Investing on a hunch, good idea or not?

Investing on a hunch can be a very good idea, but often can be a very bad idea for your portfolio.As you manage your portfolio, you will want to do a lot of research and will want to study the market.Your efforts will pay off and you will begin to see companies and investments that look like good places to invest.Some will be, and others will not.The question you have to ask yourself is how you make your decision on which companies to invest in.

A hunch can be a good thing sometimes, but you will always want to verify as much information as you can.Some people felt good about Sam Walton and invested in his company when he got started.They are now multimillionaires for following their hunch.However, there are many more people who can tell the exact opposite because they lost everything in the dot com rise and fall.If you have a hunch, do your research before investing.

Many analysts advise that you invest in areas of the market that you know.For instance, if you work in the oil industry, you will do better investing in that area than you would investing in retail companies.If you are in the computer industry, you will probably want to invest in similar companies.If you invest in companies that you know nothing about, it is harder for you to see the industry turning south.The people in the computer industry understood well that the bubble would eventually burst in the dot com era.

If you invest in your area of expertise, this is where you hunches will be more valuable.For instance, if you work in the computer industry, you probably understand that storage devices continue to get cheaper, but people also use more and more memory each day.Hence, you should be able to see that investing in companies that are on the leading edge of memory technology would be a very good move.Therefore, you can follow your hunch because it is made of facts instead of just pure speculation.

On the other hand, you may have a hunch that space exploration will pay big dividends in the future, but you don't have any evidence of this.You should probably not follow this type of a hunch.Too many decisions based on these types of hunches could be devastating for your portfolio.

You will not want to wait until you have a sure thing either.All investments have an element of risk.If you could guarantee an investment that had now risk, everybody would be buying.One of the safest investments out there is the federal treasury bond.However, it does not provide you with the best return either.You will need to balance your risk and your potential for gain when making your investment decisions.

Additionally, timeliness in investing is very important.You will not have an infinite amount of time to do research before deciding on an investment.You should find a good balance of information and then make a decision.Don't get pressured into acting too quickly, but as you gain experience you will be able to see which investments have better opportunities than others.

In summary, most of your investment decisions will be based partly on a hunch.You can't have a perfect knowledge of what the investment will be doing in the future so you are taking a guess or going on a hunch.However, by doing the proper research and due diligence, you can minimize your risk and back up your hunch with evidence.Going purely on hunches could be very costly for your portfolio.