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Phory · 10-10-2005, 05:36 PM

Be extremely wary of anyone who has a website and claims to be able to pick stocks. In fact you should be wary of anyone who claims to be able to pick stocks and beat the market. The vast majority of the best professionals in the world cannot pick stocks that outperform the market as a whole over the long-run. Most of those who have are probably just lucky.

Getting excess risk vs. reward is difficult. Contrary to the online brokerage commercials picking stocks successfully is difficult and takes a lot of work and research.

Here are a few tips:

(1) Since it is very difficult to beat the market, one good idea is to just buy the market. The cheapest and easiest way to do this is to buy Echange Traded Funds (ETFs) These are baskets of stocks that trade as one symbol. Here are some examples:

SPY - the S&P 500 index.
IWM - The Russel 2000 index
QQQQ - The Nasdaq 100 index
OIH - Oil Industry Holders index

(2) Small and midcap stocks outperform the large cap stocks over the long-run. However these might end up being more volatile over any particular stretch of time. If you are young, I would weight your portfolio towards smaller capitalizatoin stocks.

One easy way to do this would be to put say 60% of your money in IWM (the stocks in the Russel 2000 are small cap stocks). And put the other 30% in SPY. (The stocks in the S&P 500 are large cap stocks).

(3) Dollar cost average. Unless you spend a lot of time researching and learning you are unlikely to be successful timing the market. Even if you do devote a lot of time to learning and researching, odds are that you still won't be very successful at it. This is how dollar-cost averaging works. At fixed intervals, you deploy a portion of your capital. Figure out how much money you can afford to invest each month, and invest that same amount every month. Work in the 10 grand you allready have in with that over say 6 months maybe.

James Altucher recently wrote an article on realmoney.com, where he showed that anyone who started dollar-cost averaging in the SPY or the IWM at the height of the market in 2000 would have a positive return at the time of the article's writing. Even if you'd invested in QQQQ, you'd only be down a little bit.

(4)
If you want to try to time the market. Bob Brinker's newsletter is pretty good.
http://www.bobbrinker.com/
I don't personally use it, but my Mother who is a Financial Planner, uses it for investing her and her clients' money. He also has a radio show which I listen to occasionally and have always liked. His approach is to attempt to time the market using portfolios of ETF's, and he keeps various model portfolios for various investment objectives.

Relmoney.com has several stock-picking newsletters that are ok. By ok, I mean I don't think the authors are trying to rip you off. Whether any of them can make you money in the long term remains to be seen. They are the Jim Cramer's Action Alerts, Stocks under 10 dollars, and their Options Newsletter. These newsletters are probably a little more advanced (and will require more active trading) than brinker's newsletter.

Both bob-brinker's service and the advisery services you can get from realmoney.com cost money to subscribe to. Don't expect to get good stock-market analysis for free.

(5) Here's some good books to read about investing:

None of these books give actual strategies except Practical Speculation (in sort of an abstract sense), Trade like a Hedge Fund, and Trade Like Warren Buffet. The reason for reading these books is to learn how the stock market "really" works, and so you will know what you are up against. They can also help you to sort of develop an "overall philosephy" about the markets. I listed them in order I would read them in.

Confessions of street addict - Jim Cramer
Practical Speculation - Niederhoffer
Fooled By Randomness - Telab
Trade Like a Hedge Fund - Altucher
Trade Like Warren Buffet - Altucher

(6) One of the best ways to improve your odds in the stockmarket is to pay less commission. There's no reason to pay more than a buck to make a trade these days. This is the absolute cheapest retail broker there is:

www.interactivebrokers.com

DISCLAIMER: Much of the advice I've given I don't actually follow myself... (Except for the book and brokerage recommendations)

10-10-2005, 05:36 PM	#2 (permalink)
Phory Upright	Be Careful Be extremely wary of anyone who has a website and claims to be able to pick stocks. In fact you should be wary of anyone who claims to be able to pick stocks and beat the market. The vast majority of the best professionals in the world cannot pick stocks that outperform the market as a whole over the long-run. Most of those who have are probably just lucky. Getting excess risk vs. reward is difficult. Contrary to the online brokerage commercials picking stocks successfully is difficult and takes a lot of work and research. Here are a few tips: (1) Since it is very difficult to beat the market, one good idea is to just buy the market. The cheapest and easiest way to do this is to buy Echange Traded Funds (ETFs) These are baskets of stocks that trade as one symbol. Here are some examples: SPY - the S&P 500 index. IWM - The Russel 2000 index QQQQ - The Nasdaq 100 index OIH - Oil Industry Holders index (2) Small and midcap stocks outperform the large cap stocks over the long-run. However these might end up being more volatile over any particular stretch of time. If you are young, I would weight your portfolio towards smaller capitalizatoin stocks. One easy way to do this would be to put say 60% of your money in IWM (the stocks in the Russel 2000 are small cap stocks). And put the other 30% in SPY. (The stocks in the S&P 500 are large cap stocks). (3) Dollar cost average. Unless you spend a lot of time researching and learning you are unlikely to be successful timing the market. Even if you do devote a lot of time to learning and researching, odds are that you still won't be very successful at it. This is how dollar-cost averaging works. At fixed intervals, you deploy a portion of your capital. Figure out how much money you can afford to invest each month, and invest that same amount every month. Work in the 10 grand you allready have in with that over say 6 months maybe. James Altucher recently wrote an article on realmoney.com, where he showed that anyone who started dollar-cost averaging in the SPY or the IWM at the height of the market in 2000 would have a positive return at the time of the article's writing. Even if you'd invested in QQQQ, you'd only be down a little bit. (4) If you want to try to time the market. Bob Brinker's newsletter is pretty good. http://www.bobbrinker.com/ I don't personally use it, but my Mother who is a Financial Planner, uses it for investing her and her clients' money. He also has a radio show which I listen to occasionally and have always liked. His approach is to attempt to time the market using portfolios of ETF's, and he keeps various model portfolios for various investment objectives. Relmoney.com has several stock-picking newsletters that are ok. By ok, I mean I don't think the authors are trying to rip you off. Whether any of them can make you money in the long term remains to be seen. They are the Jim Cramer's Action Alerts, Stocks under 10 dollars, and their Options Newsletter. These newsletters are probably a little more advanced (and will require more active trading) than brinker's newsletter. Both bob-brinker's service and the advisery services you can get from realmoney.com cost money to subscribe to. Don't expect to get good stock-market analysis for free. (5) Here's some good books to read about investing: None of these books give actual strategies except Practical Speculation (in sort of an abstract sense), Trade like a Hedge Fund, and Trade Like Warren Buffet. The reason for reading these books is to learn how the stock market "really" works, and so you will know what you are up against. They can also help you to sort of develop an "overall philosephy" about the markets. I listed them in order I would read them in. Confessions of street addict - Jim Cramer Practical Speculation - Niederhoffer Fooled By Randomness - Telab Trade Like a Hedge Fund - Altucher Trade Like Warren Buffet - Altucher (6) One of the best ways to improve your odds in the stockmarket is to pay less commission. There's no reason to pay more than a buck to make a trade these days. This is the absolute cheapest retail broker there is: www.interactivebrokers.com DISCLAIMER: Much of the advice I've given I don't actually follow myself... (Except for the book and brokerage recommendations) Last edited by Phory; 10-11-2005 at 10:51 AM.. Reason: Corrected the words "Positive balance" to "positive return"