Everything you invest in has risk so you want to do your research before you put your money on the line.
For example, when McDonald's opens a new restaurant (please, don't call it a hamburger joint) they will investigate as many of the relevant facts as possible. The demographics of the area - age and income of those within a certain driving distance. Who, where and how much is local competition? The number of cars driving by each day will be counted and will be tallied at one-hour increments. Local labor costs must be figured in. The cost of acquiring the land and construction of a new building or rental of an existing location is estimated. These and many other factors are added up to get an idea of the approximate operating costs and amortization of fixed assets.
When they have all that then they will be able to figure out how many hamburgers will need to be sold to break even. This true and meaningful research to decide whether to risk money for investment - in this case return on investment or as Wall Street calls it, ROI.
Unfortunately, Wall Street also tells you to do similar research before you buy stock in a company. There is almost no correlation between doing research for ROI and doing similar research to determine if a stock is going to go up. There are thousands of companies that have excellent Operating Statements, but the stock goes nowhere year after year. One of the easiest ways to see this is to go to www.bigcharts.com , type in the symbol of the stock and check back on its price performance for the past 5 to 10 years. If it doesn't have a nice steady upward movement it will be best not to buy it. Also if the price action is extremely volatile you should also pass even if your broker says to buy it, especially if your broker says to buy it.
The type of research brokerage firms tell you to do means absolutely nothing as far as finding out if the stock price will go up. Wall Street-type research is basically worthless.
Let's says you have done some intelligent research and have found a stock or mutual fund that has been going up for the past several months or even years (these are very rare) and you decide to buy it. There is no guarantee it will continue to go up, but you want to limit your risk. How? There are a couple of very simple things you can do.
The first and simplest is to determine how much you are willing to risk in this investment. Maybe the stock cost $60 per share and you are going to buy 100 shares for $6,000. You decide you are willing to risk $1,000, no more. At the time you make the purchase you also put in another order with the broker. Tell him to place a Good Til Canceled Stop- Loss Order for $50 per share. If the stock drops to that price you are out.
The second way is to go back to the Internet and the above web site and print out a chart for the past one, three or five-year time periods. Then draw in a trendline along the bottoms of the price action. Connect a straight line along the lowest price. Usually you will have at least three places that will hit this line as it is progressing upward. When that line is penetrated you want to sell out.
Investing in anything without risk control could mean large losses of capital. Wall Street trained brokers are not taught risk control. If you want to preserve your capital it is up to you.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
It depends on your level of understanding of the market... Read More
When the stock market is going up and all your... Read More
Investing in long-term financial vehicles give you the most gains... Read More
Two weeks ago I wrote about what the Securities and... Read More
When you stand on the ocean shore and watch the... Read More
Just about everything you have been told about Social Security... Read More
Spread trading is a technique that can be used to... Read More
We are already in it, but you can't see it.... Read More
One of the big advertising kicks today from mutual funds... Read More
I read a comment by a forum member on another... Read More
The Macedonian Stock Exchange (MSE) is not operating successfully. True,... Read More
Well, not really. What I mean is I don't mind... Read More
You have a lock on your house. You have a... Read More
Did you know you can make money (and a lot... Read More
Any online investor / trader seeks an excellent off or... Read More
There are many good penny stock investments available, which could... Read More
As one of my regular readers you know I have... Read More
There are red lights, green lights, blue lights and spot... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
Mutual funds were moderately successful in creating a presence in... Read More
It is finally catching up with them. The brokerage companies... Read More
In one of my previous articles (Investing in the stock... Read More
The higher the market goes the more confusing are the... Read More
(1) Stock Market is Tough Place to Make Any Money... Read More
Congress recently passed another new law that is supposed to... Read More
Suppose your position has made a big move and you... Read More
We have two candidates for president that have really different... Read More
On Monday, November 25, 2000 Investor's Business Daily listed on... Read More
We keep hearing about this bear market and that the... Read More
The fight continues to rage among traders who use technical... Read More
The Shadow knows. There used to be a radio program... Read More
Well maybe that's overstating it a little, but it's certainly... Read More
Have you ever thought of investing? Do you have a... Read More
Picking a beaten-down stock requires a different kind of selection... Read More
Most stock traders know that momentum trading can be a... Read More
Regardless of the fact that the world's stock markets have... Read More
It looks like the market is ready to start up... Read More
Reduce your investing and stock market risks by:Setting your sights... Read More
Any online investor / trader seeks an excellent off or... Read More
The Shadow knows. There used to be a radio program... Read More
Mutual funds are doing more and more to discourage investors... Read More
Duck! No I don't mean a quack, quack. I meant... Read More
When it comes to stock market trading it PAYS to... Read More
On November 17 I bought 7 different mutual funds and... Read More
Time to look back2004 is over, now we are in... Read More
Have you bought any mutual funds this year or late... Read More
You have heard about a particular mutual fund from a... Read More
During our travel down life's path we come to many... Read More
Right now there doesn't seem to be any "gold fever".... Read More
In his wonderful book, 'Multiple Streams of Income', best selling... Read More
If you want one.And I don't recommend any broker with... Read More
Peter is a professional trader, Paul is not. Peter has... Read More
Is really not as important as to how you invest... Read More
Both the stock market and oil prices rallied recently, which... Read More
I am sure that if you have a brokerage account... Read More
There can't be many traders who haven't at least considered... Read More
With all the bad news that has been dumped upon... Read More
Ever jumped out of an airplane? It's OK if you... Read More
There are major differences between trading stocks and trading futures.... Read More
Just about everything you have been told about Social Security... Read More
What is the Series 7 Exam? If you... Read More
If you have talked to a stock broker or financial... Read More
As the man said, "I've got some good news and... Read More
There are formulas for just about everything, but it has... Read More
The demand for world oil is increasing while world reserves... Read More
Let's first define insanity. It is doing the same thing... Read More
Stocks & Mutual Fund |