For instance, a supermarket chain that installs automatic scanners reduces its costs and increases profits. You’re better off investing in the supermarket, not the company that makes its scanners.  

So you’ve looked at the company’s name; you’ve considered the industry landscape. Is now the time to invest? Well, actually, no. There’s one more thing to do, and that’s to examine the company itself.  

If a company is a spin-off of a larger enterprise, it has great chances of succeeding. Parent firms don’t want the embarrassment of launching a company that ultimately fails, so they only spin off companies with potential.  

You can also spot a company that’s well-set to make it big by looking at who’s buying its shares. If the buyers are employees, or, perhaps, the company itself, that’s a very good sign. Both scenarios imply that insiders have confidence in the company’s future performance. 

Monitoring a company’s earnings is essential, both before and after you make an investment. 

Here’s an interesting fact: in finance, the term “bottom line” means the total money made at the end of a specific time period, like a quarter or a year. Outside finance, the same phrase is used to refer to the outcome of a situation. For instance, if a team plays well but still loses a match, you might say, “they gave a great performance, but the bottom line is that they lost.” 

When it comes to investing, there’s one thing that fits both meanings of the term “bottom line.” And that’s a company’s earnings. 

After you’ve considered everything else about a company, the final decision to invest should be based on how much money it earns, and whether or not it continues to earn money. Think about it like this: by investing, you’re betting on a company’s potential to generate cash. The value of a company’s stock rises and falls with its earnings: the higher the earnings, the more valuable the stock. 

But earnings alone only tell you half the story. It’s important to also compare them to the stock’s price. And you do this by considering the price-to-earnings ratio. This number indicates how many years it will take to earn back your initial investment. For instance, if you invest $500 in a company with a price-to-earnings ratio of 2, it will be two years before you earn that $500 back. But if the price-to-earnings ratio is 40, you’ll be waiting 40 years to get your investment back. 

A rule to keep in mind when considering price-to-earnings ratios is that a well-priced stock will have a ratio that’s equal to, or lower than, the company’s growth. For example, a company with a price-to-earnings ratio of 15 should be growing at around 15 percent annually. If the ratio is below the growth rate, then you’re getting a good stock at a bargain price.  

In addition to the price-to-earnings ratio, you also have to think about future earnings. After all, you don’t just want to get back exactly what you’d put in. Ideally, you want your investment to multiply. And this cannot happen without an increase in earnings.  

Luckily, you can gauge whether or not a company is set to achieve this. While doing your research, find out whether there are plans to cut expenses or close unprofitable segments. Perhaps the firm is working to increase prices or sales? Or maybe it’s expanding into new territories? These are all tactics that can improve a company’s earnings. 

Stay away from popular stocks and industries and avoid risky acquisitions. 

Have you ever gone shopping for a specific item, only to get sidetracked by something you had no plans to buy? Maybe you were looking for sturdy hiking boots, and found yourself eyeing a flashy and overpriced pair of dress shoes instead. 

The same thing can happen when you’re investing in the stock market. Even if you know exactly what a good investment looks like, a bad prospect can still get your attention, especially if it looks and sounds promising. This is why it’s important to know what stocks to avoid. 

There’s a phrase that is really useful when you’re investing: “Don’t believe the hype.” Stocks and industries can gain a lot of value off the backs of their popularity, and then come crashing down. This happens when the stock value isn’t supported by real profits, or when competitors enter the market. So, if you invest in something because it’s the hottest thing on the market, you risk losing money. 

Similar to the hottest stock on the market is anything labeled “the next” something – for instance, the next Pixar, or the next Apple. These stocks rarely live up to the grand expectations people have of them. And the same is true of what the experts call whisper stocks – stocks in companies with big, awe-inspiring solutions, like a cure for drug addiction. If you’re ever tempted to invest in such companies, remember that there’s usually not much substance to their claims. 

You should also avoid investing in companies that are acquiring other businesses in an attempt to diversify. In many cases, such firms either pay too much for the new business and lose money, or lack the resources and industry knowledge to make their acquisitions profitable. These purchases are so likely to fail. 

Lastly, be wary of investing in companies that rely heavily on just a handful of customers. This can happen with companies that supply other businesses. For them, the loss of just one client means a massive drop in earnings. If a company sells 25 to 50 percent of its products to a single customer, putting your money behind it is a bad idea. 

Learn everything you need to know about a company through your broker and by contacting the company directly. 

When you’re new to investing, all this research might seem like an overwhelming task. But it doesn’t have to be.  

You don’t have to study financial reports for hours, or watch every single news item about the stock market. All the information you need about a company, both before and after you decide to invest, is easy to find. You just need to know where to look, and whom to speak to. 

One hugely important resource is your broker. Brokers can be a stockpicker’s best friend. They can monitor things like price-to-earnings ratios and insider buying, and they can also provide all the investment publications, surveys, and reports you’ll need. 

And when your broker hands you a company’s annual report, don’t worry about reading it from cover to cover. You only need a few minutes to learn the relevant information. Start with the consolidated balance sheet to learn about the company’s assets and liabilities. Here, you’re looking for signs that cash and assets are increasing, while debt is decreasing. This indicates that the company is in good financial shape. Then, study the ten-year financial summary to understand how the company has performed in recent years. 

Now, all this information will probably leave you with a lot of very specific questions. This is when you should go directly to the primary source of knowledge: the company itself. Firms have investor relations personnel who are usually willing to speak openly with potential and current stockholders. Before making a call, make sure to prepare a few key questions based on your research. You can also learn a lot by asking what the positives and negatives are for the year in question. 

To take your interaction with the company a step farther, visit its headquarters and attend its annual meetings. This helps you get a better sense of the company and make useful connections that can keep you informed.  

But your fact-finding mission doesn’t end there. As an investor, you should reevaluate the company every few months to ensure that its stock remains a valuable investment. 

Create a diverse portfolio, and consider your timing and reasons when buying or selling stock. 

Think about this for a moment: Most people say they’d be happy if their stock market investments generated annual returns in the 25 to 30 percent range. But that’s quite unrealistic! 

So, if 30 percent is unreasonable, then what sort of annual returns can you expect? The answer is between 12 and 15 percent. Anything less than this can be achieved by investing in a mutual fund, which requires far less effort than investing directly in the stock market.  

Now here’s the big question: How do you improve your chances of getting at least 12 percent in annual returns? 

An essential step is to design a good portfolio. You should invest in as many promising stocks as you can find. The more you own, the better the chances of hitting a tenbagger. Of course, before you part with cash, you need to do proper research – but by now, that should be just a given for you.  

Having more stocks also allows you to spread your money across different categories. Think back to the six types of companies we’d discussed earlier. Jack invests 30 to 40 percent of his money in fast growers, and stalwarts and cyclicals get 10 to 20 percent each. The remaining money goes into turnarounds.  

After you’ve designed your portfolio, you have to manage it. This means knowing when to buy or sell stocks.  

There are two periods that are great for buying stocks at bargain prices. The first is between October and December. This is when many investors sell stocks to avoid paying high taxes, or to get rid of stocks that aren’t performing well. Another time that’s good for bargain hunting is during any stock market crashes. Buying at this time pays off when the market recovers. 

Price drops are great indicators of when to purchase stocks, but not when to sell. Many people worry when a stock price drops or the economy stumbles. But as long as you still believe that the stock you hold is a promising investment, there’s no reason to sell. The last thing you want to do is watch a stock price go up after you’ve sold it! Only sell if the company is performing poorly and there’s no indication that things will improve. If that happens, take the money out and reinvest it in something more promising. 

With options and shorts, the risk is far greater than the reward. 

If you’ve spent enough time looking into the world of stocks and investments, chances are you’ve come across options and shorts. You might have even heard people say that they’re good alternatives to buying traditional stocks. 

But the odds of success in these ventures are actually terrible – so much so, that you’re better off gambling in a casino, or betting on racehorses. 

Let’s start with options. When you buy an option, you pay for the right to purchase a stock at a predetermined price, on a certain date. Essentially, you’re placing a bet that the stock’s value will increase before your deadline comes. In an ideal world, that should allow you to buy at a discount, and then sell for profit.  

Now, an option only gives you the right to buy a stock for a limited period of time, usually a month or two. And this deadline can come before you see the desired change in stock prices. So if you want to retain your right to buy the stock, you have to fork out more money for a new contract. If you do this repeatedly, it all becomes expensive. 

So options are not ideal. But perhaps you could benefit from the other instrument available to investors – shorts? They are, quite simply, a bet that a stock’s price will drop, not rise.  

Here’s how it works: you borrow stocks from an investor and then sell them to someone else. Then, you buy the same stocks at a cheaper price, give them back to the original owner, and pocket the difference. It’s a bit like borrowing your neighbor’s lawn mower, selling it, then buying a replacement mower at a discount, and returning that to your neighbor.  

How can shorting go wrong? Well, so long as you’re keeping the borrowed stocks, you remain responsible for paying any dividends or benefits. And you can only spend the profits after you’ve returned the stock.  

But the biggest risk is that the stock price might actually increase. The higher the price climbs, the worse off you are – remember that you must buy the stocks back before you can return them to the original owner. Not only can this lead to major financial losses, but it can also put you in debt. 

Professional investors don’t necessarily have the upper hand. They focus mostly on the stocks that are solid bets, and this means they miss the chance to invest in new, fast-growing companies. By paying attention to what’s happening in your industry and what people are buying, you can identify these fast-growing companies and invest while the stocks are relatively cheap. After you’ve invested, keep an eye on the company’s earnings, and monitor any plans to boost them. As long as the company’s prospects look good, you should refrain from selling your stocks. Lastly, resist the temptation to invest in shorts and options. They might seem like quick wins, but, in reality, you stand to lose a lot of money – very quickly! 

Action plan: Summarize what you know about a stock in two minutes. 

After you’ve identified a company you’d like to invest in and you’ve done all the research, stop. Describe all your findings in a two-minute monologue. The purpose is to make sure that you understand the situation completely. The monologue should include why you want to invest in a particular company, what it will take for it to succeed, and what hurdles stand in its way. If you can explain all this to another person in two minutes, and that person understands you, then you know what you’re getting into and you’re ready to invest.