10 Minute Guide to Stock Market Investing, 2nd Edition

10 Minute Guide to Stock Market Investing, 2nd Edition

by E. Alexander Saenz, Alexander Saenz

Paperback(2ND)

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Product Details

ISBN-13: 9780028636108
Publisher: Alpha Books
Publication date: 09/01/2000
Series: Ten Minute Guide Series
Edition description: 2ND
Pages: 216
Product dimensions: 5.50(w) x 8.20(h) x 0.48(d)

Read an Excerpt

Lesson 13: Choosing a Strategy

In this lesson you will learn about methods used to determine how to put together your own customized investment portfolio.

Investment Strategies

Still with me? Okay, you've decided what you want to accomplish by investing, and you know what kind of stocks you are looking for. You have a handle on the potholes that can hold you back, and you've learned how to number-crunch to analyze a stock's performance. You have one step left: deciding how you will apply all this knowledge to your investments. This is both the easiest and the most difficult step of all.

Think of it as buying a car. You've done your research: You've compared the prices at other dealers, you've checked the prices of comparable cars. You've checked the car sales market to find out how this brand is selling and when the best time to buy one is. You've even spoken to prior customers to learn just how the salesmen here haggle. What's your initial offer for the car going to be? How much will you accept for payments? What options do you want in the car? It's time to start making some real choices.

An investment strategy is rarely black-and-white. Instead, investment strategies are usually a mix of the different options available. My own experience has been that as my portfolio grows, my investment options grow in direct proportion. In addition, the number of investment strategies represented in my portfolio grows, also in direct proportion. Investment strategies, like investment objectives, should remain fluid in order to adapt to the different circumstances in which you will find yourself, as well as to accommodate any new ideas you yourself will come upwith.

An exhaustive list of investment strategies is impossible because they are as individual as the people who employ them. Stories circulate about people who pick their investments by using dart boards, astrology, and (so I've heard) even monkeys. As a new investor, however, you should be aware of some of the more popular (and saner) methods people employ for investing in their stocks:

  • The recommendation strategy
  • The research strategy
  • Buy and hold
  • Dollar cost averaging
  • Constant dollar averaging

Mix and match as you see fit; take what you want and leave what you don't like. In the world of investing, the only right answer is yours.

Recommendations

When people learn you have begun your investment career, "experts" will begin to crawl out of the woodwork. In all fairness, a significant number of recommendations you receive will have true merit. People who discuss the companies they work for are certainly in a better position to discuss their internal structures than the average person on the street.

Furthermore, your friends and family may be able to provide real insight into a company and its products and services with which you may be unfamiliar. When deciding whether to invest in Home Depot, for example, I asked a friend of mine who is an engineer to tell me of his experiences with them. I write financial books; I couldn't hang drywall if it came up and introduced itself to me. After our discussion, however, I felt much better about my final decision.

I asked my brother for much the same kind of information before making an investment in a video game stock. I don't play video games, but he does extensively. My discussions with him enabled me to make an intelligent decision about which games were hot, which systems had problems, and what innovations were being anticipated by consumers.

The other side of the coin is best illustrated by a great commercial currently running on television. A young guy walks up to a very distinguished gentleman in an art gallery and whispers to him, "I overheard your stock recommendation last week and put all my money in XYZ stock." The older gentleman replies, "Good for you. They will be the only company authorized to produce Widgets once the Martians take control of Earth," as his nurse leads him back to the home.

The moral is obvious: Recommendations are a wonderful source of information as long as you know their source and the recommender's expertise on the subject...

Table of Contents

Introduction viii
Confronting Your Fear of Stocks
1(16)
What You Need to Know Before Beginning
1(1)
Technical-ese
2(2)
Insufficient Financial Knowledge
4(3)
Stocks Are Only for Millionaires
7(3)
A Stock Market Crash
10(3)
Is Investing Like Gambling?
13(1)
It Will Take Too Much Time
14(3)
Why You Should Invest in Stocks
17(7)
Stocks Rock!
17(1)
Stocks vs. Bonds
18(1)
Stocks vs. Cash
19(2)
Stocks vs. Mutual Funds
21(3)
How Much Do You Have to Invest?
24(8)
Determining Your Overall Financial Picture
24(1)
Sufficient Savings
25(2)
Getting Rid of Debt
27(2)
Determining Your Expenses
29(1)
Paper Investing
30(2)
What Is a Stock?
32(8)
Stock Talk
32(2)
What's a Company Worth?
34(2)
Kinds of Stock
36(1)
The Two Main Issues of Stock
36(4)
The Five Types of Stock
40(6)
Stock Characteristics
40(6)
Stock Derivatives
46(15)
What Are Derivatives?
46(1)
Subscription Rights
47(1)
Warrants
48(3)
Options
51(10)
The Markets
61(11)
Trading Places
61(1)
The New York Stock Exchange
62(1)
The American Stock Exchange
63(1)
Regional Exchanges
64(1)
Over the Counter
65(2)
International Exchanges
67(1)
The Big Bang
68(1)
Other Markets
69(3)
Brokers and Brokerage Houses
72(10)
Types of Stockbrokers
72(1)
Role of Stockbrokers
72(1)
Securities and Exchange Commission
73(1)
Full Service Stockbrokers
74(3)
Discount Stockbrokers
77(2)
E-Brokers
79(1)
Educate Yourself
80(2)
Opening a Brokerage Account
82(8)
Getting Started
82(3)
Cash Account
85(2)
Margin Account
87(3)
How Much Stock to Buy and How to Buy It
90(12)
Determining How Much Stock to Buy
90(1)
Round Lots
91(2)
Odd Lots
93(1)
Determining How to Buy Your Stock
93(2)
Market Orders
95(2)
Limit Orders
97(1)
Stop Orders
98(4)
How to Pick Stocks
102(16)
Determining Your Objectives
102(8)
Determining Your Acceptable Level of Risk
110(3)
Inflationary Risk
113(1)
Political/Governmental Risk
114(1)
Market Risk
115(3)
Evaluating Stocks
118(15)
The Dreaded Math Part Made Easy
118(1)
The Price/Earnings Ratio
119(14)
Choosing a Strategy
133(10)
Investment Strategies
133(1)
Recommendations
134(2)
Research
136(1)
Buy and Hold
137(1)
Dollar Cost Averaging
138(2)
Constant Dollar Averaging
140(3)
How to Check Your Investments
143(24)
Congratulations!
143(1)
Reevaluating Your Portfolio
143(2)
Checking Your Stock's Performance
145(2)
Reading the Stock Tables
147(17)
Miscellaneous Information
164(3)
The Ticker Tape, Stock Indices, and Other Media
167(18)
The Ticker Tape
167(3)
The Indices
170(3)
The Dow Jones Average
173(4)
The NASDAQ National Market System Composite Index
177(1)
The Standard & Poor's 500
178(2)
The AMEX Market Value Index
180(1)
The NYSE Composite Index
180(1)
The Russell Indices
181(1)
The Wilshire 5000 Equity Index
182(1)
Other Media
183(2)
A Glossary 185(9)
B Resources 194(5)
Index 199

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