I recently ran across some advice in a newspaper. The person seeking advice was trying to decide to do something that ran counter to what she felt comfortable with. She was seeking advice on what to do. The columnist stated that we should always follow what our inner voice tells us to do. She stated “such an impulse is a warning , and our internal alarms are to be explored, not ignored.” She went on to say that is important to explore the cause of the alarm and determine if what we are wanting to do is unhealthy.

This can be related to our stock trading system. We all have opportunities to pull the trigger on both our purchases and our selling of stocks. Many times we may be hesitant to take the desired action. It may be that we are being a little greedy and think we will hold on to that stock for a little more climb. Or it may be that we have done our research and found a great stock, but we are just a little unsure.

I have had both situations in my trading activities. Recently I wanted to sell some stocks and take the gain. I was talked out of it by my stock broker and the stock price went down. It is a good stock and the price will come back but I could have created some profits if I had followed my instincts.

Trading stocks is not an easy business to be in since we do not have a crystal ball on what is going to happen in the future. If we did then we would be in great shape and very rich. Since we do not have this crystal ball then we are forced to do the correct amount of both financial and technical analysis and then follow our inner voice as to whether or not we should pull the trigger.

The other thing we should do with our stock trading system is to try and take our emotions out of the picture. Have pre-determined exit points with all stock investing activity. When the stock price has reached the exit point then be willing to sell the stock, take the gain and do not look back. It is never healthy to continue to track a stock we have previously owned and sold. At least not for at least six months. You do not own the stock, so of what point is there to continue to watch it, unless it is to jump back in. I have beat myself up over a stock that I exited and it continued to climb to great heights. Do not do this to yourself. Life is too short to put this amount of stress upon you. You took a good gain, invest in another winner and move on.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

When you are working to establish your investment strategy, one of the things you need to do is invest for growth of your portfolio. In order to do this, you need to make some decisions on where you are going to put your investment funds. You need to take a look down the road, and decide where the best growth potential exists.

Gordy Crawford is a Senior vice president of The Capital Group Companies. In an interview, he said some very interesting things about your investing strategy. He was asked what criteria he uses to choose companies for his portfolio. He indicated that he looks for those industries and countries that have tailwinds behind them. He will first look for the forest, as he puts it. Once he gets “the forest right”, then he is able to worry about the trees. He tries to visualize what the world will look like in two or three years, and then does his stock picking to fit that world. He chooses his stock from the bottom up, one stock at a time.

He sees the major investment markets in a state of decline while the emerging markets, such as Brazil, India, China and Russia are all gaining market share. He feels that over the next 20 years, over 70% of the incremental growth will be in these emerging markets. He acknowledges that there are risks associated in placing your investments in these markets, but he feels that is where the “unmet needs” are going to be.

Energy is going to be one of the most important economic themes of our lifetime, according to Mr. Crawford. The impact of the internet on the media and the digitization of the world are other major considerations for your portfolio. He advocates once again of looking ahead and finding those companies positioned to take advantage of the changing world. Imagine where you would be if you had had the foresight to see the rise of Google or Microsoft when they went public.

Lastly, he feels that equities are still positioned to outperform the other asset classes. He states that depending on an investor’s age and risk tolerance, they should definitely have a diversified portfolio that includes a good mix of equity investments. He also feels that investors should have a substantial investment outside of the United States.

Being able to pick a good stock is what makes investing in the stock market work. Unless you can do this, you will not be successful in your investments. Manypeople allow their broker to pick their stocks for them. I would suggest that you should develop your own system and see if you can move away from a dependence on your stock broker. If you were to do this, you would be able to have an online investment account and save some money on brokerage fees. Some stock picking tips to help you are as follows:

You should be your own person. Study and learn what makes up a good stock. Find out how to look at the fundamental and technical analysis of a company. Look at what indicators were present when a particular companies stock did well. This means looking back at some history. This shouldn’t be that hard. In your studies you can find what others suggest as good ideas, and then test them with actual historical results.

After your research, establish your entry criteria. You should only search for those stocks that fit your criteria. Be patient and wait for the investments to meet your criteria. Do not panic. You have established in your mind what will make up a good investment entry point. Do not let what you may hear or read affect your decision making.

As soon as you find a stock or a situation that fits your criteria, then act right away. Do not try and second guess if this is right. You have established what makes a good investment, now have the courage to act on your research.

Be consistent with your investment strategy. You should also have a determined exit point. This would be events dealing with either fundamental or technical analytic occurrences. When you have reached your exit point, then get out of the stock and move on. If you have acted right, you have probably made a good profit from the stock investment. Find another stock that will allow you to repeat this successful action.

Be able to exit a loser when you need to do so. Too many times we become emotionally attached to a stock, or are afraid to pull the trigger to minimize our losses. You should be able to pull the trigger, and walk away from a mistake.

If you were asked if you thought investors always acted rational in their investment styles, what would be your answer? Many different theories have been given concerning the stock market and if it is actually an efficient market. If investors acted rationally all the time, then you would think that the market does act efficiently all the time. The interesting thing is that investors do not act rational all the time.

In 2001, Dalbar, a financial-services company, released a study they had completed on investor behavior. They found that in the 17 year period that included data up to December, 2000 investors actually did worse than the S&P 500. The average investor only made a 5.32% return on their money during this period while the S&P 500 increased by over 16%. This would indicate that it would be better to invest in a S&P 500 index fund and leave the decision making out of the mix.

Research was done as to why the average investor did not do well in their stock trading strategy. Several different reasons were found to be the cause.

Emotions played a major factor in how an investor did on their investment returns. This was given the name “investor regret”. If an investor purchased a stock and it went down, they were unwilling to let it go. They were unwilling to admit that they had made a mistake. They did not realize that they could go further if they would only admit their mistake and move on to a winning investment. The flip side of this is when an investor does not act on their research and does not buy a stock and then watches that stock soar. This can be hard on the nerves.

“Mental Accounting” is the process of placing different events into different compartments. This mental accounting affects our behavior in relation to our investments. If an investor has watched an investment go up $200.00 and it is now only up by $100.00, that investor will not sell the stock. They just can not walk away from that $100.00 even though it was never theirs.

Anchoring is where the investor pins their expectations on historical prices. They expect that the market will continue to go in the direction it is moving and refuse to acknowledge anything different. They anchor their belief on past performances. Stock markets do have ups and downs and they do not always act as either a bull or bear market. The trick is to be willing to admit that a shift has occurred.

If you can avoid the above mistakes in your trading strategy, you will be more prepared to make money with your investments.

Some real estate investment advisors state that to make money in the real estate market, you should leverage your investment. This means to invest around 10% of your own money and borrow the rest. This expands the capacity you have to invest. The stock market has its own version of leverage. This is known as margin purchasing. Another term is buying stock on margin.

When you buy stock on margin, you are borrowing from the broker. The securities and exchange commission (SEC) and the Federal Government have set rules in relation to margin purchasing. They have stated that you cannot borrow more than 50% of what you actually have in your own investment. That is, if you wanted to purchase $1000 of stock but only had $500, you could borrow the rest. There would be an interest that you would need to pay on the borrowed funds.

There is also a tremendous risk associated with this borrowing. If the price of the stock goes up, you win. When it goes up to your exit point, you can sell the stock, pay off the loan and pocket the difference. The risk comes to play if the price of the stock goes down. You must maintain the 50% ratio. Thus if the value of the investment falls down from the 50% ratio, you are subject to what is known as margin calls. This means the broker requires more funds from you. If you have the funds available, you can cover the margin buy reducing the debt. If you do not have the funds available, you must sell enough of the stock to make up the funds required. Since the forced sell comes when the price of the stock is below your purchase price, you are forced into an investment loss. This can be very heartbreaking. You have the potential to lose a lot of money this way.

The difference between leveraging real estate and leveraging your stock market investments is that if the real estate market goes down, you only have to pay the interest payments and wait. With the stock market margins, you have your margin calls. It is a pretty scary way to go. I know because I have lost a lot of money by purchasing stock on margin. I will not go that way again.

If you choose to buy stock on margin, you need to realize the risks. Make sure you have done all the financial and technical analysis and that you can afford to cover the margin calls if there are any. I would not recommend this for the beginning investor.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Everyone you talk to including your Uncle Dan has a winning system to make money in the stock market. It seems there are as many systems out there as there are people. The question is, how does a novice beginner make sense of it all. How do you mitigate the risks and how do you pick the correct stocks.

The first thing to do is to learn what works for you. Just because Uncle Dan has a can’t miss system, it may not be the best for you. Do some research. Try some ideas. Some sources advocate using paper trading sites to finesse your trading system. This is where you do not actually trade with your money. You are given some paper money and you go up against other traders to see how well you can do. This is a good process for deciding what will work for you. One drawback of this process is that if it is not your money, you have no emotion in the outcome. It is easy to pull the trigger when it is not your money. You may do quite well with play money and not so well with your money.

That brings us to the next part of the equation. After you determine how you are going to pick stocks, what will determine when you enter the market and what factors indicate to you to exit a particular stock, do not let emotions tug you in a different direction. You need to follow what has worked for you in the past. Too often when our personal financial stake is at risk, we fall apart and are unwilling to pull the plug or make the plunge. Leave your emotions in your back pocket when you invest.

In determining when you should buy a particular stock, you must first determine what type of stock you are investing in. Growth stock expect the high rate of stock price growth to continue. Value investors are looking for stocks that are undervalued for the amount of earnings the company has or is expected to have.

The p/e (price earnings ratio) which is calculated by taking the price of the stock divided by the earnings per share is a good determiner of the value of a stock. Some stocks may be a good buy even though their p/e is above 20 while others may not be a good buy with a p/e below 20. The thing you need to look at is how the company compares to other companies in their industry and what the historical p/e has been for the company. So the answer of when to buy a stock is when the p/e is lower than its peers and you can not find anything wrong with the company.

Proper analysis is the correct method to use when determining the stocks to purchase. Buying on speculation rarely wins. Someone gives you a hot tip. Run from that situation. If a stock is expected to boom but does not have the earnings background to support the expected price, it is not worth the gamble. It may go up but eventually will come back down. This is known as “pump and dump”. Those giving the tips are trying to pump the stock up so they can dump. Don’t fall for it.

So even though there are many different trading systems, probably the correct system is to determine the types of stock investments you want to concentrate in, do sound analysis, perform proper asset allocation in your investments and then go for it.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.