STOCK INVESTORS SHOULD BE PREPARED TO BE WRONG

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.

IS IT TOO LATE TO BUY APPLE (AAPL)?

Is now the time to buy Apple stock? Is it too late or should you buy some in anticipation of it going up more for Christmas? I bet thousands of stock investors are asking themselves that question right now and have been for months.

The time to buy AAPL in 2010 was about a month before the iPad came out on April 3rd. You can see in the chart below how the stock was going sideways until the beginning of March and from that point it went up fast. Some choppy waters during 4 months of uncertainty after that and then straight up again.

If you bought Apple stock before the iPad was released you were betting that it would be a hit. That is how people can make a lot of money in stocks very quickly: by being correct about things in the future. But if you bought AAPL before the iPad release and it was a bomb, you would have lost a lot of money so that is the risk.

Right now people are trying to figure out just how big the iPad is going to be. All the signs show that it will continue to be huge as Dell and other competitors are going to be coming out with their own tablets. Apple has also said that the 2nd generation of the iPad that will be released in 2011 will have a smaller screen.

The question is though, should you buy Apple stock here at it's all time high of 283? Or should you wait and hope to catch it at around 250? Will this Christmas be the Christmas of the iPad and see off the chart sales? If you wait to buy, it may never go down and continue straight up and you will never get in.

These are the questions stock market investors have to ask themselves all the time. Greed plays a big part in people's investing decisions and greed has probably played some part in Apple stock going as high as it has gone so fast. People just don't want to miss out and that means they keep bidding the stock higher!

An analyst at Kaufman Bros. has just come out with his new price target for AAPL of $374 which is almost $100 higher than where it closed today. This high number adds fuel to the fire and makes people want to get in now so they don't miss out. But at $283 there is a lot of room to fall and so the risk is there. If iPads don't sell as well as hoped this Christmas season, the stock may fall rather than go up.

So, it is your decision how much you have to have Apple stock. It is your decision whether you can risk missing out by waiting for it to go lower. And it is your decision whether you could stomach the loss you might have if something goes wrong and the stock stalls. Like all stocks in the market, every individual investor has to make up their own mind how much they are willing to risk and what to risk it on.

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.

ARE PENNY STOCKS FOR DUMMIES?

8/11/2010 Update: While I think penny stocks are risky, they continue to be of interest to many investors. I have found this Penny Stocks VIP newsletter that is 100% FREE to sign up for. All you have to do is enter your email and then click on the "confirm email" link when they email you. You will then be set up to receive their free VIP newsletter.

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For years, people have been fascinated with penny stocks and the idea of making money by investing in them. One reason is that because they are so low in price, anyone can afford them. But are penny stocks a real investment opportunity you should be looking at or is it one you should never get involved with?

There are many definitions of what constitutes a penny stock. Some people consider every stock that is under $3.00 to be one while others make the cutoff at $1.00. No matter what you deem to be a "penny stock" the important thing is that it costs very little for a reason.

Some people believe that all stocks start out as penny stocks and grow from there. They might get this ideas because of the stats on some stocks which include all the different times a stock has split. Big stocks like Microsoft may have split so many times that after that has been factored in, it looks like the stock was originally offered for just pennies or a few dollars. Seasoned investors know, however, that Microsft and other high fliers like it were never offered for such low prices and the opening cost was much higher. The adjusted stock price is something you should understand before you make incorrect conclusions.

There are several things that make penny stocks much riskier than other higher priced stocks. One of the things is that in most cases, stocks that only cost pennies or a dollar or two are that way for a reason. When you get down to such low valuations, there is usually a reason why they don't cost more and that reason is never a good one. This makes most penny stocks very risky to buy but they continue to get interest from beginners and certain sectors of the market because of the "potential" upside.

Something that is the case with many penny stocks is a lack of history and information. They are often listed on "pink sheets" and anything there is not required to file with the SEC. This means you will be buying penny stocks without the usual scrutinization and regulation that is associated with regular stocks on the NYSE and Nasdaq. Of course even with regulation, things can go very wrong with any stock you buy as evidenced in recent years by stocks such as Enron that have gone bankrupt and lost investors millions. However, buying penny stocks can mean taking an unnecessary risk on something you know very little about. That is truly the stock market for dummies you might say.

Another problem with buying penny stocks for beginners is that with any stock priced so low, there is a lack of liquidity. This means that you may have trouble selling your stock because there are not enough buyers. Penny stocks are something that you should really understand before you get into them and you should only do it with money you have to lose. Too often, young investors who don't have much money choose to take shots at penny stocks just because they are cheap and they hope to find the next Dell or Google and end up losing their money.

STOCK INVESTING IN 2010 - GREEN LIGHT AHEAD?

This is the last post of 2009 for this stock market for dummies blog and we have seen a very good year for anyone who bought stock this year. After a horrendous 2008, the market bounced back to settle in at over 10,000 once again. Will there be more good things to come next year?

As the job situation and economy is really not much better than it was a year ago, one has to wonder whether stocks have gotten ahead of themselves a bit. When and if people start to realize they are paying higher taxes, the unemployment rate is still around 10%, and the prospects for a quick turn around under Obama isn't happening, it seems the stock market may slow down and even turn back around.

Having gone up so much in 2009, it might be a good thing to become a cautious investor in 2010 just to be safe. The stock market moves on perception and if the public perception of our economy turns real negative again, the stock market will head right back down. Obama healthcare and all the other taxpayers money he has used for bailouts and pet projects cannot be making the situation any better.

The Christmas sales numbers aren't out yet but I have a feeling they will be average at best. Will be see another rash of companies declaring bankruptcy after those numbers come out like we have seen in years past? Christmas is such a big percentage of the retailer's year that a bad Christmas is enough to send many of them into bankurptcy in this economy.

The stock market gave a lot back last year of what it took the last two years but that doesn't mean the same will happen in 2010. You have to be smart with your money and not have too much of it in any one place. Those that have all their money in stocks are gambling to an extent and for them it truly is the stock market for dummies.