Friday, November 5, 2010
Investing 101: Know the Ledge...(pt 3)
Damn...well I really didn't mean to comeback with my 3rd installation this quickly but I tried to turn my mans on to the stock game a long time ago abut like all bench warmers always do.... now he wanna try and come off the bench and get in the game in the middle of the 3rd quarter shooting 3 pointers LMAO but nonetheless, he called me the other day talking obviously oblivious to the game which I told him was only gonna get his pocket snatched, so now here we go...I can't let the homey go out like that!
In no particular order....
#1 - Have a game plan
Instead of just jumping in and playing yourself, try and have some clear and set goals on financially what you
are attempting accomplish. If you are only looking to come up in 6 months then take that route (aggressive/high risk), or if you are trying to come on board for more of a spread and thinking long term then you manage that as well but getting into it just because everyone else is or because you are trying to be like "the smart people" w/o being smart about it all then put plainly..."don't gamble with ya life duke word up!" - But just give it to me and cut me in on a % of the gains an then I'm all in....
#2 - Pay Attention/Be Engaged
To be frank buying stocks are like a co-sign, its a particular belief in the story of a company whether it be its exposure to a particular space (health care, commodities, etc) , their underlying business model, innovation to the marketplace, or etc. So the key here is just to know what the company is all about that you will be investing in, maybe their future plans which could include any expansions or mergers, collaborations, etc or just their overall their future guidance for the business. And in general just try and use your common sense and relate it to the world around you...for example if you think there's a company that is going to bring out a new smart phone that you think everybody is going to jump on to ride the bandwagon, then perhaps owning that stock is not a bad idea because in essence it means that you are anticipating the growth of the company....so its just that simple. It's really just being able to spot everyday trends and influences around you and then being able to identify companies who's business model reflects taking advantage of those trends and going in. Or for example if hear there's a pharmaceutical company thats working on developing the first drug for going bald or something...some would consider that to be a opportunity to make money.
#3 - Its all a #'s Game (or think of it as "Creative Accounting")
#4 - Set Limitations and Boundaries
If you expect to make some money, then honestly expect to loose some too. This is a game of managing risk, volatility, and expectation my man (or woman). The stock market and price action fluctuates so just try not a spit up ya lunch whenever you deposit 3 grand in your account one day and a wk later its only worth $2,100. So the point here is to try and define your own financial risk and expectations...so for example, just to use some simple math, lets say you buy a stock at $1 per share and then after 3 months its gone up to $8 per share.. obviously now you made 8 times your initial investment right? but the point is to set limitations and boundaries for yourself so you don't screw yourself, well which in this case is not losing all the money you've made so one thing you could do is lets say place a stop-loss sell order @ $5 so if the stock price ever drops below $5 then just sell (either all of or the amount that you specify) the stock so you minimize your losses and ensure no mater what you can at least keep an $4 earning on each stock per share. Or the complete inverse of that in which you could say once a stock reaches $8 per share then sell it. The key here is in the stock market to make money you have to manage your money!
#5 - Do ya Homework
Become accustomed to industry jargon and investment terminology....things like inflation, quantitative easing, put backs, profit margin, etc because all of these things will help you to better to be able to interpret and evaluate all the information that's available and to your exposure. A good start I'd recommend for anybody would be to start watching a series of financial new broadcasts such as Mad Money or Fast Money just to be able to start familiarizing your self with the investment community to start being able to decipher norms, assumptions, sentiment, and to even get evaluation guidance on exactly what constitutes good trades vs bad ones etc.