|Stocks & Mutual Fund Information|
Trading Education: The Best of Both Worlds!
I made my very first investment in the stock market when I was ten years old. Ever since then I have been hooked! Now I check out hundreds of trades each year with the same excitement andenthusiasm, and each time try to find that one market at the right time that could dramatically create wealth.
If you would've been fortunate enough to invest $1,000 in Microsoft when it first came public, that initial investment would be worth close to $300,000 today. In the last 10 years America Online has been up 12,000% and it has come creashing lower as well! Although statistics like this are advocated regularly by journalists and brokers the majority of investors have a very difficult time staying in an investment for that long of a period of time even though they know they are in a good company The financial markets are a never ending source of temptation trying to lure you into a new position with each passing second. The belief that the grass is always greener in another market is a distraction that every investor eventually has to contend with. Even if you are a MUTUAL FUND investor the fact is that you are always looking for the BEST return available.
Years ago when I worked as a broker I was confronted with this dilemma. One of my clients told me that he knew the BIG MONEY was made in holding on for the LONG TERM but that he liked trading the short term swings. He asked my advice and I had to think long and hard for several days before I could respond.
Eventually, I presented him with the following strategy that literally combines the best of the TRADER and INVESTOR worlds. Traders are looking for the quick hit and run. Investors seek their advantage by looking at the long term. Long term investors quite often benefit from allowing dividends to be reinvested into purchasing more stock in the company and the very real possibility of the stock splitting in the future. If you combine both of these apparently opposite perspectives you end up with a very unique viewpoint that eliminates a lot of stress associated with decision making. This strategy will bring home the perspective that within every seed that you plant in the financial markets lies the promise of ten thousand forests. I refer to it as my FOREST STRATEGY! It is another way to make your short term efforts as a trader pay you dividends by also recognizing the importance and significance of long term investing.
Let's say that your initial investing capital is $10,000. 1) Find a company, preferably in the Standard and Poors 500 Index that you understand and are familiar with. If you want to narrow down your group you can select companies that are in the Dow Jones Industrial Average which include only 30 stocks. These are established companies with long financial histories that can be researched to your hearts delight.
2) Study the companies Price Earnings Ratio. Where is the Price Earnings ratio now? What has been The highest and lowest points of the price earnings ratio over the last five years? Look to buy a company with a historically low price earnings ratio that is a leader in its industry. Use the Price Earnings Ratio as a guide. Don't try to pick bottoms. 3) Look at a chart of prices to see what has happened recently and to determine where a good buy point is.
4) Place your trade with the intention of a 10% profit objective. Once you reach your profit objective, sell enough shares in the company to remove your initial $10,000 investment and only leave your $1,000 profit in that stock.
5) Repeat steps 1-3 as you search for another company to trade for a 10% profit and plant the Remainder for the long term.
6) Repeat, Repeat, Repeat.
The drawback on this type of trading is that when you are with a great company you do give up a lot of upside. However, if you look at the PROBABILITIES how many IBM's, Aol's, Yahoos! Or Microsofts are there out there in relation to the entire universe of stocks? What I personally like about this style of trading is that it eliminates the GREED factor that most investors have of trying to hold on for the top tick. Secondly it also allows you to build a nice diversified portfolio. Thirdly, trading becomes a very fun game with potentially lucrative long term implications. It is very possible to trade this way once a month planting a seed in a quality company that can easily become a Forest of Wealth for you.
Some trades might take the better part of a year to pan out. Some trades might achieve your profit objective in a matter of weeks or days if you are really fortunate.. Keep in mind that you still have to manage your risk on each and every trade. Let me be perfectly blunt, if you don't manage your downside there will not be an UPSIDE... It is acceptable to use any of the RISK Management Techniques that I advocate by doing Partial Covered Calls and other Option Selling Techniques. When done correctly those techniques can dramatically accelerate your returns.
I must admit that I truly enjoy this type of trading. (My broker likes it as well as it generates many more commissions for him.) However, part of the reason that this method sits well with me is that I hardly pay any attention at all to my profits after I take them. It becomes very stress free to know that you have increased your wealth 10% and are just interested in planting seeds all over the financial landscape in companies that meet your criteria. I must however stress the point that you make sure that you are aware of the downside. This method is by no means RISK FREE....but for the individual who likes to trade and invest simultaneously it truly is ideal.
Guard your investment principal at all costs and let your profits run. Just one more way to look at the bigger picture. Kind of like a Johnny Appleseed meets the financial markets. Many extremely successful investors do this with Initial Public Offerings as well. Study away.and remember,let's be careful out there.
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies. His goal in life is to become the kind of person that his dog already thinks he is. http://www.eOptionsTrader.com.
A Funny Thing Happened on the Way to the Stock Market
On the 40 year journey through the turmoil of a volatile stock market I've noticed "P/E Ratios," "Consensus Estimates," " Bull and Bear Markets," stock ratings of 1, 2, 3, 4, 5, star ratings of 1, 2, 3, 4, 5. Also, stock ratings of "buy," "strong buy," "sell," "hold;" stock rankings of "market perform," "market outperform," "market underperform," "market underweight," "market overweight," "market equalweight," and "market neutral."
Dont Buy Stocks based on P/E Ratio alone
I use the P/E ratio as a secondary indicator for buying and selling stocks but I don't use the ratio in the same a manner as many value investors teach. I will explain the difference in my methodology for using the P/E ratio to your advantage.
Overvalued & Underbought
With all the bad news that has been dumped upon the economy for some reason the stock market is going up. Why?
Which Way The Market
I am hearing predictions by brokers, financial planners, talk show hosts and the talking heads on TV that the market is going back to its old highs - DOW 11,700 and NASDAQ 5000 here we come.
Hill of Hope
Just about now everyone is confused as to which way the stock market is going to go - up or down. For the past 3 years it has been headed south, but the Wall Street experts have told us that the market never goes down 4 years in a row so this has to be an up year. But no guarantees.
The Cub; II
We keep hearing about this bear market and that the bottom is "in" or "very close" so we should be invested in these bargain basement prices to take advantage of the next bull so we won't lose out on the expected huge profits.
During the month of January the Dow Jones Industrial Average, usually referred to as the DOW, had an almost 1,000 point range, most of it down and the average investor has yawned and said 'so what, this has happened many times before'.
Advisory News Letters
Several times each month I am solicited by various market touts who have a newsletter service, faxes or emails they are willing to send me to make me rich. That sure is nice of them.
Stock Market Diversification
In one of my previous articles (Investing in the stock market -9 powerful tips), tip number one was:
Are you one of those many people who dread reading their 401K statements? You have been watching it decline for about 2 years and are wondering if will ever stop. Just about everyone says the market will come back. Brokers say you are in for the long haul so don't worry. Any account that drops to a 50% loss has to go up 100% to get "even" and that is a very difficult phenomenon. If you have an 80% loss as has already occurred in the Nasdaq you would need a 400% rally to get "even". At 90% you have to see a 900% rise to that mythical "even".
A Triple Dipper: How to Make 3 Profits on 1 Stock Trade
This is a rather simple strategy with which I am sure a lot of seasoned traders are very familiar, possibly under some other name with which I am not familiar. I wanted to write about it because I don't see anyone talking about it anymore. Since the big hey-days of day trading and, of course, the burst of the Internet bubble of 2000, there seems to be a lack of patience that this strategy needs to work.
The stock market has been in an up trend for more than a year. Almost everyone is feeling good and many believe we are back in the old bull market with the previous high of the Dow Jones Industrial Average just about to be broken.
Everything you invest in has risk so you want to do your research before you put your money on the line.
Online Investing & Online Stock & Share Trading: Difficulty in Taking Stop Losses in the Market
This is an extract of an article which was first printed in Daryl Guppy's Newsletter Tutorials in Applied Technical Analysis on 26 March 2005 and is reprinted here with his permission
Basics of Stock Market
Financial markets provide their participants with the most favorable conditions for purchase/sale of financial instruments they have inside. Their major functions are: guaranteeing liquidity, forming assets prices within establishing proposition and demand and decreasing of operational expenses, incurred by the participants of the market.
Making a Stock Watch List
I am taking the time to help others learn the basics in evaluating stocks for investment using both fundamental and technical analysis. Both tools are equally important in making serious decisions with your hard earned CASH!
Even if you don't own any of their stock or any stock at all you will want to read this.
The spring-loaded rat catcher is the ultimate low-tech device invented more than 100 years ago and remains the best demouser in the world. It is so simple anyone can master it and best of all you can keep on using it year in and year out. It always works.
VooDoo Training For the Stock Market
If you go to Haiti or other places in the Caribbean you may run into the Voodoo tradition of magic. There are long and mostly noisy rituals with the medicine man spouting words that bring great power and conjure up whatever it is the supplicant desires. Great amounts of smoke and mirrors.
You have a lock on your house. You have a lock on your car. You have a lock on your tool shed. Do you have a lock to protect your stock market investments?
|home | site map|