Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.
Rule no. 1: Always buy stocks with earnings. Earnings are what investors get to keep. The more earnings a stock has, the higher the price will go. Don't buy hope or future earnings. Buy earnings that are happening now, especially the ones that are increasing every year.
Rule no. 2: Always do your research. Don't buy a tip just because a talking (or screaming) head says a stock is good. It might be good for them but not for you. Since no one will tell you when to sell, if you don't do your homework, you can't know when the stock is overvalued and should be sold. It may be overvalued when you buy it. You won't know if you don't do your homework. And you won't know if it's the right type of stock for you. For example, if you're looking for a dividend and the stock is in the early stages of biotech, then it's definitely not for you. Do your research well and know what you own. Then you'll know when a stock is cheap or rich, when to buy or when to sell.
Rule no. 3: Always follow your stocks. You can't just buy and hold anymore. While you should be a reluctant seller because you've done your research and bought strong stocks, things change, things like management, competitive environment, economic conditions, etc. Nothing stays the same, ever. Sometimes the evolution works in your favor. Sometimes it doesn't. The best companies evolve ahead of change. Look at Apple, Inc. (NASDAQ:AAPL) as an example of a company that is changing dramatically, even its the name (now it's just Apple, Inc., not Apple Computer). Don't sit and hope for the best. Follow your stocks and the financial news. Use your TV computer, newspapers, magazines. News is everywhere, not in one medium.
Rule no. 5: Always diversify. That's the best way to avoid being caught with too much MCI, Enron, or Adelphia. While some investors like to concentrate their holdings in only a few stocks because when they do well, they make it big. The problem is that not all of them make it. Some of them make it very small before they disappear. Let the gamblers concentrate. You need to diversify to spread your risks. You'll be rewarded handsomely if one of your stocks does extremely well. You won't be wiped out if one of them collapses.
Rule no. 6: Always read books about investing. There's no getting around the education process of investing. In order to understand markets, stocks, and bonds, you need to read. There are hundreds of good books. Look them up in your public library under "Investing" or "Personal Finance." Or go to Amazon and use the same generic search words to find many of them. There are no shortcuts to learning about the stock market. Much like your computer experience, no one gets to simply start out and do well. You will make mistakes as you learn, but by reading, you will avoid several of them. The graduate school of investing is costly at times. By reading good books, your tuition will be much lower.
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
