These days, everyone seems to think they are an investment expert, and that includes your barber. The reality is, very few people actually understand how the stock market works.
In fact, it seems the only thing that isn’t in short supply on Wall Street is the investing 101 guru who claims to offer the best advice on how to invest based on the Stock Marker top headlines of that week.
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What these so-called “investing experts” fail to deliver is a lasting strategy. No matter how eloquently you talk about winning stocks, once you deconstruct the advice several common elements emerge. These are basics of Investing 101, and what everyone who plays the stock market game needs to know.
Ask the Experts
Ask your favorite expert exactly how they pick the stocks and funds they are recommending. I bet you won’t get the full story. Here’s a rule of thumb: If they dangle big fish in your face but they won’t teach you how to reel one in yourself, RUN!
Investing comes down to a few very basic principles, and we gain nothing by keeping secrets. What drives us is empowering you to better understand how to invest your money for better than average returns.
All investors deserve reliable information and instruction so they can craft an investment strategy that fits their specific needs not the generalized needs of a massive audience.
Understanding the Stock Market
Here’s what you should do first when starting your investment research:
Get a feel for the numbers. Most research is very subjective, with analysts offering estimates and opinions on the value of a particular stock. You’ll need to zero in on eight key fundamentals: Positive Earnings Revisions, Positive Earnings Surprises, Increasing Sales, Expanding Operating Margins, Free Cash Flow, Earnings Growth, Positive Earnings Momentum and Return on Equity.
Together, these eight fundamentals will help you find the best stocks to buy on any stock market. There are numerous websites that allow you to access such information on virtually any stock instantly, so use whichever feels right to you.
Focus on the future. Don’t dwell on past mistakes, and don’t get too caught up in checking prices every hour. It’s important that you stay focused on long-term performance when stock investing.
Investors that work day-in and day-out in the stock market develop a serious case of tunnel vision when it comes to picking stocks. Remember, what happened in the last market cycle won’t necessarily apply to the next. Don’t lose sight of the broad market when stock investing.
Diversify, diversify, diversify. Any investor picks his share of duds, you won’t be the first nor will you be the last. Strive to have a shining portfolio through diversification. That’s because a diversified portfolio (a mix of dozens of stocks in several different investment areas) generally yields stronger, steadier returns and poses less risk. That way, if some of your investments perform poorly, your big gainers will
That way, if some of your investments perform poorly, your big gainers will neutralize your losses. Along the same lines, never let a single stock become too big a part of your portfolio. If that one pick turns south, you could see all your profits go up in smoke. It is recommended that you take “partial profits” in companies that perform, or selling a portion of your holdings while keeping enough stock to continue to cash in if the ride isn’t over yet.
Always sell into strength. Buy low and sell high. Easier said than done? Perhaps, but remember: Even if a stock plummets on bad news or some inherent weakness, sell some of your positions at first, then wait a bit in case you can cash in on a “dead cat bounce.” At least that way you’re
At least that way you’re minimizing your losses. But don’t wait too long. Chances are if you hold too long, you’ll be out a lot more than you bargained for.
Expect Volatility. Don’t be afraid of big market swings, because you can profit from them! By learning to deal with volatility, you can make money in even the most topsy-turvy market environments.
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A simple recommendation is that you to stick to the 60-30-10 rule: 60% of your portfolio should be in the most conservative stocks, 30% in moderately aggressive stocks and 10% in aggressive stocks.
This mix gives you the smoothest path to profits over the long run. Especially when the market is volatile, this mix keeps your portfolios afloat! The 60-30-10 rule will keep us locked and loaded, even when the market fluctuates day-to-day.