Skip to content

Stock Market Profits

May 15, 2012

    

                                     

                                                      

A STOCK MARKET PRIMER FOR THE SMALL INVESTOR

 

May 15, 2012

With all the talk about Derivatives, Mutual Funds, Options, Puts and Calls abounding, EQUIDATA1 feels a little primer for the wary small investor is in order here after the latest Wall Street debacle.

Here are a few simple rules to follow in order to keep your sanity and guard against losing your shirt in the markets. Although there are dozens of investment strategies that the average individual small investor need not know about, here are some of the least important: commodities, limited partnerships, derivatives and any acronyms which sound like computer language including: TIGRS, M- CATS, STRIPS, UIT’s, REITs’, IPO’s and REMICs, also short selling, call writing and futures trading.

If you don’t know what these mean, not to worry, you don’t have to know to be a successful investor on Wall Street because these are legitimate investment strategies created for the professionals who can devote full-time to their intricacies.

For the average investor however these strategies are just too complex and tricky. You could read a dozen books, watch all the cable and TV shows, get an MBA from Harvard and you still wouldn’t know enough about this stuff to do much good. We think especially the MBA from Harvard.

Here are some things you needn’t know about:

COMMODITIES

Anything that eats or grows should be avoided. These are future contracts to buy or sell certain amounts of wheat, pork bellies, oats, or other such commodities within a certain period of time. Not that these can’t be good investment vehicles but they require an enormous amount of time to research and they are very complex when trying to invest in them and no matter what you hear about people making a killing in commodities futures, over 90% of investors in commodities, lose their shirt.

OPTIONS

Options are agreements allowing an investor to buy or sell shares in a stock within a certain period of time for a specific price. Puts are options to sell and calls are options to buy. Most smart and successful investors stay away from options because they can be very time-consuming. This time could be better spent researching individual stocks to buy in the accumulation stage to later sell at much higher prices. The commissions alone should deter most small investors from getting involved in options.

DERIVATIVES

Derivatives, in the most simplistic of terms, is the buying of a contract on a certain commodity, interest rates, currency values or… well..You name it… whose price is based on some future event. Derivatives are somewhat like commodities, except much less gray matter in the brain is required to engage in this futile effort unless you can control the future event! Enough said!

IPO’s

IPO’s stand for Initial Public Offerings of stocks. Once issued however, their price usually head south in a grand manner. Avoid IPO’s like the Plaque unless you have some inside information and can stand to hold on to the stock for years and years. Even then, it’s gambling unless you’re on the “INSIDE” of the deal.

UIT’s

These are Unit Investment Trusts or a fixed portfolio of stocks, municipal bonds and mortgage-backed securities. Yields are usually low and are not guaranteed. Commissions can be very high and the market can be limited when you want to sell. Although UIT’s are similar to mutual funds, we would not recommend either for the smart investor. Remember, you need not pay some fund manager a high salary for doing what you can do for yourself by devoting some time to researching stocks and keeping your eye on industry trends which are producing the biggest gains on Wall Street. The returns of from 50% to 300% for the average investor who does his own home work, is reward enough for the trouble.

SHORT SELLING

Short selling is the practice of an investor selling stock borrowed from his broker in hopes of buying back a like amount of shares at a lower price and returning them to his broker. If the stock does go down, you can pocket the difference between what you sold it for and what you paid for it when you bought it back to replace it.

Obviously, if the stock goes up after you sold it short, you could lose not only your shirt but your shorts too and any other assets you may have as well. Let’s put it this way. It’s like playing Russian roulette with the gun half loaded for all but the most seasoned and savvy investor.

CONVERTIBLE BONDS

Convertible bonds are bonds, which can be converted into a fixed number of shares of the company’s common stock. The interest they pay are less than that of regular bonds and the appreciation is far less than that which can be obtained from the regular stock.

High Yield Securities or commonly known as “JUNK BONDS” pay higher yields due to the higher risk you take with then. Zero Coupon bonds pay no interest but sell at a discount and can be redeemed at maturity for the full face amount. The return is modest and inflation dilutes the value. If you ever need the money and cash them in early, you’re in for a staggering loss. In short, most investors should stay away from individual issues of convertible, junk and zero bonds.

The successful Stock Market trader need only to concentrate on the simple principle of Buy Low and Sell High and do his/her research on any company considered to be a good investment opportunity. Armed with the knowledge of how the Stock Market works and the pitfalls therein, any sensible person can make profits from trading stocks. To help in this endeavor Equidata1 has produced a Seminar which will guide small investors through the hurdles of making Wall Street profits. Available on CD ROM purchased from PayPal or eBay. 

More information can be obtained  by logging into http://wp.me/p1EYaQ-4

 

Advertisements

From → The Stock Market

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: