Am I the only one that buys stocks only to watch them go down the next couple of days? It seems that 90% of the stocks I buy go down right after I buy them. It's almost as if my buy order signals the stocks to go down! Now I am pretty sure that I must be experiencing selective memory but it does seem that way nevertheless.
If you are going to learn to invest your money in the stock market, one thing you have to be prepared for is that you will have losses. You will make bad stock picks and you will be wrong some of the time. It doesn't matter whether you are picking your own stocks or whether you are taking the advice of a professional, you will have stocks that are losers sooner or later.
The good investor will learn how to minimize those losses by getting out before too much damage is done but he also knows when to buy back in. The good investor will also be able to pick more winners than losers and learn how to negotiate the ups and downs of the market for a lifetime of smart investing.
One way you can lose money is by doing a lot of panic selling. Some investors hate to see their stocks go down and once it seems like that is the way a stock is going, they sell it. Selling isn't always bad of course, but if you are doing it all the time based purely on emotion because you are scared, you will find it very hard to make money in stocks. You should usually be buying and selling stocks based on a stock's fundamentals and the future you see that company having.
2008 was an awful year in stocks and a lot of people lost a lot of money. The same thing could be said right after 9/11 when the market went down fast because of fear and panic. Now, anyone who sold during those times when the market was plummeting did avoid further losses and that is good for some people. But if you kept your money in after 9/11 you got it all back several years later and a lot more.
The same thing will probably be said about the Dow going from 14,000 down to 7,000 in 2008: if you left all your money in you have gotten a lot of it back as of today and will most likely get all of it back, eventually. That is if you have the time to wait.
Panic selling and selling based on fear means that you are most likely afraid to buy back into the market. You are often paralyzed and your money will be out of the market too often. It is a fine line between being out of the market based on what you see happening with the economy or a stock and being out of the market just because you are scared.
When you invest in stocks, you have to be prepared to withstand some losses and be alright with the fact that your stocks may not go up the second you buy them. You also have to know that some of your picks will be bad ones. The good investor will be able to recognize the bad picks based on what is happening with the company or economy that turned the pick from a good one to a bad one.
STOCK INVESTORS SHOULD BE PREPARED TO BE WRONG
STOCKS GO UP, DOWN, UP, DOWN
Things seem to have stalled here lately in the stock market and we are seeing it go up one day and then right back down the next. You can see what I mean by looking at the 1 month chart of the Dow below:
There are many reasons for this up and down movement but what it probably signals the most is that investors are getting a little nervous. The market has moved up very steadily for about a year now all the way from it's low last year of just under 7,000 to over 11,200 a day or two ago. When the stock market continually goes up and back down for a period of time like it has it can mean that the steam has run out of the rally and investors are really torn at what to do. When people are selling one day, buying the next, and then selling the day after, it can mean there is a lot of confused people out there and a lot of differing opinions.
You can read Jim Jubak's opinion of the matter where he likens it from the mood changing from a half full glass outlook to a glass half empty outlook. Stocks just don't keep going up forever and there is always something around the corner that can stall momentum. The financial shenanigans in Greece seem to have helped make investors very nervous in a market that was already very high.
Why do stocks go up one day and down the next? Well, as I have written about before, the market moves on people's perceptions of what is happening and what they think will happen. It is all about whether people see positive or negative things in the future and right now it looks like there is possibly more negative than positive out there.
The Obama administration has this country in more debt than most people realize and that could become very troublesome down the line. If foreign investors start pulling out of America and don't buy up our ever increasing debt, where will that leave us? No stock market can withstand something like that.
This Stock Market For Dummies blog wonders whether it might be time to start selling a stock or two just in case? Maybe it is time to move some money out of stocks and put it into something safer for a while? The problem is that once you sell and get out it is very difficult to figure out when to buy back in again. However, maybe some safety is a good direction to go right now?
INVESTING FOR DUMMIES - AN OVERVIEW
The stock market is just one of many places where you can invest your money. Other investment options people commonly use are bonds, savings accounts, money market accounts, treasury bills, gold, silver, and I am sure there are many more. Every one of those investment vehicles has a different level of risk and which one(s) you use should depend on your individual situation and goals.
Investing in the stock market over the long term has, for many years, been recommended by experts as the place you can get the greatest return. Take note that this is over the long term only as it is agreed that stocks can be very risky if you have a short investment time horizon. We have all seen first hand evidence of this as the market started going down steeply in 2007 and didn't rebound until the beginning of 2009. Many people lost a lot of money during that time and many lives were changed for the worse.
Here in 2010, if you want to invest your money safely with little risk you will not be able to make much more than 1%. Interest rates are very low and they pretty much have nowhere to go but up from here. However, there is no indication when things will begin to change as there is financial turmoil across the country. It is likely that interest rates will remain low all this year.
Bank certificate of deposites (CD's) and treasury bills are the two most common ways to invest the money you have sitting around that you want to earn interest on. Savings accounts and money market accounts also pay interest buy usually a lower percentage. You can also buy bonds and sometimes do better with those.
Gold and silver have done very well in the last dozen years or so. People buy these metals for different reasons: some buy them as investments and others buy them as a form of insurance. Both gold and silver are thought to be hedges against uncertainty and thus a form of insurance during difficult times such as we are having now. People who buy them with insurance in mind do not care too much whether they go up in value and are hoping they can just retain their value. Gold and silver have never gone to zero in value and most likely never will.
Other people like to buy these metals for investments in hopes that they will keep going up in value. Anyone who has invested in either silver or gold in the last 5 years have done very well as they are both near their historical highs.
The stock market is the place where most people invest their money with the hopes of making the most in return. The stock market has historically outperformed all other forms of investments when looked at on a long term chart. However, you should never invest money in stocks that you know you will need soon.
You can make money in the stock market by buying stocks of individual companies yourself through a stock broker or you can buy baskets of stocks known as funds that are managed by a professional. Choosing which stocks to buy and then figuring out when to sell them is something that can take a lifetime to master. For this reason, many people favor and recommend you buy funds so that someone who is qualified can make the decisions. There is a fee for most funds though, and that is another expense that you have take into account.
You will owe taxes on any money you make from any of your investments. Whether you make interest income, dividend income, or profit from the sale of stocks you will owe taxes on that money to the United States government. If you make in the thousands of dollars this may require you to send in money on a quarterly basis otherwise you will incur late charges that can be quite steep. The US governement (and all governments) always want their share of any money you make.
If you feel you are in the "investing for dummies" category, note that learning how to manage money is not something that is learned overnight. It takes time to learn what all your options are and what risks you feel comfortable taking. It is important that you take only the amount of risk that allows you to sleep well at night. Your money is hard earned and if you don't feel comfortable taking risks to try to get bigger returns, that is OK. Investing is a personal issue and there is no formula that is right for everyone.
WHAT STOCKS TO BUY WHEN THE MARKET IS LOW
The stock market is going up and down now like a yo-yo on an hourly basis. Right now is not the time to buy stocks as everything is just too uncertain. The way things are right now, the market can easily go up or down 500 or more points any day and that is just too risky to be buying stocks.
Around October 23rd is when the financial and insurance companies are going to know for sure how much of the Lehman brothers 400 billion they are individually going to be responsible for. At that time, there will be a little more certainty and a rally might be in sight. The market often rallies at the end of October as well so that looks like the time with the best chance to get a rally.
What stocks do you buy if a rally occurs and do you hold them long or short term? Unfortunately, if we get a 20% or so bounce there are going to be a lot of sellers as there are many people right now that would gladly sell many of their stocks right now for 20% more than they are worth. So short term might be the way to go.
But as for what stocks to buy when the market is low is anybody's call. Maybe you should look at some of the stock picker ads and find out what the experts are saying. Whatever they say, they could be wrong or they could be right.
HOW TO FIND HOT STOCKS FOR DUMMIES
How do you find hot stocks? Or do you even try? The problem with the stock market is that everyone has an opinion. There are several channels on cable TV now that are devoted just to business and they continually have segments on where they interview analysts. These stock analysts always have their hot stock picks, tips, and market predictions and they can sound so very convincing. Stock market beginners will easily get sucked in with all this positivity.
Many times when you watch FOX Business or MS NBC, the stock gurus are asked about a list of stocks. It seems that very rarely do these "experts" say that you should sell a stock or not buy it. If you listen to these guys on a daily basis you will get the impression that the stock market is always just about ready to soar. Of course there are exceptions and not every analyst is that way but in my opinion most of them are usually positive in their stock market predictions.
Why are these stock experts, hedge fund managers, and guest hosts always so positive about stocks and the stock market? It is like they are pitchmen for the Dow and NASDAQ and trying to sell a product. In their case the product is the stock market and they want you to get involved and start buying stocks. If they can continually paint stocks in a positive light then there will be more business for them from all the stock market dummies.
If you are a beginner and want to learn how to buy stocks and how the stock market works, perhaps it is best not to listen to these financial shows that tout theirs stock tips of the day and hot stocks ready to soar. If you listen to these stock gurus all the time, you may get the idea that it is easy to make money in stocks. If you pick the right stocks and have good market timing it is, but not many can do that and especially someone who is in the stock market for beginners.
HOW TO HANDLE BIG STOCK MARKET LOSSES
Right now, anyone who is in the stock market might be sitting on some big losses. In fact. probably almost everyone who owns individual stocks or is in mutual funds has huge losses right now in 2008. This is a big barrier for stock market beginners and dummies and it makes them wonder whether the stock market is worth learning. If you have all your money in an IRA then you will have the same big losses but at least you wont have to mess around with your taxes yet.
There is a $3000 maximum loss that you can declare every year on your taxes for stocks. $3000 is hardly anything in today's economy and so most people are going to have to carry over their losses for many years to come. What a pain in the ass....thanks, you slimey polititions in Washington.
Everyday lately I sign on to my computer to see how much I lost that day. It used to be how much I made, then it went to maybe I made money or maybe I lost, and now it is always how much I lost everyday in stocks. Huge stock market losses are enough to make people sick and it is hard to put everything into perspective.
How do you deal with losing a months pay in one day in the stock market? Depending how much money you have in the stock market, there may be days where you lose way more than a day's pay. Everyone is always trying to find the hot stock and there are always stock market gurus and analysts who will sell you their "hot stocks of the day". When the market is down big like it is now though, there aren't a whole lot of super hot stocks. Everyone is losing money.
In order to deal with huge losses in stocks, one really has to learn how to compartmentalize things. The stock market is the stock market, work is work, your family is your family, life is life, etc. They are not related. Also a little recession humor goes a long way to with helping out your disposition. If you are properly diversified then these big stock market losses will not effect you as much. Everyone needs to learn how to diversify, especially stock market beginners.
WHAT STOCKS ARE SET TO EXPLODE?
Are you trying to find stocks that are ready to explode? The stock market is way down right now and anyone who can figure out which stocks to buy today may make a nice gain. History shows that buying stocks when they are at their lows is the real way to make money in the stock market.
How do you figure out which stocks are set to explode? One way is this free offer Get free stock alerts from Jim Cramer at TheStreet.com. You can gain full access to Jim Cramer's $3 MM Personal Portfolio — and you will be emailed before he makes a trade!
Managing money is hard especially for stock market beginners. But, Jim Cramer is so committed to helping people learn that he created a charitable trust portfolio to show investors how and why he makes trades. For over 10 years Jim Cramer was a successful hedge fund manager and now he writes for RealMoney.com. Over the years he has developed a strict set of investing disciplines that have helped all kinds of people be successful through any market.
If you want to know what stocks a real pro is going to buy before he does it, this offer is for you. You can get a 14 day free trial and now is the time to sign up to see how Jim Cramer is going to take advantage of this stock market panic to make money. This is where the real stock market professionals separate themselves from the stock market for beginners. This is where the real investors make their stock market fortunes at times where the stock market is tanking. You need to know what they are buying right now that will explode later for nice double digit gains.
STOCK DIVERSIFICATION FOR BEGINNERS
Over the past several decades, people on Wall Street have preached the virtues of stock diversification, drilling it into the minds of every investor within earshot. Even stock market beginners or dummies have heard about diversification. Everyone from the CEO to the delivery boy knows that you shouldn't keep all your eggs in one basket - but there's much more to it than that. You shouldn't go on financial tips alone...you need to diversify and study your options.
The concept of "don't put all your eggs in one basket" is a wise one for those who are unable or unwilling to evaluate the attractiveness of investment opportunities. But as it happens, excessive diversification presents a serious hurdle to wealth building.
There undoubtedly is less risk in holding a concentrated portfolio of well researched investments than holding so many stocks your returns are bound to be nothing more than average. The ideal portfolio size, depending on your net wealth, may be between 5 and 20 stocks. It is better to have a smaller group of well researched and understood stocks than it is to have a sizable laundry list of all the popular companies. For it is much easier to find 5 exceptional opportunities than 25.
