Stock Investing Guide

What Is Money?

It is a medium of exchange.

What Does it Do?

It ensures the success of exchange by being the one item on offer that is ALWAYS acceptable.

Why Is it Necessary?

Because human beings must exchange to live together in peace, and to prosper!

That IS ALL!

On the other hand, without money, the production and exchange of anything but the most rudimentary goods and services is impossible. It is not difficult, or time consuming, or inefficient, it is IMPOSSIBLE!

Animals don't exchange (or trade) amongst one another. They are self-sufficient, or they take from each other, or they exercise the prerogative of superior strength and/or cunning.

There are some human beings who get along in a very similar fashion, but the overwhelming majority recognize the benefits of voluntary exchange.

Strictly speaking, the use of the word "voluntary" in this context is redundant. The phrase "your money or your life" is not the precursor to an exchange, whether the person uttering it brandishes a gun or a government identity card!

The first rule of any voluntary exchange is simplicity itself. If two people are willing to exchange, each must view the results of the exchange as being beneficial. If either of them is not of that view, the exchange will not take place.

The ways to make money in this world are really very simple:

• Marry Someone Who Is Already Rich
• Have a Rich Person Die and Will You their Money
• Strike Oil
• Discover Gold
• Win the Lottery
• Rob a Bank
• Work for it, or ...
• Have it Work for You Through Investments!

In investing, you don't have to be an expert to take advantage of real opportunities!

But, in order to invest with confidence, profitable success and consistency and be able to take advantage of opportunities, first you should assure, that all your essential financial needs and responsibilities are met.

Then, start with:

1. Setting aside sufficient liquid funds for cases of emergency.

2. Making sure you are completely and adequately insured.

3. Building a reasonable retirement plan.

4. Getting out of debt -- and staying out!

5. Determining your time frame, and

6. Start investing with the aim of becoming financially independent!

As each of us enters different stages of life, our changing family status and objectives, incomes, expenses and living standards shape our investment strategy.

By having a clear idea of what you want your investment to accomplish, you'll be able to put your money to work more productively.

Investing is generally defined as the conversion of risk-free assets into risky ones with prospects of greater return.

Every investment has a certain amount of risk associated with it. You can minimize risk, if you are able to understand the different characteristics of the various investments and build your portfolio accordingly.

Given the existence of risk, why invest at all?

Because historically, the existence of greater risk is commensurate with greater rewards for investors.

You are almost certain to pick a bad investment sometime. The secret then is to cut your loss as soon as possible.

Unfortunately, most people find this very difficult to do. No one likes to think that he has made a mistake and there is a big temptation to hold on and hope for better days.

But there is almost always a time when an investment starts to turn sour that you can get out with only a small loss.

If you hold on you could be on the losing side for many years and then lose even more money in the end.

Having the courage to admit that you were wrong is an essential technique of successful investment as well as in other aspects of life.

A Swiss banker put it rather well:

"If you are losing a tug-of-war with a lion, give him the rope before he gets your arm ...

You can always buy a new rope!"

Friendship and Courtship,

Partnerships,

Investments,

Living Together,

Marriage,

Divorce,

Death and etc!

Money is a commodity which takes on other meanings and emotions.

Money becomes the emotional football that everybody may use to throw back and forth at all others and never resolve their real issues.

Workers earn it,

Spendthrifts burn it,

Bankers lend it,

Women spend it,

Forgers fake it,

Taxes take it,

Dying leave it,

Heirs receive it,

Thrifty save it,

Misers crave it,

Robbers seize it,

Rich increase it,

Gamblers lose it,

Stock brokers sometimes (?) multiply it and ...

We will all always can use it!

2. Keep a positive attitude, no matter how much you lose.

3. Buy the bad news and sell the good ones.

4. Do not be AFRAID to buy high and sell low.

5. Continually strive for patience, perseverance, determination, and rational action.

6. Limit your losses and learn how to use stops.

7. Avoid getting in or out of the market too often.

8. Losses make the trader studious - not profits. Take advantage of every loss to improve your knowledge of market action.

9. Remember that a bear market will get back in 10 days what a bull market has taken six months to build.

10. Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.

11. In trading there are the quick and the dead.

12. Accept failure as a step towards victory.

13. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don't let ego, fear and greed inhibit clear thinking and hard work.

14. One cannot do anything about yesterday. When one door closes, another door opens. The greater opportunity always lies through the open door.

15. Beware of trying to pick tops or bottoms.

16. If you don't know who you are, the markets are an expensive place to find out.

17. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word -- NOBODY! Thus, the successful trader does not base moves on what supposedly will happen but reacts instead to what is happening.

18. Lose your opinion … Not your money.

19. Finally, don't you ever forget that when the ship starts to sink ...

Don't pray … Jump!

The daily volume of a company (Liquidity) is the amount of shares that are traded on any day.

Most of the stocks that have minimal volume, 15,000 shares per day or less, have a problem, and there are numerous reasons you should try to avoid such low volume stocks.

One reason is that stocks with low volume often have very large price swings.

These fluctuations are due to the laws of supply and demand. If there is only a few available sellers of the stock you want to buy, you are forced to pay what they want for the stock.

On the other hand, when you decide to sell the stock, you may be forced to keep the shares because there are no buyers of the stock, or to sell them in a really low price.

Since the low volume stock is "handled" by only a few persons, the stock is usually get hammered down harder than most stocks, and it is also more easily "treated" going up.

Stockholders of these type of companies are often very easily frustrated, and unless they are prepared to hold them for long periods, they very easily panic and sell their stock to the very first offer.

Nevertheless, you shouldn't judge companies solely on their average volume.

If the company's fundamentals are strong, you should not rule out the possibility of purchasing any stock of the company, but you must do a thorough research before making any final decisions.

There are two aspects of liquidity:

A. How readily an asset can be turned into cash (the ease with which buyers and sellers can be brought together and can agree on a price) is called liquidity.

An important consideration in assessing risk is how liquid various financial assets are. Therefore, assets that are less liquid tend to have a wider spread between the "bid" (the price offered by a would-be buyer) and the "ask" (the seller's asking price).

Cash Is King!

You need cash and liquidity for freedom and security. The cash in reserve provides money for not only emergencies but opportunities as well.

A cash reserve provides the foundation for your entire financial position. You should get your cash reserve in order before taking on any risky investments with money you can not afford to lose!

Boring but Prudent!

Five to six months "salary or seven to eight months" expenses are guidelines generally considered reasonable for emergency reserve funds.

B. An important factor when choosing which stocks to buy is liquidity.

This type of liquidity is best measured with volume. Higher the average daily volume is, higher the liquidity is.

High liquidity ensures that at the moment when we want to buy or sell shares, there will be enough sellers/buyers on the other side of the fence!

Think again!

Nowhere on your bank or brokerage statement are you likely to get a report on what inflation is doing to the real value of your savings and investments.

So if your money is stowed in a "safe" investment, like a savings or money market account, you'll never see how inflation is gobbling up virtually all of your return!

Inflation is the rise in price of goods and services.

We all know that things seem to cost more every day, but how many fully realize just how much that thief called inflation steals? Even with relatively low inflation, you steadily lose buying power of any money you just hold on to!

To stay even, you must invest at rates of return that at least match inflation rates. Your real rate of return, in terms of buying power of your money, is your savings or investments rate of return less the inflation rate.

If inflation is 4 percent per year and your return is 5 percent per year after taxes you have managed only a 1 percent gain in real buying power. If your after-tax return is only 3 percent, you lose 1 percent in buying power.

Inflation occurs when demand increases relative to the supply available. During periods of economic growth moderate inflation is expected.

However, hyperinflation which is inflation of 100% a year or more is a major concern as people lose confidence in the currency. During hyperinflation hard assets like gold and real estate rise as they usually retain their value in inflationary times.

Cost-Push Inflation:

Is inflation caused by rising prices of raw materials. When demand exceeds the supply of raw materials manufacturers pay higher prices. The manufacturers then charge merchants more for their finished products. The merchants then raise the prices they charge consumers.

Demand-Pull Inflation:

Occurs when supply is not adequate to meet demand. This causes higher finished goods prices that merchants must pay leading to higher consumer prices.

Deflation:

Is a decline in the prices of goods and services. Deflation is the opposite of inflation. When prices are falling due to deflation, economic activity is negatively effected as the price weakness is usually due to very weak demand factors.

Deflation is a significant aspect of economic depression as economic recession is accompanied by declining prices and a shrinking economy.

Stagflation:

Is the term used to describe an economy that is growing very slowly accompanied by high inflation. Usually when the economy is growing slowly the inflation level is low.

How The Central Bank controls inflation?

The Central Bank attempts to control inflation by adjusting the cost of money to member banks by raising or lowering interest rates.

Low Interest Rates

Low interest rates tend to stimulate economic growth as the cost of money is less and leads to increased borrowing which encourages additional economic activity.

High Interest Rates

High interest rates tend to depress economic growth as the high cost of money limits economic activity.

During periods of low inflation the Central Bank allows interest rates to remain low and monitors economic activity to keep growth at a sustainable but non-inflationary pace.

During periods of rapid economic expansion and high inflation the Central Bank raises interest rates to slow the pace of economic activity and limit inflationary pressures.