Taking Advantage of the Stock Market
Is the market rebounding? The Dow, leveling out each week because
it gets a rise in the market one day and a pullback the next day,
comes from investors' taking their profits. This will probably
continue for a year or so until the really large investors such
as Hedge Fund Managers, Institutional Investors like Mutual Fund
and 401(k) managers start purchasing the really great stocks at
lower prices for the longer term.
You might start looking for those investments that might be a
great buy and start to determine your strategies for owning new
mutual funds or stocks. You may have a deeply hidden desire to
own stock in a company like this 64 year old client never really
interested in investing any money for his future. I guess no one
had explained that you could put any investment into your Roth or
traditional IRA or after-tax investments. When he heard this he
said, in a very mild mannered voice, "Could I own stock in
Being prudent and fiscally responsible we discussed what money
would be used, how to choose an investment, and what exit
strategies we were going to devise for his portfolio.
Step 1. Review of your finances. Have you determined that you do
have discretionary income that could be used to invest? While we
will discuss strategies for choosing stock and discuss when you
will get out of the investment, the money will be at risk if
investing is a choice you make. It is very important to recognize
that there is a danger of loss in any investment.
Choosing a stock could be as simple as the client above stated,
knowing about a company and wanting to own shares or you may want
to do your own research into stocks of various companies or
sectors. While you are looking at your stock choice you will want
to read some of the newsworthy items regarding the business or
sector itself. Identify problems that may have been causing the
stock price to fall or to rise. Look at merger information, read
the annual report of the company you are considering.
Step 2. Start to follow the stock price in the paper or online.
Start to form a list of those items that may be important to you
about the stock, itself. Does it pay dividends? How did the stock
perform in the last period of 2000-2008? What is there about the
stock that you like? Find worrisome? Has the stock been
repurchased by the company recently, and why? What is the current
The newspaper will give you a variety of information about the
company you are choosing. Compare it to other companies. Make
sure you understand terminology or importance of concepts used to
describe the stocks such as selling on large volume, 200 day
moving average, etc. Go on-line or discuss the information with
Step 3. Determine an exit strategy. Exit strategies are very
important when deciding to own or purchase stocks. You must have
a plan for buying and selling your stock. In years past investors
used a buy and hold strategy that kept them tied to their
investment for the long term, many years. Investing today is
based on exit strategies.
Step 4. Choose an Exchange Traded Fund (ETF) or stock, decide the
percentage of profit you will make before you sell it, and then
sell it. Some investors think 8% over your purchase price, others
10%. But having a plan is essential. Buy and hold is not as clear
an option as it once was.
You may want to choose to sell the stock if it is not growing
after 3-6 months. Instead of keeping the investment for the long
term, sell it, buy something else you have researched that does
have better growth potential. Investors are selling to get back
their profits and it may be what is hindering the growth of your
Step 5. Look at opportunities to protect your profits with a
stop/loss. A Stop/loss strategy will allow you to protect your
profit by placing a stop(sell) to prevent a loss on your
investment. You could further, protect profits by continuing to
move the stop/loss upwards as your profits increase, always
staying about 2-3% below the current price. If the stock begins
to fall and hits your stop/loss price, it will automatically be
sold. Meanwhile, look for the next stock to invest your profits.
Irene A. Majchrzak helps people retire debt-free with a sense
of well-being and the freedom to have the things they want.
Get her free ebook, Debt Free to Retire, by going to