Choosing the best oil stocks to invest in requires understanding the forces that affect oil prices and personal investing style. Established oil companies offer slow growth but higher safety, while penny stocks offer higher risk and quick profit potential. Careful research is necessary for any investment in oil stocks.
Trading oil shares on the stock market is a common option for investors. Choosing the best oil stocks to invest in is the product of knowing your personal investing style, careful research, and a lot of luck. To decide which oil stocks have the best chance of maximizing your gains, it’s vital that you understand the forces that affect the price of oil and how to use this knowledge to guide your stock purchases.
There are advantages and disadvantages to investing in oil, and sometimes what appears to be a disadvantage could also be a positive side to this type of investment. The volatility of oil share prices in the stock market is an example of this pro/con issue. The price of oil is controlled by the same economic laws of supply and demand that control all pricing paradigms. When oil stocks rapidly inflate or deflate in price, an investor can either make a lot of money or go broke. Depending on his personal investing style, this volatility in the oil price could be his biggest asset or his biggest headache.
For those who prefer a slow growth rate for their investment, with a higher margin of safety, buying oil stocks from companies with an established track record of performance is often the safest option. Although any investment will put the investor’s money at risk, these established oil companies have demonstrated stability and longevity in the oil industry. If you want to invest in oil stocks without having to stay at your computer watching stock market broadcasts all day, this type of oil stock is probably your best bet.
If your investing style is a little more downbeat and dirty, with the ability to take higher risk for a quick profit, a different type of oil holding, the so-called penny, might be to your liking. Nicknamed “penny stocks” for their low issue prices, these oil stocks represent a great opportunity for the investor. An investment of a few hundred US dollars could buy several thousand oil shares in one of these companies instead of just a few shares in one of the more established oil companies.
Unfortunately, oil stocks that fall into the penny stock category are usually issued by new oil companies with little to no proven success. When these companies do well, your small investment to buy a few thousand shares can turn into a gold mine. The reverse is also true, however, and you may find yourself sitting on several thousand worthless oil shares if the company files for bankruptcy while you’re out for lunch.
In any type of investment in oil stocks, it is vital that you carefully research the company in which you intend to invest. Read all of the information provided in the prospectus statements and news about the oil company in which you are considering buying oil stock to ensure that the company is within the confines of your personal investing comfort zone. By doing so, you can choose the best oil stocks for your investment strategy.
Smart Asset.
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