Wednesday, February 11, 2009

How YOU should be investing

If you are reading this article I assume that you are, or are looking soon to become an investor/trader. In this I will give you some quick do's and Don't's of how to go about the exciting investment game:
For all of you that are not able to dedicate a large bulk of your time to stay current with business and market news, I strongly caution you against trying to play games in the stock market. Be realistic, there are many people who dedicate every moment of their entire lives to outsmarting the market, and most of them sadly fail. If you do not have real time to dedicate, don't think your smarter than everyone else, put 40% of your money in a bond fund such as PIMCO, another 40% in a dow jones tracking fund such as the "diamonds" ticker DIA, 10% in some sort of gold tracking stock such as ticker GLD or a gold mining company like Barrick (ABX), with the other 10% you can take some risks on a company you feel is a winner. This way if your right and you double your money with your pick it drives the value of your portfolio up 10% and if you are wrong your loss is probably canceled out with gains in the other areas.
If you are a value investor, you are probably licking your chops right now because many solid companies have been beaten down so far that they represent great deals that most of us will never again see in our lifetimes. Now would be a good time to buy back into the market with a few solid blue-chip stocks (if there is such a thing), or simply invest any spare money in the DIA or SPY. Don't try and pick a bottom of the market, as I said before, you, like me, are not smarter than the market.
The type of investing strategy that I feel can be most profitable for people who can be very proactive about their investing is that of Swing Trading. Swing trading, for those of you unfamiliar with the term, is a style of trading in which you buy a stock with a reasonable "guess" (I hate to use that term but in todays market that's all it really amounts to) that the price of the stock will go up in the near term; be it 1 day, 1 week, or one month. Swing trading lies somewhere between day trading and value investing in that it requires skills of both styles for you to master it. A good swing trader is watching CNBC, Bloomberg Television, Reading the Wall Street Journal, Following the pulse of the market just like a good day trader; and at the same time is learning everything he/she possibly can about individual companies and sectors much as a value investor would. A person must be fairly intelligent and be able to act on a moments notice to changing events; and most importantly most be emotionally detached from every single position that you open. It gets complicated and is really worth reading more about if you have money and our looking to watch it grow. If you email me or leave a comment I'd be glad to reccomend some books.
Something here that I feel I must mention is that you also dont fall into the trap of getting a "Herd Mentality" following the crowd and doing what you are told. Millions of people watch Jim Cramer's Mad Money everynight on CNBC, not to put it down because it is a very interesting program, but often times when a Guru makes a pick on national television it often times cancels out any validity his thesis held prior to his announcement. I know that sounds a little cock-eyed but it has been proven time and again that anyone, with any kind of a real following, who has made money hand-over-fist in the past, seems to go south as soon as his ideas become mainstream.
Now I'm not advocating taking advice from a person such as myself anymore than I advocate taking Mr. Cramer's ideas. What I am trying to say here is that any information you gather must just be another piece of a puzzle that you must complete on your own. To make beat the markets takes time and dedication just like anything else (sorry if you were looking for some magic formula here). I urge you to go out and do your own research on companies that you here about, that sound promising and logical, and form your own opinions before you ever place a trade.
I hope this has helped you make some decisions about you Trading/Investing choices and if you would like a reading list based on your style of investment don't hesisitate to send me an E-Mail at Cheechfpc@gmail.com and I would be more than happy to help you out.

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