Investing 103: Proven Investment Strategies

As mentioned in my previous blogpost, “Investor 101: Are You a Speculator or an Investor,” there’s a distinct difference between a speculator and an investor.  Both risk their capital investing in the stock market in the hopes of extracting a reasonable rate of return on their investment; however, each apply different investment strategies to achieve profitability.

For the speculator, a combination of cyclical norms, such as buying stock in the fall of the second-year of a presidential cycle and holding until the end of the year or sell in May and re-enter in October, and chart analytics are the tools of the trade.  In this regard, the speculator is always attempting to time the market so as to adhere to the stock market axiom “buy low, sell high”. There are two fundamental problems with such speculative strategies:  1) your timing has to be right over 50 percent of the time in order to make any gains; and 2) you have to know when to pull out of a stock in order to limit your losses.  That’s not to say that such timing strategies aren’t effective. However, as indicated in this article from Forbs.com (“What? Some Proven Investment Strategies Are Too Simple to Accept?”), none of the speculative strategies work every single time.  Hence, knowing when to fold ’em is critical for the speculator as his bottom line can be significantly impacted if he is wrong on either end of the “timing chain”.  Pull out too soon and you could miss out on substantial financial gains.  Stay in too long and you may loss any gains achieved from the point of purchase.

For the investor, knowing when to buy is far more important than knowing when to sell.  As with any stock purchase, you want to get in as close to the ground floor (lowest buying price) as possible.  Why?  Because as an investor you’re looking to buy value at the lowest price and hold the stock for an extended period of time, generally no less than 5 years. Thus, value investing is your investment strategy with “buy and hold” as your guiding philosophy. The value investor looks at a company’s BIC – balance sheet, income statement and cashflow analysis – to find solvency, value, long-term growth and, of course, potential profitability in the company before making a stock purchase.  The value investor is, therefore, looking at stocks as a business owner and takes the long view on investing.

The basic tenet of investing is to make a good assessment of whether the value of the investment will increase regardless of which investment strategy you employ.  The key thing to remember is to do your research before you buy a stock.  Nevertheless, if you follow the four basic rules of investing and you’re able to keep your emotions out of the purchase or sell of any stock, you should see a reasonable rate of return on your investment regardless whether you’re in for the short or the long haul.

That’s my blogpost for this week. Join the discussion by posting your comments below. And don’t forget to tune in next week when I’ll once again share more ways you can break the debt cycle and then go…beyond.

Zebert L. Brown

Zebert L. Brown is the author of Break the Debt Cycle in 3 Simple Steps and a 16 year Navy veteran with specialties in administrative management, career development and public relations. Follow him on Facebook and Twitter.

 

 

 

 

Investing 102: The Stock Exchanges

Recently, a small group of friends asked where they could find stock quotes. My initial response was “try looking in the Wall Street Journal,” but as our discussion continued I realized my they were looking for more than just the latest stock quotes.

Finding the right stock to invest in takes some research. But in order to get started you have to know precisely where to look. While most people have heard of the New York Stock Exchange or even the NASDAQ (short for National Association of Securities Dealers’ Automated Quotation system – I’ll talk more about this “exchange” later), few realize there are other stock exchanges in the U.S. The following is a brief summary of the nine major and minor (regional) U.S. Stock exchanges:

Major U.S. Stock Exchanges

  • The New York Stock Exchange (NYSE; aka, “The Big Board”) is the world’s largest stock exchange. It lists over 1,800 U.S. companies (most of which are major large-cap corporations) and conducts over $16.6 trillion per year in trading volume (on avg., $169 billion in trading per day).

  • The NASDAQ is considered the second largest U.S. stock exchange; however, it really isn’t a physical trading floor but rather is an electronic stock exchange serving primarily as a hub for brokerage firms who conduct stock trades online. The NASDAQ lists over 2,700 U.S. and conducts over $8 trillion in annual trading volume.

  • The NYSE MKT LLC (originally the American Stock Exchange but more formerly known as the NYSE Amex Equities stock exchange) is the third largest U.S. stock exchange. Companies listed here are usually small-cap corporations trading primarily in the options market and exchange trade funds (ETFs).

  • The Over-the-Counter Bulletin Board (OTCBB) is home for the “penny stock”. Companies listed here are either small start-ups with market capitalization under $75 million or companies that have been de-listed from the NYSE. However, don’t let their small market valuation or de-listing fool you. Companies listed on the NYSE MKT LLC are still considered viable players in the market place. These are stocks valued at below $5 per share, but don’t let their cheap prices fool you. Most Fortune 500 companies got their start on the OTCBB. Moreover, many novice speculators cut their investment teeth here. Some have gone on to make small fortunes of their own.

U.S. Regional Stock Exchanges

Of the fifteen or so regional stock exchanges across the country, the five largest regional exchanges are:

  • The Boston Stock Exchange;

  • The Chicago Stock Exchange;

  • The Pacific Exchange;

  • The Philadelphia Stock Exchange; and,

  • The Cincinnati Stock Exchange (which is a smaller version of the NASDAQ electronic stock exchange).

Stocks listed on regional exchanges are of local companies which for either economic or other reasons elect not to be listed on the major stock exchanges. Nonetheless, if you’re interested in sharing in the growth of a local company, there’s no better place to start your investigation into the strength of a local company’s stock than with your regional stock exchange.

And there you have it. Whether you have thousands of dollars to invest or just $50, know that you have several stock exchanges to choose from when attempting to make your fortune in stock trading. You don’t have to risk it all playing with the big boys on the big boards. You can start small while also gaining valuable experience. And hopefully, you’ll make a decent profit in the process.

That’s my blogpost for this week. Join the discussion by posting your comments below. And don’t forget to tune in next week where I’ll once again share more ways you can break the debt cycle and then go…beyond.

Zebert L. Brown

Zebert L. Brown is the author of Break the Debt Cycle in 3 Simple Steps and a 16 year Navy veteran with specialties in administrative management, career development and public relations. Like me on Facebook and Follow me on Twitter.

 

10 Tips to Improving Your Financial Literacy

 LeeHeadShot4 In last week’s blogpost, I outlined the importance of becoming more financial literate.  This week I provide ten important tips you can use to improve your financial literacy skills and start your children off on the right track to becoming more fiscally responsible.

For Adults:

1. Take a financial management course. You can contact your bank or local community college to see if they offer such a course, or you can contact the American Consumer Credit Counselors for a free credit counseling session.

2. Learn common financial terms. Asset, depreciation, liquidation, equity are all basic terms you’ll come across in nearly every financial situation, but if you don’t know what these words mean or how they apply to your financial situation, you can’t make financial decisions that are right for you and your economic situation.

3. Read the small print! I can’t emphasize this enough. No matter how much pressure you get from slick talking salesmen, you should always take your time to read over ALL documents pertaining to your personal finances before you sign them. After all, you work hard for your money and no one’s going to look after your best interest except you.  Give yourself at least 24 hours to review any document before you sign on the dotted line to make doubly sure you’re making the right decision.

4. Diversify your finances. The saying “don’t put all your eggs in one basket” is true. Assuming you can afford to spread the wealth around, you should try to put your money in investment vehicles that stand to earn you money other than a simple savings account or a 401k plan with your employers. An IRA, stocks, bonds, mutual fund or exchange trade funds (ETF) are all investment vehicles that can provide a decent return on investment over the long haul.

5. Ask questions. If there’s something you don’t understand about a potential financial situation that could obligate you to a long-term financial commitment, ask questions – as many as it takes for you to fully understand the situation at hand. And if you don’t feel as if you’re getting the right answers from one person, ask to speak with the manager.

For Children:

1. Talk to them about money. Believe it or not, children learn how to manage money from watching their parents. Of course, if you’re not “penny wise” odds are your child may very well pick up some poor spending habits from you. The sooner your child learns the value of money, the sooner he/she begin to take a personal interest in his/her ersonal economy.

2. Give them an allowance. Most parent may not believe in giving their child an allowance, but an allowance gives them a  sense of ownership for “a job well done”. Moreover, they quickly learn that “money doesn’t grow on trees or comes from the ATM” each time they run out of their money.

3. Take them shopping with you. Let your child pay for groceries (small purchases, of course) and show them how to bargain shop. This way not only do they learn that you’re not an inexhaustible source of money, they also learn how to look for the best deals right along with you.

4. Give your child a piggy-bank. There’s nothing like the sound of a bunch of coins clanking in a glass jar or that pink plastic pig. Your child will have a sense of pride for all the money he/she saves up to purchase that special item on their wise list. As an alternative to a piggy-bank, you could also start a savings account for your child and let them make the deposits.  This way they learn about bankng, saving and investing early in life.

5. Play board games that involve money. Monopoly, Life, Payday. These traditional board games are not only fun to play, they also teaches your child about the world of finance. Every kid loves being the banker. Let them learn about financial management by playing with play money so that once they experience the real thing they can apply what they’ve learned in real life.

That’s my blogpost for this week.  Join the discussion and post your comments below.  And don’t forget to tune in next week where I’ll once again share more ways you can break the debt cycle and then go…beyond.

Zebert L. Brown is the author of Break the Debt Cycle in 3 Simple Steps and a 16 year Navy veteran with specialties in administrative management, career development and public relations.  Follow him on Facebook and Twitter.