Beginner Investors Should Start By Buying SPY Or VTI

For most people exploring the stock market for the first time, it is probably best that they steer clear of individual stocks. It takes time and effort to pick the companies that you think will do well in future years. In addition to that, it takes more time to monitor how your stock picks are doing. You will need to periodically evaluate whether things have gotten worse or better for the companies you choose and figure out whether you should continue to hold or perhaps sell.

In other words, learning how to successfully invest your money in the stock market by buying and selling individual stocks takes commitment and is something that is learned over years, not weeks or months.

Is There A Better Way?

I suggest a better, safer, and easier way for beginners to get started: just invest in the whole market which you can do by buying either the SPY or VTI exchange traded funds (ETF). 

ETF's are traded just like individual stocks: you can buy or sell any amount of shares at any time the market is open. They cost the same to trade as a stock (there are no hidden fees like mutual funds) and give you exposure to many stocks all under one ticker symbol.

1) SPY closely tracks the S&P 500 index which is many/most of the big companies in the United States. In other words, when the market goes down so does SPY. And similarly, when the market goes up, so does SPY.

2) VTI is another ETF that closely mirrors the market. It trades just like a stock and is super easy to buy and sell.

ETF's Are Best For Beginners

These are just a couple of the ETF's you can find that mirror the market or mirror part of the market. ETF's have become so popular that there are many to choose from and you can find a lot more with just a little research. But the important thing to understand is that you get exposure to the stock market without having to fret over what individual stocks to buy. You also get instant diversity that you don't get when you buy only individual stocks.

Beginners have a lot to learn when entering the world of stocks and can often get intimidated. This leads to many potential investors quitting before they ever get started. By buying a market tracking ETF, you get a simple and trustworthy way to put your money to work in the stock market without getting sidetracked and overwhelmed. Oh, by the way, Warren Buffett (legendary investor) also recommends ETF's over individual stocks for most investors.

Trump Will Be A Disaster For Stocks! Wait, Let Me Change My Mind

To most everyone's surprise Donald Trump won the election and will be the next president of the United States. The stock market clearly wanted Hillary Clinton to win as you can find an endless number of articles online detailing why Trump would/will be a disaster for the markets.

During the most tense hours of election night, when it was becoming clear that Trump had the upper hand and would likely win, the stock futures were down a solid 5%. That meant that the next morning every stock investor would likely wake up to a portfolio that was significantly smaller than when they went to bed.

But sometime during the rest of the night and early morning, investors started to rethink things and decided that maybe things weren't really as bad as first imagined. Maybe, just maybe, a Trump presidency might NOT be the end of the world after all.

What happened to change people's minds?

1) I think first of all, people started to remember Brexit which happened less than five months ago. While the stock market did dive deeply on that news, it only took a couple of days for things to shoot back up and normalize. Since then, the Brexit fear mongering news has completely died down and is hardly in our conscious anymore. There still might be some tough times ahead for the UK as things unwind and the fallout from the decision to break away becomes more clear but, so far at least, Brexit has clearly NOT been the disaster that so many people predicted.

2) Investors also began to realize that Trump is a businessman, is generally pro-business, and may in fact enact a lot of changes that will actually be good for business. We've tried eight years of Obama and that hasn't turned out so well economically for much of middle class America. Investors probably started to understand that this is the first time in a long while that we are going to have a President that understands business and isn't a career politician.

3) Finally, while the market is forward looking, nothing Trump does will happen right away. It will be two months before he is in office and probably months after that before any significant changes are made. If they ever are made. It is likely that Candidate Trump was more harsh in his rhetoric than his actual policies will end up being. After all, during a campaign, politicians say anything to get elected but once in office they calm down and rarely follow through on their most divisive plans. This will probably be the case with President Trump as well.

The stock market is a crazy place where emotions can get the best of you very quickly. Its best to never trade on fear or panic and this time it seems investors got their emotions from election night under control the next day. That was a disappointment for me because I was hoping to do some buying on the morning of November 9th but stocks never went on sale like I hoped they would.

Are You Ready For Armageddon In The Markets?

This is one of the most negative periods sentiment wise I have ever seen. Every day there you can find news pieces in the financial sections outlining why someone else thinks the markets are going take a precipitous dive. We have the always negative Marc Faber predicting a 50% drop (Marc Faber Issues 50% Crash Warning on Stock Markets) and others telling you Why the Stock Market Could Be Headed for a 1987-like Crash.

Besides some quick spurts down and back up, the markets have gone up steadily from the beginning of 2009. For me, whenever the market is at all time highs, its easy to let my imagination take over and believe that things are too good and have to revert back to the mean. Its easy to see The Biggest 2016 Stock Market Crash Warning We've Seen Yet and believe it. Its easy to read about the 5 Fund Managers Expecting a Market Crash and start to get scared, which is what a lot of people are feeling now.

The word "crash" is being used A LOT now, instead of the word(s) "correction" or "pull back" that used to be bandied about. Corrections and pull backs are often thought of to be healthy for a stock market while a "crash" is, well, its a crash. Crashes are never good and UBS: Risk Of Bear Market, And Maybe Crash, Rising also thinks one may be coming our way.

If A Stock Market Crash Is Coming, These Ominous Technical Signs Reveal and there is No Clear Path To Avoiding The Bear, then what are investors to do? If you pull all your money out of the market just because a lot of pundits tell you to be scared, what if they are wrong? Then you will lose a lot of money trying to get back in at even higher prices. And if you decide to leave your money in and the market does crash, then you will lose a lot of money too.

Seems like either way you will potentially lose and that is the reason for all the tension on Wall Street. There are a lot of investors out there that are scratching their heads trying to figure out what to do or not do during this historically ugly month of September for stocks.

This HAS To Be The Top Of The Market!

The stock market can make fools out of investors. Just when you are sure that things can only get worse, the market will reverse and head back up. That is why trying to time the market is so difficult and most people who try it end up losing or severely underperforming.

Many times in my life I have thought the market was at its top. Its easy to get worried about the economy, political events, terrorism, and a host of other things. Those can all cloud your view on the future and make it easy to believe that the stock market will head down. "How on earth can things get better?" "Surely there will be a multi-year depression or recession." Thoughts like that can lead you to prematurely sell your stocks which may result in losses or at least severely underperforming the market.

For more than 100 years, as the humorous chart below depicts, just holding and staying the course would have gotten the job done: (Click on it for a better and bigger view)

Holding on to stocks when the market is tanking is one of the hardest things an investor can do. After 30 years I still fail to do it all the time. Its just too easy to get swept up in the negativity and when your dark imagination takes over, selling seems like the smart thing to do.

But when the market stabilizes and I fail to recognize it and fail to buy back in, thats when I feel silly and know I have made a mistake. Some experts recommend only looking at your stocks periodically (every month or every quarter) in an effort to suppress that urge to sell. If you spend less time monitoring your stocks, the thinking is that you won't be as tempted to sell.

The chart above shows that buy and hold has worked for more than 100 years. Yet many will have you believe that you need to be an active trader to make money in stocks. But the simple truth is that the longer a time period you have to invest, the greater your chance of outlasting any protracted downturn....if you can resist selling when everyone else is panicking. Its extremely hard to stick with the "buy and hold" strategy but it is something that you should get better at if you are young and have many years ahead of you.

Outrageous Titles Are Now The Norm In Finance Journalism

As more and more people turn to the Internet for their business and investing news, the fight for eyeballs has become intense. The most popular places to find news about your favorite stocks are websites such as Seeking Alpha, Motley Fool, Business Insider, TheStreet, Forbes, Barron's, and The Wall Street Journal. You can add in a handful of others but in total, there are probably between 10 to 15 websites that pump out hourly stories on any and every stock that might be of interest.

Wth such a competitive environment for your attention, writers have figured out that the more outrageous and provocative they can make their article titles, the more click throughs they can get from readers. And you should know that many of these writers either get paid solely based on how many clicks their articles get or on some sort of combination of base salary plus clicks. The bottom line is that they want you to click on their articles, no matter what and in some/many cases are willing to put suspect titles up just to entice you to do it.

Here is a sampling of a few articles with titles that are nothing more than click bait:

4 Stocks That could Make You Rich
Apple: Is iPhone 7 Already Doomed?
Is Apple Truly Rotten To The Core?
Why Snapchat Will Take Over The World

In each case, the title is just plain silly and pure sensationalism. Of course, that is the plan because such titles are hard to ignore and most likely get substantially more clicks than titles that are less provocative.

It must be remembered that what you read on the Internet, in most cases, is free and when you have so much free "information" to choose from much of it is going to be untrustworthy. Online journalism can hardly be called that anymore as it is often freelancers pumping out words on a page hoping to get clicks. You really need to consider the source now days and over time decide which publications have the more reliable and accurate writers. Anyone who does a lot of stock research online must pay particular attention to the source in order to decide what is worth paying attention to and what should be ignored.

A Silly Question I Get All The Time

The most common question I get goes something like this: How much money can I make buying and selling stocks?

You can substitute any individual stock in that question as well. In case you don’t know the answer, how much money you can make or lose buying stocks depends on 1) what stock(s) you buy, 2) what price you pay, 3) how many shares you buy, and 4) how much the stock(s) you buy go up or down during the time you own them.

If you can’t understand my answer then you are in trouble. I think it is safe to say that anyone asking such a question understands absolutely zero about the stock market should NOT even think about buying stocks until they learn what it is all about.

Unfortunately with the way the media portrays investing in stocks, beginners often come away believing that frequent trading is the best (and only?) way to make money in the market. From watching CNBC and other financial networks, novice investors might deduce that the correct way to “play” the market is to keep your money moving in and out constantly. But it isn't.

Buying and holding for more than a year not only reduces your tax rate on any gains you may have, it also prevents you from making knee jerk reactions and selling a stock whenever any bad news is announced. There are always instances when something good or bad happens to the companies whose stocks you own. You just simply can't expect to make money by trading individual stocks every time that happens.

For most investors, simply buying an ETF (Exchange Traded Fund) that mirrors the market is probably the best way to put their money to work. Bought and sold just like a stock, ETFs are easily traded and you can find a good summary of some of the main ones here. If you have money to invest, you might consider putting some of it into one or more of those ETFs every month. Buying consistently whether the market goes up or down insures that you have your money in at an average price that isn't too high. And keeping your money in those ETFs  over a long period will be a winning strategy as long as the overall market goes up.

Don’t Sell Your Stocks First Thing In The Morning!

We’ve had some panicky days in the stock market in the last six months. Panic is contagious and when you see that ticker going down day after day, its easy to get caught up in all the negativity. It is understandable that you might decide to sell a stock or two but one thing you should try to avoid is selling first thing in the morning.

Evenings are when a lot of people come home, read or watch the news, look at their portfolios, and make decisions to sell. They often don’t have time to make such decisions at work or have time to execute the trade. That is why they do it in the evenings when the markets are closed. The overnight hours often see the sell orders pile up, especially in times of high market volatility and that will drive stock prices even lower in those first minutes of trading.

If you must input a trade while the market is closed, you might think of putting in a limit order. That way you will never find out later that your stock did sell like you wanted but at an alarmingly low price because of so many sell orders caused by panic in the opening minutes of the market being open.

The best example of this we have seen in a long while was August 24, 2015 when the Dow dropped a breathtaking 1100 points within five minutes of opening. Called a “flash crash” it was a real life example of how panic can get out of control and anyone who sold in that fist 30 minutes Monday morning lost more than they needed to as the market rebounded throughout the day to “only” lose about 500 points.

I used to sell right at the open just like I described above but don’t do it anymore, choosing instead to wait a while to see how things go in the opening hour. That way my sell orders don’t get caught up in any silly selling frenzy and cost me more money than need be.

Fitbit: Great Earnings + Bad Future Guidance = Stock Down 21%

Beginner stock investors often don't understand why a stock can go down after a company announces great earnings. It happens all the time and it has been happening a lot during this just completed earnings season.

For instance, Apple reported the best quarter in the HISTORY OF CAPITALISM last month and the stock went down! How can that be?

The reason is that investors care more about the future and less about the present and the past. A great example of this is Fitbit (FIT), the maker of wearable fitness devices and a new smartwatch called "Blaze". Fitbit has, by all accounts had a great Christmas quarter: its earnings beat analysts estimate by 45% and its revenue was up more than 92% from the year before. With numbers like that, you would think that the stock would jump up nicely in price the next day.

But in the end, investors only care about the future and on that front Fitbit might have a bit of a problem. Fitbit's guidance was substantially lower than those same analysts had projected and that alone caused the big 21% selloff. You see, who wants to buy into a company that might be slowing down or is projected to do worse than you had hoped? THAT is why the guidance numbers companies give during their earnings call are often more important than the actual numbers from the just completed quarter.

Fitbit is a good company with a some good products but the important question is whether fitness bands with limited functionality have staying power. The company makes a great fitness band but if you need more, is the Blaze enough to lure customers who might just decide to buy an Apple Watch or a Samsung Gear that can do a lot more? Maybe not and that is the concern of investors, especially since the Blaze looks like a cheap imitation of the Apple Watch.

2016: Lots Of Doubt And Pessimism For Stocks

2016 is here and we started the first day of trading with the biggest loss since 2008. At one point the Dow was down over 400 points before recovering slightly. Now as I write this on 1/5/2016 in the morning, the major markets are slightly in the red again as investors are obviously reluctant to step in and buy with conviction.

2016 is widely being reported as a year where the stock market is going to do much the same as it did in 2015. That means it is going to be volatile with sharp ups and downs and often lacking direction. The narrative being written right now from many sides is that 2016 will be another losing year.

Its never easy to make money in stocks and especially difficult with the whole market going down. The best way to invest from my perspective is to try to always pick companies with solid balance sheets and good products that people like to buy. Then hold those stocks no matter what the overall market does. You may not make money in that type of stock every year but over the long haul, that type of company will win out.

Years like 2015 and now perhaps 2016 will test your mental strength. Many investors just don't have the inner fortitude to hold on to their stocks when the market starts gyrating. The modern investor seems to focus more on short term gains and lacks the risk tolerance to stay strong when things don't go their way. That means the short term losses pile up and they get more involved in a guessing game that they are sure to lose.

Please do understand though, that buying stocks and holding them does take some work in today's quickly moving business environment. New industries and new ideas are constantly popping up that may challenge the companies you own. In other words, you don't want to be the investor who bought Kodak or Nokia only to find after sitting on the stock for 10 to 20 years that those companies are nearly bankrupt, both in ideas and in real dollars. You need to keep abreast of the industries and companies you own to make sure everything is going smoothly.

2016 probably won't be the year investors would like it to be and it may turn out to be one where a lot of defense is needed. But that means you might start searching for those companies that you think will do well in the next five years and see if you can pick up some of their stock at a discount, or at least at a price lower than they were selling for in 2015.