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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.
How to Find Value in No Load Mutual Fund Investing
What are you thinking when it comes to your no load mutual fund selections? Are you saving pennies and sacrificing dollars?Are you spending your time looking at expense ratios, analyzing Morningstar ratings and searching for funds with low fees and no 12b1 charges? If you are like most people, you know these things in and out. You've spent hours evaluating them, and your chosen mutual funds cost little to purchase and maintain.
Mutual funds and brokers are always preaching not to buy any fund with a high expense ratio. That is the annual costs of the fund to pay for trading of stocks within their portfolio, salaries, rent, telephone, analysts, etc.
I Love You, Warren Buffet
Sometime around 1980, can't remember exactly, there was a flight of money from many countries to Switzerland. The clock makers had so much money pouring in that the banks took interest rates to zero and even for a period of time were actually making you pay ½% interest to them to put your money in their banks.
Ignore Stock Market Talking Heads
You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -WHY?They aren't going anywhere.
Wall Street's watchword has always been diversification, but what does it mean and why do they say it?The standard Wall Street definition is flexible because each broker or financial planner will vary the portfolio based on your age and income. They say that the younger you are the more risk you should take and the older you are the less risk.
Stocks Options Trading
Let's assume that you want to make some serious money and you have chosen to take things into your own hands rather than depend upon a "professional trader" to make your trading decisions. This is usually only recomended if you can afford to lose the money that you are trading with, and you appreciate the fact that there is much more upside potential with this added risk.
Having lived aboard a sailboat for 2 years I was stricken when I saw the movie "PERFECT STORM". I know these are things you want to avoid at all costs.
Every day I hear someone on CNBC proclaim that "this is the bottom" and you should get in there and buy all those "bargains". "The valuations of the DOW stocks are a steal.
Understanding the Bulls and the Bears
If you've ever flipped on the television to CNN Financial or paged through the finance section of your local newspaper, you may have seen or heard references made to "the bulls and the bears." If you didn't know what was meant by those terms, you're about to find out.
Successful Trading - Establish Your Risk Level
Before you embark upon a journey of trading stocks or futures, and before you make any trades, you MUST determine and establish your risk level. Traders that fail to do this are usually doomed from the start.
Quality Investment Information: Standing Firm In the Face of Opposition
THERE'S SOMETHING TO BE SAID FOR standing firm in the face of opposition. Interestingly, most of the best stock decisions have come at times when the mainstream is saying precisely the opposite.
Stops Make Money
During the day I watch CNBC-TV, the stock market channel. Fortunately, I keep the sound muted or I would be hollering at the dumb "experts" being interviewed.
Rebalance And Diversify
The stock market has not been very kind to your investments lately. Your broker knows this so you may have received a call from him suggesting it is time to 'rebalance and diversify' your portfolio.
Prospering with Mutual Funds: How Anyone can "Afford" an Investment Advisor
Recently I was invited to appear on a live CNNfn television show to discuss my article "How to evaluate Load vs. No Load Mutual Funds.
How To Pick A Mutual Fund
Mutual funds by definition are a mixed bag of stocks, bonds and a little cash. Their price per share is the NAV, Net Asset Value of the total amount of money in the mutual fund divided by the number of shares.
The Golden Goose is Sick
It is finally catching up with them. The brokerage companies I mean.
Commoditizing the world
Let's discuss commodities; with the latest Enron situation, it is important to understand the way things work. A commodity is anything useful, especially a transportable agricultural product or mining product.
Option Trading Basics
Options trading can increase the profits you make when trading Stocks if you understand how to use them and know what you are doing. Options can be a very useful tool that the average investor can use to enhance their returns.
How to Short Stocks? How to Make Money when Your Stocks Go Down by Shorting
The stock market can present you with a lot of hot stocks every day. Many of them are new technology stocks that come from the nanotech, biotech, voip, healthcare, homeland defense or internet sectors.
The Law of Chaos is the theory of random unpredictable action applied to the cosmos, mathematics, mechanics, almost everything. Those who believe it will definitely think the stock market is in chaotic state at this time.
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