• The inevitable happened, and those wise enough or smart enough to quit while they were ahead made good money in this multi-year economic rising. For the average Joe who let the supposed “experts” handle their money, they lost close to half of everything if not more. This is why I quietly get filled with rage whenever I see mutual fund commercials.
• It is pretty amazing when you sit back and think about all of the corruption that has been going on in the past years that led to this economic crisis. Numerous people are coming out now and speaking about how horribly corrupt things had gotten, yet there was nothing that could be done to stop it. If you had a conscience and wanted out (regardless of what industry you worked in that contributed to this disaster), you were quickly and easily replaced by someone else. If you tried to warn people, as many economic advisers did, you were simply ignored by the public and the media because everyone was too happy making money in the short term.
• I’m quite conflicted as to my own performance for 2008. While I was mostly cash for the entire year (and thus could not gain or lose much), percentage wise my portfolio ended 2008 down roughly 18%. That should be awful news, but in comparison to the S&P 500’s own performance, I could be doing considerably worse.
• In the end, we reap what we sow. Greed and corruption were rampant, and now we’re in a deep recession. However there’s always a positive way to spin something, and I expect this recession to boost our country’s economic and financial conscience for at least another 20 years. Too long has apathy been a characteristic of our nation, and hopefully now people will begin to care.

Happy New Year everyone, and may 2009 bring us a much brighter tomorrow.

Foreclosed homes are often targets for breaking and entering, squatters, and other such illegal activity. As such, you need to take precaution when viewing these properties.

Announce Yourself

Announcing yourself before you enter is apart of property viewing 101; There could be someone illegally living in the property, or there may simply be another person there inspecting the property. I always give a quick knock on the door right before I open up the property. Further, saying your name aloud and your reason for being at the property as you enter is also a great safety measure. Because on the flip side of this issue, if you were inside a foreclosed property and suddenly you heard movement or voices within the house and didn’t know another potential buyer had entered, you’d be expecting something much worse; It’s simply common courtesty to prevent an escalated misunderstanding.

Never touch exposed wiring

The majority of the time foreclosed homes have their electricity shut off, either by the power box or by the actual electricity provider. However you should never assume the electricity is off simply because the lights, air conditioning, fans, etc. are off. In some cases the electricity may be on, but because of prior visits from other interested parties/inspectors, only some parts of the house may have the electricity shut off. For this reason, if you ever see exposed wiring in a foreclosed home, always treat the wires like they are hot, and never ever touch them.

Carry Protection

A non lethal form of protection can go a long way in keeping you safe from potential attackers and lawsuits. I don’t recommend you carry anything that can inflict permanent or significant damage. A tazer or mace are more than sufficient to stop an average man, and are less sever than a knife or a firearm. Plus a firearm requires a license to carry.

Chances are you won’t run into any trouble in a foreclosed property or need to utilize these safety tips when you are there, but it’s only to your benefit to take no chances. So please be safe, view these properties with precaution.

For the majority of people with even the slightest degree of economic intelligence, the real estate bubble’s collapse was like being a beach lifeguard and seeing a massive tidal wave off in the distance. It was frightenly visible, you knew it would create massive chaos when it finally touched down, and there wasn’t a damn thing you could about it. And now that the speculation on whether subprime lending will affect the overall economy is now a reality, we are seeing many people come out with excuses and try to put the blame on one specific group or the other. The truth of the matter however is that we all are to blame, and Confessions of a Subprime Lender by Richard Bitner clearly shows us why.

The book Confessions of a Subprime Lender is written by Richard Bitner, the former president of Kellner Mortgage Investments who was wise enough to get out of the business before things began to implode in the subprime lending industry. The book covers a wide range of topics such as the history of subprime lending, how conflicts of interest in the lending industry came about, how subprime mortgages work, why the industry was fundamentally flawed, and how just about everyone contributed to the problem in their own ways.

The book gives many examples of the horrible lending practices that occurred on a daily basis, and does a great job of painting the entire picture of what led to the real estate explosion and implosion. Everyone from loan officers, to realtors, to arguably the Federal Reserve receive their justified criticism for fueling the real estate bubble in this book. It’s also kindly written in an easy to understand manner so that average joes who aren’t mortgage savvy can easily pick up and book and read through it without any problems.

Overall Confessions of a Subprime Lender is a great read for anyone and everyone. If you love economics, real estate, investing, or even history (because this is history in the making), you’ll enjoy this book. You can tell from the instant you open it that you’re getting an insider view of what went wrong from a very knowledgeable man with a conscious. I’m not claiming Richard Bitner is a saint, but sometimes the best information comes from the criminal with all of the inside information.

Pros of Real Estate Investing

A Tangible Asset
Real estate is a tangible form of investing; You invest in properties, and you can physically see and feel your investment. This is somewhat of a luxury, as you can rest easy knowing at the end of the day that your investment isn’t going anywhere (unless it’s a mobile home of course). With stock market investing, you only have a computer screen showing you what you own… unless you request to have hard copies of your shares.

True Value No Matter The Economic Health
When it comes down to it, no matter if you overpaid for a property or got a great price, you still own a piece of property. Real estate will always have value, even in the worst of times because real estate is one of our basic needs. People need homes to live in, businesses need places to conduct business, and real estate will always be in demand for that reason. This doesn’t mean you can’t lose money in real estate, but it does mean that if you hold a piece of real estate free and clear, you own an asset with true value.

Efficient Markets Don’t Truly Exist
With real estate investing you don’t really have efficient markets, or markets with true transparency like you do with the stock market. What I mean by this is that you can’t just easily come up with a value for a property; You can do your due diligence and reach an estimated fair value price, but it just doesn’t compare to the kind of research and information available on the stock market. This is a good thing though, as inefficient markets present great opportunities for bargain priced deals. Sometimes people just don’t know what is the right price to sell at, other times people are desperate and price their property extremely low. If you are familiar with your local real estate market you can easily identify these deals and invest in them.

Cons of Real Estate Investing

Not Liquid At All
Unlike the stock market, real estate investing is not a quick buy and sell atmosphere. Even if you bought a property and had a buyer lined up for it the next day, closing the deal would still take about a month on average. This can be a problem if you need liquid cash immediately, and it’s a definite disadvantage compared to stock market investing.

Steep Learning Curve
In real estate you have to be knowledgeable in many different ways, and you have to have experience (or the ability to learn quickly) to overcome many little oversights or difficulties that will often come up. Knowledge is required in every sub category of real estate: mortgages, titles, insurance, construction, negotiations, market familiarity, appreciation potential, income potential, etc.. you have to be somewhat of a jack of all trades if you want to invest properly or it could cost you everything.

Significant Liabilities
If you own shares of a publicly traded company, you are not held responsible for the company’s actions and thus cannot be held liable for any illegal activities. However with real estate investing, you are pretty much a target for the sue-happy type. You’ll need insurance to protect yourself from the shady tenants who try and reach in your pockets, or when someone accidentally hurts themselves on your property that was entirely their own fault.

The famous investing philosophy to be fearful when others are greedy, and greedy when others are fearful comes from the king of wise investors, Warren Buffet. This philosophy is timelessly profound, can be applied to any form of investing, be it real estate, the stock market, etc., and is simple to understand.

When others are greedy, it commonly means a recession is soon to follow, or at the very least that a bubble exists. You should be putting into consideration all of the potential risks when you do investments in a time of greed. However when others are fearful, it usually means we are in a deep recession or soon near it. This is the time to be greedy, when prices are dropping like flies because people lose perception of value in the midst of all the chaos. During times of fearfulness is when all the bargains can be found, and where the seeds are planted.

Our economy will recover and collapse time and time again, that is for certain. What isn’t for certain is whether you will keep a clear head through it all and stay the wise investor.

Sometimes investing can be incredibly simplified using common sense techniques. Applying common sense to your investing usually results with profitable returns too. The reason that using common sense works is that for some unexplainable reason there is a lack of it used in the stock market. As such, you can use common sense to somewhat predict/anticipate future stock market moves.

As I write this article, the stock market has taken an ugly tumble downward in the past few days. Fortunately for me I haven’t had so much as a penny invested in any stocks right now. The reason why I have my portfolio positioned 100% in cash is because I anticipated a poor start to the new year. How was I able to do it? I used common sense. Here’s how it’s done…

Look at the variables, and “become the market”…

Last year ended on a bad note with stock prices falling heavily. Meanwhile, oil prices were rising, concerns of recession and stagflation were becoming more prevalent, and the real estate crisis just kept getting worse. Despite the fact that many stocks were getting lower in price and looking attractive, I had to take a step back and ask myself some common sense questions. Questions like “Why would I want to be buying stocks right now?”, “What reasons do we have to look forward to a strong economy this year?”, and “Are we just delaying the inevitable recession?” ran through my mind.

Eventually the answer became clear that stocks were not the best choice at the moment. I also knew I wasn’t the only one who saw all of these red flags, so I anticipated that “the market” would feel the same way and wouldn’t want to be buying stocks right now. Going back to basic economics, more selling and less buying means lower prices.

That my friends, is common sense investing.

It feels great to have outperformed the market this year. This year ended with my portfolio up 15.78%, while the three major indices (S&P500, Dow Jones, Nasdaq) finished up for the year 4.24%, 7.24%, and 10.73% respectively. However the most significant percentage is the S&P500’s 4.24%, as the S&P500 most accurately depicts the entire stock market’s performance with its broad range of companies listed within it. With that in mind, I beat the market by over 300%!

For the most part I’m not saying this to brag, I just want my readers to see that I am a successful investor and I am capable of outperforming the market. So how did I do it? I was 100% in cash when two stock market corrections occurred in 2007 and I explain how I was able to do this with my article “How to Avoid Stock Market Corrections and Crashes“. Further, I invested with a list of rules to invest by created by myself, and stuck to investing only in stocks with good fundamentals.

My biggest winning stock of the year was Apple, a stock I horribly regret not holding onto longer. I learned this year that if I believe a stock is great but the economy/stock market looks troubled, I should only sell a portion of my shares. I made the mistake of selling all of my Apple shares because I was too worried about a stock market crash.

It’s funny to me when I think back to the first day I opened an account with Ameritrade and bought my first shares of stock. I knew so little about investing, the stock market, and economics at the time. But I couldn’t care less; I was so enthralled by my fascination for the stock market that I ignored all rationale and dove head first into the stock market like a man into a sea of hungry great white sharks. This is the pathetically humorous story of my introduction to the stock market.

How it started…

It started in late 2005 when during a conversation with my girlfriend she mentioned that she owned some shares of Coca-Cola. I remember thinking it was interesting, but didn’t give it much thought and our conversation quickly turned to other subjects (because I’m a random topics kinda guy). After a short period of time though I began thinking about the stock market and it reminded me of an online video game I used to play that had an economy in it. And of course when I played that game I was incredibly diligent at having the best items and most gold, so I quickly learned the ins and outs of that video game’s economy. So with this in mind, I thought it would be amazing to see what it would be like if I applied that passion to the real economy and stock market.

So I went to the Ameritrade’s website and opened up a brokerage account with them and funded it with the bare minimum. I remember thinking how overwhelming everything was. I was switching between tabs and asking things like “What is a market order?”, “What is volume?”, “What should I buy?” as if I had any idea what I was doing. I played around with the web site for about fifteen minutes and somehow concluded that I was ready to buy my first shares.

Want a free a song? My first shares…

I chose the incredibly successful company known as Napster for my first stock purchase. I really can’t remember why I chose Napster; I never used their paid service, and never thought it was anything worthwhile. Nonetheless I felt like a proud owner, joking with my friends that “I own 0.000017% of Napster, want a free song?”. Of course I didn’t even own that small percentage, because I was doing my calculation based on the daily volume instead of the stock’s market capitalization (not understanding the difference).

I had bought about $800 worth of stock, and became incredibly excited when I saw the share price rise a few cents. I didn’t understand the concept of percentages and was only concerned with the immediate dollar value changes. I eventually went on to sell the stock for a gain of nine dollars.

The bottom line…

I can’t believe how naive I once was and how ridiculous my thought process used to be when it came to deciding what companies to invest in. I would sit and think “Which company will come out with the next iPod?” and then go out and invest in stocks like Nike for no real arguable reason. But I can’t say I regret this since it all got me started on my path to investing properly and investing successfully.

You can take some lessons from this story of my start into the stock market if you are a non-investor thinking about getting into it. If you want to dive head first into investing, trading, and the stock market, just remember there is an incredible amount of ideas, concepts, and terminology that you need to learn. In my story alone I didn’t understand

• Volume
• Order types
• Market Capitalization
• Percentages over Dollar values

And that’s all while not investing without any sort of plan or strategy. If I had to do it all again, I would’ve read all those stock market books before I started buying stock, not while I was already buying stock. The only good part of all of this is that I invested with a very small amount of money that I could afford to lose. So even if I lost every cent I wouldn’t be living out on the streets, and would atleast have gotten an education if I failed.

How did you get started?

How did you start out investing or trading in the stock market and what inspired you? I’d love to hear from everyone what got them started and what rookie mistakes they made. Don’t be shy, leave a comment and tell us your story! It can’t be any worse than me buying shares of Napster (I was being sarcastic earlier about it being an incredibly successful company if you didn’t notice).

This month’s poll asks what you think about 2008’s future.

Bullish means your outlook is positive, Bearish means negative.

How do you feel about the Stock Market for the 2008?

• Bullish
• Bearish
• Unsure

View Results

As an example: A financial news reporter states “We’re seeing prices head higer as the market believes the Federal Reserve will help ease lending issues. On the whole however the Stock Market has experienced some wild volatility as the market has struggled to find direction”.

In this example, the financial news reporter is saying that stock prices are rising because the majority opinion (”the market”) is that the Federal Reserve’s actions will help the Stock Market. In the second sentence, the reporter is stating that the stock market has experienced volatility because the majority opinion (”the market”) continued to switch it’s mind on whether to be positive or negative about the future of the Stock Market.

But why does the majority opinion matter?

The majority opinion matters because it is a collective reflection on whether we want to be buying or selling stocks. This goes back to basic economics; More buyers than sellers will cause prices to go higher, and more sellers than buyers will cause prices to go lower. So the majority opinion matters because it determines which direction stock prices will go.

E-Trade Financial (Ticker Symbol: ETFC) is showing their appreciation to their loyal customers by offering one full day of commission free trading on Wednesday Dec 19, 2007. This is coming after E-Trade’s stock price recently plummeted on lending troubles followed by rumors of takeovers or bankruptcy.

As you may or may not know, I use E-Trade for all of my investing needs and I’ve always considered them to be one of the best online stock brokerage firms. So I was very worried when this happened, and took whatever money wasn’t invested in stocks out of my E-Trade account and into a more stable bank until the chaos ended.

With all that being said, I am not too impressed by this “show of appreciation”. I am not a day trader and I’m willing to bet that a good majority of E-Trade’s customers aren’t either. So the typical investor won’t benefit from this at all, unless they decide to go buying up stocks on Wednesday. However that is definitely a bad idea since the stock market is looking increasingly bearish and the average investor does not participate in short selling.

So really this doesn’t offer any value to E-Trade customers and I’m assuming that it’s intentional. Their image gets boosted while simultaneously not loosing much in potential commissions fees. If E-Trade really wanted to show their appreciation, they’d offer X amount of commission free trades instead of no commission fees on one specific day.

Here’s another comic brought to you by Cyanide and Happiness. Enjoy.

What is Short Selling?

Short selling is the method by which investors and traders profit only if the price of a stock goes down. It is the opposite of buying long, which is the process of buying stocks and profiting only when they go higher in price. It is a risky strategy with limited upside, but it does enable you to make money if stock market prices are on the decline.

How does it Work?

The process of short selling stock works by first borrowing stock that you do not own. This can be considered the “buying” (or acquiring your shares) part of short selling. When you wish to no longer keep your borrowed shares, it is known as ‘buy to cover’ as you are buying the shares to cover the shares you borrowed. When you buy to cover, you purchase the shares at their new price versus the original price you short sold them at. If the new price is lower than the original short sell price, you’ve made a profit.

Here’s an example of short selling in action:

Suppose you short sell 100 shares of XYZ stock at $10 per share. You now are borrowing 100 shares of XYZ stock. Then XYZ drops in price to $95 per share, and you want to cash out and take your profits. So you ‘buy to cover’, which means you buy XYZ stock at $95 per share, and returned the shares to the lender of the XYZ stock who you orignally borrowed from. You then profitted $5 per share.

Downside of Short Selling

The biggest issue with short selling is the maximum return on your investment is 100 percent. This is because the most a stock price can go down is 100 percent. This is a problematic restriction to short selling by comparison to buying long. This is because when you buy long a stock you can theoritically make an unlimited percentage gain on your investment since stock prices have no rising limit. That’s just stock market mathematics for you.

Further, short selling only works as a short term strategy. History tells us that the stock market is always going higher in terms of prices, so short selling the stock market definitely wouldn’t be a smart idea if you are a long term investor. If you wish to be profitable with short selling, you need to be more focused on the short term, which means being more actively involved with your portfolio.

Knowing how much you should invest in the stock market is incredibly important to figure out for your own financial sake. We’re all different in terms of our age, net worth, and risk-tolerance; A simple “invest 50% of your net assets in the stock market” recommendation is too vague for anyone to go by. So this article will show you what’s important when it comes to deciding how much money you should invest in the stock market.

Ultimately only you can decide what the right amount of money to invest in the stock market is. Nonetheless, these are the factors you need to consider when deciding how much of your money should go into stocks.

Take into Consideration:

Your Age

The younger you are the more aggressive you can be with your investments since you have more time to earn any money back that you may lose in the stock market. Retired and soon to be retired investors don’t have this luxury and have to look at investing much more cautiously than say a 25 year old. Since retired individuals usually rely on the dividends of their invested money to sustain their standard of living, they need to invest less to lower their risk.

How Aggressive You Wish To Be

In general, the more risk you take on the higher your potential gains and losses are. The more money you invest, the more risk you are essentially taking on (even if you invest in low risk stocks). So ask yourself what your goals are for the present and for the long term, and determine how aggressive you are on a 1-3 scale (1 being non-aggressive, 2 being neutral, 3 being aggressive).

How Good of An Investor You Currently Are

I’m a firm believer in the more experienced and skilled you are, the more you should invest (up to a certain point). In my case, I only invest 25% of my net assets. However as the years go on, I will consider myself worthy of taking on more risk given that I have more knowledge, skill, and experience under my belt.

Always remember:

Don’t invest money you can’t afford to Lose

The money you invest in the stock market should never, ever, ever, ever be money that you can’t afford to lose. Regardless of how much of it is invested, if you invest with money you need to sustain your standard of living you are putting too much risk and pressure on your portfolio and yourself.

Invest only as much as you are comfortable losing

While we all hope that we are successful in our investments, it is unrealistic to assume we couldn’t possibly lose every cent we put in. So when asking yourself “how much should I invest?”, remember that you need to be more comfortable with the fact that whatever amount of money you invest can possibly all be lost. Not only will this help you determine the level of risk you want to take on, but it will also keep you humble about your investments.

With all of this taken into consideration, you should have a rough estimate of how much of your money should be invested. However please speak to a non-commission based financial advisor/financial planner if you still feel unsure of how much you should invest.

Short Selling Stocks Is Anti-American

The Belief: Since you are short selling stocks you are hoping to make money when companies do poorly or go out of business, and thus are encouraging our economy to fail. This would be the opposite of “buying long” in hopes of the stock market going higher in prices and our economy strengthening.

The Truth: Short selling stocks is no different than buying stocks in the typical “long position”. The fact of the matter is that some companies are not bright spots in our economy, and are destined to fail regardless of whether you short sell the stock or not. In rare cases, short sellers can bring to attention scandals within companies and help bring the truth out, such as in the Enron scandal in 2001. Short selling is clearly not anti-American.

When Someone Makes Money, Someone Else Loses It

The Belief: This is the belief that the stock market is a zero-sum game. So when one investor losses money on a stock, someone else has gained that money. In essence, it is the belief that money never grows in the stock market, but is simply transferred from the ignorant to the savvy investor.

The Truth: This is a tricky stock market myth as it can be true in some situations, but in general the stock market is not a zero-sum game. What allows the stock market to go against this belief is that over the long term investors can all profit as long as the stock market is constantly going higher. So even if I lose some money on a few stocks this year and gain on some others, if I invest for the long term I will be profitable as will all other investors since prices are continously going higher over the long term. Only in the immediate short term can the stock market be considered a zero-sum game, where one investor’s loss is another investor’s gain.

Buy And Hold Is The Best Strategy

The Belief: The best way to grow your money is to find stocks you like and sit on them for as long as you can. You can’t beat the stock market, so you might as well just wait it out for many years.

The Truth: Unforunately while this used to be true many decades ago, the truth of the matter is that buy and hold is an extremely poor strategy in this day and age of the stock market. There are few companies these days that provide both genuine value and growth, and that is why buy and hold is an obsolete strategy.

You Can’t Beat The Stock Market

The Belief: Beating the stock market’s own performance is not possible, and those individuals that do actually accomplish this feat will not have their “luck” last for long. Don’t bother trying to outsmart the stock market, just accept that you aren’t going to outsmart the millions of other investors who believe the stock market isn’t beatable.

The Truth: The stock market is able to be beaten in terms of performance! Investors and traders do it every year, and some do it every year consistently. While it is not an easy to accomplish, it is at the very least possible. With that being said, most investors simply don’t have the time to actively manage their portfolios and thus do not have the ability to outperform the stock market over the long term, which is why this myth refuses to die.

Fundamentals Don’t Lie

The fundamentals of the Dot-com bubble were horrible, most new public companies weren’t profitable and some had no intention of ever making a profit. IPOs were going sky high while the business model itself showed no realistic way to turn a profit. These big warnings are known as red flags, and they were everywhere during the dot-com bubble. The educated investors and professionals in the stock market saw these red flags and knew that a crash was coming, and that’s why they were successful during the Dot-com bubble. The rest were left to fight to sell their rapidly devaluing stocks.

Lesson learned: If you are investing in the stock market for the long term, don’t invest when prices are overvalued and fundamentals are poor. The combination of these two problems are practically begging for an eventual stock market crash if things don’t turn around. You want to invest when you see nothing but green flags, not red.

Trading stock market momentum is fine, but always remember it’s just momentum!

The stock market rallied during the dot-com bubble for good reason: everyone and their grandma was excited about Internet based companies. The overall investor’s belief was optimistic and this fueled a multi-year rally that had seemingly endless momentum. But as we just learned, the fundamentals were garbage and when the momentum died, the party was over and the stock market crashed.

Lesson learned: If trading/short-term investing is your thing, then get your profit and get out. Don’t get caught up in how much higher your stocks can go, just sell them when you believe it’s time to get out. When the reality of overbought stocks comes into realization, you want to be the guy with all of your stock sold, not the guy caught off guard while panicking about what you should do.

Life-Altering Changes Don’t Happen Overnight

The optimism for the Dot-com bubble was supported by the belief that internet business was somehow going to instantly take off and going to retail stores would be a thing of the past. Huge issues such as customers having to pay heavy shipping fees were regarded as not important, and the stock market rallied while believing that we’d all be buying our groceries online and ordering our pizza from a .com site. The problem was that none of this was actually occurring, and it was really just wishful thinking since most companies had no realistic business model to get these society changing ideas off the ground.

Lesson learned: The internet was invented in the 1950’s; It didn’t become popular until the 1990’s. When a company or many companies are promising life-altering changes in how we live our lives, be very skeptical. Even if these ideas for change are realistic, they don’t happen overnight, in most cases they don’t happen for decades!

Let’s use the example of a recently volatile stock known as E-Trade Financial (ETFC). The stock price experienced a large sell off and dropped to $8.59 per share, a 58.7% drop. The next day a rally occurred in the stock market and E-Trade’s stock soared up 40.9%. This left the stock at $5.00 at the end of the day. This is a key example of how the percentage mathematics used in stock prices can easily be misleading to casual investors.

Now let’s break down this problem in simpler terms. Suppose you bought XYZ stock at $10 per share. It remains around $10 per share and suddenly it falls 80% one day due to a sell off and ends the day at a meager $2 per share. The next day, the aggregate stock market sentiment is the stock was oversold, so a rally occurs and the stock soars up 50%. If you were a long term investor during all this madness, you’d still be down significantly. A 50% rally in a $2 per share stock will only result in a $3 stock price. Which means despite the face value of 80%-50%=30%, you are actually down 70% on your investment of XYZ stock because the price per share ultimately went from $10 to $3.

Investing in the stock market is confusing enough already to the amateur investor in today’s conditions; So always keep this in mind when you research and analyze stocks as this is an easy mathetmatic occurrence to forget about or overlook.

Now while I wouldn’t consider myself a computer and internet guru, I am far from being computer illiterate. Infact I’m typing this article from a computer that I built myself. So when I decided to start an investing website, I thought given my respectable knowledge of both computers and the internet, that I wouldn’t have too many problems; I was very wrong. Here’s what I’ve learned about having a blogging site in the past two months since I opened up the site:

Having a good domain host is essential
I started out on a certain well known website host (company name withheld) and was plagued with problems from the very start. It ultimately came down to the fact that they offered an inferior service at an overpriced cost. I experienced everything from url problems, to not being allowed to access general files in my own account, to even discovering that the majority of all of my problems came down to my inferior host. I have since switched to Bluehost for my web hosting needs, and am very happy with them.

Simplicity is more effective than overwhelming complexity
When I first started customizing the theme for this website, I wanted to add all kinds of things such as displaying recent comments, recent blog readers, current users online, my website rank, etc. Similar to the early 1990’s when web designers just vomited up code everywhere and decided to call it a website, I was going for overwhelming complexity instead of effective simplicity.

When I decided to cut down everything I felt wasn’t necessary to my site, the pages became smaller in terms of file size, and ultimately became more effective. I realized that with less options available to the reader, the more effective the available options will be. This helped my readers find things more easily, as well as increased the advertisement click through rate on my site.

You Really Will Get Out What You Put In
I’ve noticed that articles I write that provide genuine value to readers always reward me in return. If I write an article that a reader believes is really something useful, he will bookmark it on a social networking site and then others will view my article. Another example is when I submit a quality article to a blog carnival, I have a good chance of being an editor’s pick and receiving more traffic.

Now every time I write articles, I try to pause and ask myself, “Why would I be reading this? Is there anything valuable in this article”? Although this usually results in common attacks of writer’s block and less frequently posted articles, the articles that I do end up publishing display quality over quantity material.

Blogging is hard, but making money from blogging is even harder.
The idea of creating a website and having passive income is very attractive yet very misleading in terms of it’s difficulty and success rate. While there is no official statistics, the generally agreed upon average for click-through rates for advertisements on websites is around 1 in 100 views. So if you get 100 views on your site in one day, you’ll end up with one advertisement click. One click usually amounts to around fifty cents.

So if you want to actually make considerable amounts of passive income from your website, you’re going to need significant traffic to achieve that goal. Using our rough averages listed above, if you wanted to make $1000 dollars per month, you would need to bring in 200,000 views per month. In my second month with this website, The Investor’s Journal brought in a mere 1,410 views. Now that is a reality check for all you passive income wanna-be’s.

The upper-center of the page is generally the hot spot
After large amounts of research and some experimentation, I’ve concluded that the upper-center of the page is the hot spot for reader attention. If you want to make money off your website, it’s best to have ads that are placed in that section of the site. This isn’t true for all sites, but in general it is the first place a reader looks. Further proof of this argument can be seen in just about any major site with advertisements in their articles; the advertisements are always placed in the upper-center part of the page.

Competition is rampant, therefore “Content is King”.
Many people say how the key to success with a blog is to have great content. It is definitely true that good content is what will bring you readers, but there’s more too it than that. What most people never mention is how much competition there is out there. You need good content not just for the sake of keeping readers, but also because the readers have such a wide range of choices to get similar information. My niche of ‘how-to-invest blogging’ is less crowded than other niches, but there are still plenty of sites just like mine out there.

Forgot about the little things and Just Focus on Content
In the beginning, I was so concerned about the site layout, which ad formats were most effective, what color scheme I should use, etc. that I lost focus on what really mattered: writing quality investing articles. After I got back on track I started writing more frequently and with less occurrences of writer’s block. I started to realize that while site layouts and ad formats are important, they matter very little in comparison to the content that is shown on the website. It’s not the layout that has people viewing my site, it’s what I have to say in my articles.

Learn CSS or enjoy having no control over your site’s appearance
When I first created my website, I installed Wordpress and had the default theme loaded. Even when I was a blogging virgin I could tell that the default wordpress theme wasn’t going to cut it. I eventually looked around for some themes I liked and applied them to my site. Then came another obstacle: I have no idea how to read, edit, or understand any of the CSS code in the theme. It took me at least a week of trial and error to get the hang of CSS and other little codes in the theme’s design.

Of course I could have just hired a professional to do all the work for me. However I strayed away from hiring someone to create a design for my website for several reasons. First, it is going to cost a decent amount of money to have someone design my site. Second, with the design being created by myself, I am more self-reliant and can easily adjust the layout to my liking without having to contact some hired designer again. Third, I am motivated to make this website successful, so I have pride in knowing I designed my site by myself and didn’t have to hire anyone.

Conclusion
Just like anything else out there, blogging is much more difficult than it originally seems. The amount of knowledge a blog author has to have in both websites and their topic of choice is what ultimately leads to most blogs being abandoned within the first year. However I am not as easily discouraged by the difficulty of blogging and its many obstacles that it throws at me, and I hope ten months from now I can write an even more in-depth article called “What I’ve Learned About Blogging After 1 Year”.

Watch CNBC
In particular “The Closing Bell” (4pm Eastern Time Zone) on CNBC recaps the most significant daily events in the stock market, the economy, and any important variables that affect the two. However if you have the time to watch a few hours of CNBC on any given weekday, I highly recommend you sit down and immerse yourself in the stock market news and discussions displayed on CNBC. You’ll not only catch breaking news, but you’re bound to listen to exclusive interviews with mutual fund managers, hedge fund managers, stock market analysts, and other individuals who have strong influence over the stock market.

Subscribe to a Financial Media Newsletter
Find a reputable source for financial news and get yourself a subscription. Some financial media sites even offer their articles for free. I use the Wall Street Journal Online, but there are plenty of great sources for financial news such as Investor’s Business Daily, MarketWatch.com, and TheStreet.com.

If you have the option between an online subscription and an actual newspaper subscription, choose the online edition. You’ll be able to get much more up to date information as opposed to the newspaper edition. Plus if there is any after-market activity or breaking news that occurs after the final version of the newspaper goes out, you’ll basically be missing out on that late breaking news.

Keep a News Ticker Running on Your Computer
There are many ways to have a stock market news ticker running on your computer. The easiest way is to use whatever tools your online broker has in the form of a news ticker and just leave it running in the background. Periodically check up on the ticker for any major news that can affect the stock market and/or economy. There are also plenty of programs available for purchase out there that will also report stock market news, but I would highly recommend using your broker’s own tools for a simple task such as retrieving up the to the minute stock marke news. It will keep things simple and most likely will be cheaper than purchasing some independent software.

Having failed investments in the stock market is a common thing, and we all get hit by major losses every once in a while. So the title of this article can be considered somewhat misleading, but it all depends on your perspective. If all you do is lose money in the stock market and don’t learn why you are losing money, then you truly are failing. However if you lose money in the stock market but learn from your mistakes, then you aren’t failing, you are getting an education. You will have plenty of bad investments in the stock market, so you might as well capitalize on them and attempt to learn everything you can from them. After you figure out what you did wrong, consider creating a list of rules to invest by so that you don’t ever repeat your mistakes.

This is where discipline, dedication, and confidence in yourself are crucial. Stock market failures will always make you doubt your ability to successfully invest on your own. But you cannot be discouraged, and must always remember that with every mistake you make, you are now wiser and more experienced. There is no such thing as failure if you don’t give up.

If you learn from your mistakes and stick with your goals, you will ultimately be successful and can never fail in the stock market.

I’ve been investing very conservatively this year. My intention was to see how well I could in the stock market when I ignored my desire to get rich quick, and embraced the ideals of a value investor. I’ve been very successful off of this mentality, and it’s quite ironic if you think about it. At the same time, it’s a fundamental key to having success in the stock market; invest with a clear mind, not with a greed filled head.

If all goes well for the rest of the year, I’ll finish with much gained and needed confidence. I know next year will be promising after everything I’ve learned in this year. I’ll look to continue my strategy of value investing and short term investing while still being cautious. The only issue I see for next year will possibly be the sub-prime market meltdown affecting the markets, which would ultimately hurt me as I don’t like to short the market. I’ve tried shorting the market without much success, and atleast for now you don’t want to be a bear in these markets. The Fed is fighting with everything they’ve got to keep our economy and our stock market growing.

My opinion on the matter is that as an amateur in the stock market, you should consider trying all forms of wealth growth until you find what works for you. I’ve been in the stock market since 2005, and here’s what I consider to be the pros and cons of investing and trading.

Investing

Pros:

• Statistically you are more likely to succeed than traders are in the long term
• More likely to have consistent percentage returns per year than traders are
• Less time consuming and psychologically less stressful
• Less commission fees than trading

Cons:

• Lower percentage returns in the short term
• Easy to lose interest due to lack of involvement required. Usually leading to poor portfolio performance.

Trading

Pros:

• If successful, a trader’s percentage gains are typically higher than investor’s
• There is always money to be made somewhere in the short term
• Builds even more discipline than investing does (assuming you are successful)

Cons:

• High broker fees due to commission being taken on buy/sell orders
• More time consuming and considerably more psychologically stressful than investing

Overall, I would ultimatley recommend investing over trading simply due to the fact that most individuals just aren’t capable of being successful as a trader. It takes vast amounts of market knowledge, discipline, understanding of psychological issues, and a little bit of luck to make it as a trader. Whereas an investor can simply choose a few mutual funds coupled with some fundamentally strong long terms stocks and end up more successful than most would-be traders after 10 years.

Site Layout - 4 out of 5
E-Trade’s site layout is effective, intuitive, professional, and easy on the eyes. Compared to some of the other online stock brokers I’ve used in the past, E-Trade easily ranks the highest in this category. Finding my portfolio’s allocation is just as easy as finding quotes for a stock.

Tools - 3 out of 5
E-Trade has powerful and easy use tools for just about everything you’d need as an investor. It has fully customizable market and trading platforms, along with other useful tools such as asset allocation, account performance, income estimator, risk estimator, and more. The only complaint I have is that some of their more effective and desired tools are not free to users unless you pay a fee or have a minimum numbers of trades per quarter.

Security - 5 out of 5
E-Trade really sets itself apart from its competitors because they offer a free SecurID product to ensure that your account stays in your protected and in your possession at all times. I love the SecurID product, it’s extremely easy to use, creates an incredibly strong second layer of protection on my account, and of course it was free thanks to E-Trade. This feature alone is enough for me to stay with E-Trade, because I like sleeping at night knowing that I have added protection on my account.

Customer Service - 5 out of 5
E-Trade’s customer service is extremely good, especially in a time where most customer service departments are full of outsourced employees who are reading off a page of specified things to say. Customer service employees are friendly, knowledgeable, and extremely helpful. I’ve made countless numbers of calls to their customer service phone number and had my questions and issues resolved instantly. In fact, E-Trade was recognized for outstanding customer service in 2007 by Smart Money (a financial magazine).

Commission Fees - 2 out of 5
This is really the only downside to E-Trade. With E-Trade your commission fees are higher than most online discount brokerages unless you make a minimum number of trades per quarter. I tend to overlook this part of E-Trade as it is obvious that the higher commission fee is definitely worth what I get in return compared to other brokerages.

Overall - 4 out of 5
E-Trade is a great online discount brokerage, and I truly believe E-Trade leads the industry with their superior tools, outstanding customer service, and ease of use for investors. Their commission fees are definitely higher than their competition, but if you want the best, you should expect to pay a little more than usual.

Paper trading is usually recommended as a training prerequisite before investing/trading in the stock market. It works by pretending you own X amount of shares of Y stock that you selected and tracking your results in a set period of time to simulate being in the stock market. Paper trading is simply a waste of time though and I wouldn’t recommend anyone bother with it.

Yes, paper trading has its benefits for the extreme beginner, but it’s ability to teach you how to invest or trade is incredibly limited. Paper trading will give you a basic idea of how the stock market functions, but beyond that it just doesn’t make much sense to bother doing it. Simply put, there are much better ways to prepare you for the stock market than paper trading. Here’s why:

Builds false confidence
Let us suppose you had a rather lucrative paper trading experience. You feel good about yourself and think you’re ready to invest or trade the stock market. You open your brokerage account, and find out after a few bad trades (which are inevitable) that the only thing you know is that you know nothing. This is because paper trading is so one dimensional compared to the real thing that you don’t get much of an education.

Fails to Simulate the Stock Market
The problem here is that you just can’t simulate the stock market, or what it feels like to be in the stock market. The variables that influence the stock market are practically limitless that I find myself unable to truly explain the depth of this issue. Economic forecasts, hedge fund influences, media headlines, market confidence, etc.; Paper trading just can’t capture all of those little things that compose the stock market, and without that you aren’t getting a real simulation.

Lacks Market Psychology Lessons
This is a huge issue as well. Regardless of whether you are a trader or an investor, being successful in the stock market is largely dependant on how well you can control your emotions. If you remember only one thing from this article let it be that paper trading will completely mislead you in terms of how it feels to have your money on the line. There is no substitute for learning how to discipline your emotions than to battle it out in the real stock market.

Wastes time that could be used for real learning
If you want to prepare yourself so you can get into the stock market, buy some credible investing books and read them front to back, check out my beginner articles, and subscribe to a credible financial media newsletter/paper.  It will definitely be more time consuming than paper trading will be, but what you will learn will be so much more in depth than what paper trading has to offer.

Every day the stock market tempts me to be a gambler and not an investor. Each day that I become a better investor, I am tempted to throw it all away for some risky trade. Becoming successful in the Stock Market is never something that is easily accomplished, and one of the main reasons is because it is just too easy to get caught up in the quest for fast and easy money. You make a few good investments, and just like that you feel like you are ready to take on some of the more riskier positions. The irony of it is that you built up most of your gains and confidence through conservative investments. So why would it make sense to go against what is working for you?

The answer is it makes no sense at all, but it sure does sound tempting! Who wouldn’t want to start investing more aggressively when they see that they are successful and profitable? It seems like a good enough idea, but in reality it’s just asking for trouble. It is crucial that you stick to your rules for investing success (you do have a set of rules to invest by, don’t you?), otherwise you are just increasing your risk for losses to your portfolio. This is easier said than done, especially in a market that is exploding with volatility. So here is a list of things to remind yourself when the temptation becomes unbearable:

1. You are going against what has been working for you
2. You are increasing your risk
3. Are the potential profits so desirable that you need to ignore your own rules for long term investing?
4. Has more aggressive investing worked for you in the past?

Remember that as an investor, your chances for success over the long term are significantly higher when you take on a conservative strategy. Avoiding the risky moves for your overall portfolio will be your ticket to long term success. This doesn’t mean you need to have your entire portfolio consist of boring low risk, low reward stocks, but it does mean that the majority of your portfolio should be positioned so that you can weather any financial disaster that could happen in the stock market.

Every investor needs a self created list of rules to invest by so that they stay disciplined and successful. Many investors learn the hard way what the do’s and don’t’s of the stock market are, but fail to write them down so that they don’t repeat these mistakes over the course of their investing career. You need to make a list of rules to invest by yourself, and this article will show you how to do that.

But before we get into the process of creating a list of rules, you may be asking yourself “why do I need to make the list on my own?”. No, it’s not because I’m too lazy to give you a specific rule list, it’s because each investor has their own strategies, goals, and styles that make them different. So a list of rules that might work for one investor might be terrible for another. With a list of rules to invest by created by yourself, you can use your own experience to identify what works and doesn’t work for you. If you have no experience in the stock market, scroll down to the section titled “My own rules” to see my personal set of rules for investing to give yourself an idea of where to start when creating your rules.

Creating Your List of Investing Rules

Creating the Do’s…

Think of all the investments you made this year that were both rational and successful. What similarities did these investments have in common? Try to isolate these similarities and find ways that they can be made into rules. For example, if you made several investments in stocks with good fundamentals and they were all successful, a good rule to create would be “only invest in stocks with good fundamentals”. Your list of “Do’s” should consist of rules that will always be a good foundation for choosing stocks to invest in.

Creating the Don’t’s…

Now think of all the investments you made this year that were unsuccessful and/or irrational. Think about what made these stocks poor investment choices and what was ultimately wrong with them. As an example, suppose you invested in a stock just because you heard about it from some market analyst on television and invested solely by that analyst’s advice. So your rule would be to “never invest by analyst opinion alone”. Opposite to the list of “Do’s”, your “Don’t’s” list should consist of rules that contain all of the wrong reasons to invest in stock.

Remember: You don’t need a list of investing rules that is longer than most fictional novels. Keep it simple and stick to the universal rules that will make you a successful and rational investor.

My Own Rules

Do…

1. Invest in stocks with strong fundamentals
2. Stay up to date with the stock market on a daily basis
3. Do research on a stock before buying/shorting it
4. Diversify your portfolio
5. Sell some shares on a high performing stock that may have peaked
6. Stay unemotional under all circumstances

Don’t…

1. Go by your gut feeling
2. Let momentum be the only reason for investing
3. Attempt to trade market volatility
4. Rely on analysts’ opinion alone
5. Let the fear of failure become an obstacle

Oh, and the golden rule for investing: Buy low, sell high.

From the 23% drop that led started the Great Depression to the 7.2% drop in 1997, most major stock market crashes occurred in october. In fact, this October 19th marks the 20th year anniversary (time to celebrate?) of the 1987 crash. On October 19th, 1987 the Dow Jones Industrial Average dropped 508 points/22.6%, becoming one of the most significant crashes in the market’s history.

Aside from that, there are some other significant issues I have with providing stock picks:

Legal issues
I’m not a laywer and I’ve never studied law, but I know that providing stock picks is just asking for legal issues that I don’t have time to deal with. This site is just a hobby for me, it’s not my main source of income, so it’s just not worth the hassle for me.

I change my mind often
Even though I consider myself as a successful investor, I am willing to admit that I can be wrong often. When the market reaches pivotal points where it could rally or plummet, I often change my mind on my feelings towards our short term future in the stock market. It would be incredibly time consuming and confusing to my readers if for example one day they read an article where I explain why I feel like the stock market is poised for a correction, and then the next day I write another article dismissing the former while giving more well thought reasons for my beliefs.

Psychological Reasons
One thing that’s rough for stock market analysts is that you are expected to never be wrong. People look up to you and expect that with your higher knowledge you are somehow infallible. This just isn’t the case. In some cases, analysts who make bold predictions that never come into fruition begin to go into denial. In these cases analysts attempt more than ever to convince people that their original prediction is simply ahead of the market, when in reality it just isn’t going to happen. These analysts go through depression, embarrassment, and all kinds of emotions because of the disappointment and disapproval the readers show for that analyst. As I said before, this site is just a hobby of mine, investing is my main source of income, and the last thing I need is stress from my stock picks leading to me becoming an irrational or emotional investor.

I have a confession: I love watching late night infomercials. It’s like seeing the aftermath of a train wreck; it’s terrible to witness but you just can’t turn your head away from it. After many nights of watching these infomercials, I believe I have come up with the perfect how-to guide to make your inferior product and/or service into a cash cow! Here’s how it’s done:

Diversify Your Paid Actors
The key to making your inferior product and/or service reach the largest demographic of idiots with too much money is to diversify the ethnicities and stereotypes of your paid actors. Simply having the attractive and successful type actors isn’t enough. You need to employ actors who can portray underachievers, wishful thinkers, deadbeats, and many other typical stereotypes that will often be your main customers! Remember: Your product provides absolutely no real value to anyone. Most logical people can spot this immediately, so you want to cater to that special 1 in 100 person who is naive enough to believe your lies.

Use An Orange Host
Make sure that the actor playing the host of your infomercial has a nice and healthy bright orange tan. This has long been a secret of successful infomercials. This subtle trick will help push the idea that with your inferior product and/or service, you too can become rich, beautiful, and orange.

Explain As Little As Possible About What You’re Offering
Information about your inferior product and/or service isn’t necessary to sell it. In fact, the less information you give the better. Your customers are naive, so keeping them in the dark about how useless and inferior your product and/or service is is the best method to ensure you make a sale. Otherwise they might wise up and actually realize your product is a scam. Remember: It is crucial to ensure that customers don’t realize your inferior product and/or service is a scam until after they hand you their money.

Reiterate How Much Money You Can Make As Much As Possible
This is absolutely crucial. We live in America, buddy! We don’t care about hard work, having discipline, and saving for retirement, we want large amounts of money now! As a general rule, you should devote about 85% of your air time to telling your potential customers about how much money they can make, followed by how quickly it can be made! Notice: In combination with telling your customers as little information as possible about your inferior product and/or service, you have basically filtered out the logical people who have already changed the channel to watch something with actual value. Now your real customer base is tuned in and ready to tell you their credit card numbers!

Use Small Prints For Big Truths
‘Your actual results may vary.’ is the buzz kill of the party that is your sales pitch. Whenever you’ve got important information that could let your customers realize that you are clearly scamming them, you should use the smallest size font that is legally allowed. Remember: You’re only promising for the idea of a better life for your customers, not delivering it.

Finally, and most importantly, Deceive and Use Half-Truths As Much As Legally Possible
No explanation needed on this one. Just lie through your teeth as much as legally possible. Sales are sure to come flying in. With all of these techniques you too can promise and fail to deliver on the hopes of thousands!

Now go out there and lie to your fellow man for a buck!

Take Time Off
It will be very helpful for you to stay away from the market, if only for a day. Try and enjoy yourself without focusing about the big hit you just took. Pretend as if it didn’t even happen, and simply enjoy your day. If you need more time away from investing, take as long as you need. Your goal is to take your mind off your losses so that when you get back into investing, you return with a refreshed, rational, and positive state of mind.

Don’t Feel Discouraged
Despite how devastating a significant money loss can be, you cannot become discouraged from investing. You must intend to return so you can achieve your original investing goals. Investing isn’t easy, and if you want to be successful you need to be committed to it. Use the finish line goal as your motivation and disregard the current hurdles in your path. Even the most successful investors and traders have taken significant losses, so don’t feel like it’s a personal failure.

Consider it a Right Of Passage
As I said, everyone eventually takes a big hit in the stock market. Veteran investors know the pain of major losses, and they know it well. The consolation is that dealing with the emotional pain/discouragement will get easier as time goes on. You will be more experienced, and if you are unfortunate enough to receive another significant hit to your portfolio, you’ll be better prepared to cope with those losses.

Appreciate the Lessons You Learned
You always learn a great degree of knowledge from your mistakes. Take the time to appreciate the lessons you learned when you took a significant money loss. Make sure you realize what those lessons are, so you are sure not to repeat those same mistakes. For some investors, they use these lessons to build a list of rules for successful investing (going against the rules means risking a significant portfolio hit).

I couldn’t be more saddened by the fact that some people believe this is true. Sure, wishing and hoping for something is one step towards achieving a goal, but it’s just a single baby step towards reaching that goal. If you really want something, you need to commit yourself to it. Wishful thinking alone is for bums. Being positive and hoping for a better tomorrow certainly doesn’t hurt your circumstances, but actually applying yourself and thinking of ways to reach your goals is a much better plan.

I think of how many products and services surround our society that promise amazing results with little to no effort required. It’s just sad to know there is always a sucker out there willing to hand over their money in return for false hope. Especially when it comes to investing. The Investing industry is full of lies, with scam artists hoping they can convince you that they have the secret for profitable investing. Too many discouraged, ignorant, or foolish investors keep these useless companies in business by believing their lies and purchasing their product or service.

Well, I’m here to say one thing: There is no easy path. The average individual needs to wake up and realize that success is achieved through becoming knowledgeable, working intelligently and diligently, staying committed, staying positive, and believing in yourself. Wishful thinking alone will take you nowhere, especially in the stock market. The sooner you realize this, the quicker you can move on to the proper ways of learning how to achieve your goals.

1. No Wishful Thinking
There is no stock genie granting magical wishes. If your stock is performing poorly, you need to get straight to the point and ask yourself why you are still invested in your stock. If your answer is anything other than “I know for certain that the market is valuing it incorrectly”, then you are just doing wishful thinking.

2. Take a Time Out
If you feel like you aren’t certain what you should do with a stock, and that perhaps you are becoming emotional, then you need to take a time out. Step away from your desk, try and go to a quiet place, and remind yourself why you are investing in your stock. If your explanation sounds rational to you, then you know you are invested properly. Use this to boost your confidence anytime you doubt yourself or become emotional.

3. No Playing Favorites
It’s easy to grow fond of a stock that has made you a good profit (or still is making you profits). While it’s okay to be a supporter of the company the stock represents, it’s not okay to blindly put your money into it hoping their past performance will continue. Always remember that you invest in stocks to make money, and nothing more.

4. Don’t Obsess Over Daily Fluctuations
If you are investing and not trading, you need to realize that your stock’s price will fluctuate every day. This is normal, and it shouldn’t change any of your beliefs on where the stock is headed, unless there is a significant change that occurs within the stock.

5. It’s Just Money, Get Over It
This might seem crazy to some, but you should always remember that in the end it’s just money. If you obsess over your profits and losses, you’ll be investing with a clouded mind. Part of being an unemotional investor is accepting the fact that you will sometimes lose money. As long as you pick yourself back up and head right back with a rational thought process, you’ll almost always come out profitable.

Rating: 5/5, A must read book

Investor, businessman, motivational speaker, and author Robert Kiyosaki wrote an instant classic with his book “Rich Dad, Poor Dad”. In it, Kiyosaki describes the unique difference in perspectives between his poor father and his best friend’s rich father. The book explains why the average middle class person is usually financially troubled even if they are highly educated and work hard, driving home the idea that the poor work for their money, while the rich make their money work for them. Kiyosaki goes on to explain why it is so important to build assets and get rid of your liabilities.

Many people are quick to argue that the book’s failings are in that it doesn’t give specific applications to build your wealth. However, I think the people who argue this missed the entire point of the book. Kiyosaki’s intention for the book wasn’t for it to be a literal guide to building wealth, but rather to inspire you to find your own means of building wealth. Kiyosaki constantly reiterates thoughout his book that you should always attempt to find new ways to accumulate assets that will make you money.

I found the book to be very inspiring and enlightening. The book was slightly repititive, but I believe that was done intentionally so the author’s message would stick with his readers. I highly recommend reading, if not purchasing this book. It also makes a good gift for anyone you think needs financial guidance.

Every investor has their own strategies, methods, and techniques to achieving success. Though despite these differences, all successful investors share the same distinct traits which truly separate them from the herd. The five traits of a successful investor are:

1. Highly disciplined and committed

Discipline is the backbone of a successful investor. Being highly disciplined means you are committed to your efforts so that you are always prepared. If you want to be successful in the stock market, you need to commit to it. There is no such thing as a free lunch. Successful investors don’t let the hurdles such as previous investing failures get in their way, and neither should you. If you know how to invest properly, discipline and commitment will ultimately be your gateway to success.

2. Invests without emotion

Emotions are the handicap of the novice investor. Successful investors know that rational investing is fundamental, so they disregard their emotions while analyzing their investments positions, decisions, and ideas. If emotions are thrown into consideration while investing, the thought process of a rational investor becomes clouded and often leads to failure.

3. Always up to date with the market

A funny thing about the stock market is that everybody has the same information, but everybody interprets it differently. Successful investors are always up to date about the current market by using unbiased financial media sources to get their information. The stock market is full of variables that can drastically influence market prices, so staying on top of those variables is crucial.

4. Possesses a realistic outlook on investing

Having a realistic outlook on investing and success coincides with being highly disciplined and committed. Successful investors understand that they probably will not become the next Warren Buffet, by which I mean they won’t make astronomical returns on their investments. However, humble expectations often lead to high returns, as an investor without excessive greed will have a clear state of mind and will invest properly.

5. Always has a plan

Not having a plan while you invest is like a coach telling his players “Just go out there and win”. Sure, if you’re lucky and/or naturally talented enough, you might make a few successful investments, but this plan (or lack of) hardly is effective in the long term. Successful investors understand the importance of having a plan. They know where they want to get in, where they want to get out, what they will do if something changes or goes wrong, and what their goals ultimately are. Having a plan keeps an investor focused so that they will stay rational while they invest.

What is the point of the stock market? Why do companies sell shares?
The point of the stock market is fundamentally simple, but can often be complicated in today’s conditions. In it’s simplest form, the point of the stock market is for companies to sell a portion of their company in the form of shares to raise money, and investors purchase shares to receive a portion of the company’s profits relative to the portion of shares they purchased. Of course, this description of the stock market hasn’t been accurate for decades…

While most companies’ reason for going public and selling shares of their company is still to raise money that will be reinvested into the company, some companies now go public for the sake of extracting the worth of their company. This usually occurs in an overbought stock market where IPOs are a hot commodity. In other words, sometimes companies go public just to ride good momentum in the stock market and never plan to reinvest the raised money into their own company.

Fortunately most informed investors are aware of this technique used by underachieving companies, so this has never been much of a issue. The investor’s goal in the market is to grow his wealth, but that goal is now fulfilled by more than just dividends. The old adage of buy and hold is no longer relevant in today’s market. In fact, many major public companies don’t even provide dividends to their shareholders. These companies prefer to reinvest their extra cash in the company for growth purposes, than to pay their shareholders their portion of the profits. So in the current market, the investor’s purpose is to grow his wealth through any way possible (as long as it’s legal). Methods of growing wealth include buying long, selling short, speculation investing, dividends, etc.

Who or What steers the Stock Market?
The list of variables that streer the stock market are practically limitless, but the most influential and significant factor in determining the direction of the stock market is the economy. In general, the stock market and the economy move in a positive relationship (when the economy is up, the stock market is up and vice versa), but this is not always the case.

Often times the confusion and/or irrational exuberance of investors leads to an unusual relationship between the stock market and the economy. By unusual, I mean that it is possible for the economy to have completely different characteristics in terms of growth than the stock market. For example: the economy can be stagnant with no signs of growth, meanwhile the stock market is rallying upward. Another example: the economy can have moderate growth, but the stock market can be declining downward. The reasons these unusual relationships form are best left for the more advanced articles you can find on this website.

That does it for Part I of the mini-series “Introduction to the Stock Market”. Stay tuned for the next edition coming soon.

If your original purpose was to purchase shares in a company to achieve a good percentage return on your investment, but this goal was reached in a short period of time and you sold your shares, all this makes you is a quick investor. Not a trader. A trader by my definition is someone who looks to solely play the momentum of a stock in their favor and use tools such as technical analysis to find reasonable entry and exit points in a stock.

However, my definition of an investor is someone who looks at the fundamentals of a company, considers outside market variables, and sees potential for good returns on his investment. The time it takes to achieve the returns is irrelevant. What is important in distinguishing an investor from a trader is that an investor is looking for his profit regardless of how long it takes to achieve it, as long as it is the best placement for his money to grow.

Please note that I have nothing against traders. Trading just isn’t my style. I prefer to invest instead of trade because it helps me sleep better at night. Just kidding. Although there’s some truth in that statement.

Spotting signs of a potential stock market correction or crash is a relatively easy task if you understand basic economics and if you are keeping up with the market on a daily basis. However, if neither applies to you, look for a combination of most, if not all of these signs as indicators of a potential stock market disaster (these signs by themselves aren’t enough reason to expect market declines):

Fundamental Problems Exist in the Economy
The Dotcom bubble in the late 90’s came to a hard crash after it became apparent that the hype of the online business models were not successful. The Dotcom bubble is a perfect example of a significant fundamental problem that once existed in the economy but was ignored by the stock market as it rallied higher. During the Dotcom bubble, the stock market rallied significantly as investors couldn’t get enough of the internet companies. The problem was that most of these companies weren’t profitable, some never intended to be either, choosing to ride the momentum of the stock market to make the most amount of cash they could off their stock. So while the stock market soared, our economy told a different story. If you observe fundamental problems in the economy while the stock market itself is rallying, be wary of a potential correction or even possibly a crash (although a crash seems unlikely).

Extended Amounts of Violent Volatility
If you are noticing high levels of volatility in the stock market for an extended period of time, this is a clear indication that something is wrong in the stock market. High volatility is nothing unusual by itself, and can arguably be considered healthy for the stock market. However if the stock market is experiencing see-saw like volatility (for example: one day the market rallies and the next day it plummets) for long periods of time, such as over a month’s time frame, then this is a sign there is too much confusion and confliction about which direction the stock market is heading.

Financial Media Reports Only Noise
If it seems like all you read or hear lately from the financial media is how our economy is in trouble, how there are serious underlying issues that need to be addressed, etc., then you are listening to what is known as noise. When you notice that the financial media has nothing but noise-like information to report for extended periods of time, then fear and instability get planted into the stock market. This relates with the psychology of investing, and it is important because a market that has seeds of doubt planted into it make it a fragile market, easily capable of correcting or crashing.

Unjustified Stock Market Prices
Identifying this sign does require knowledge of market prices, but you can simplify this and look at how high the three most popular indexes are (Dow Jones Industrial Average, NASDAQ, S&P 500). Read statements from the Federal Reserve and respected market analysts, and consider what our economic forecast for the year is. Ask yourself, how much has our economy grown so far in comparison to our stock market. Is there an inverse relationship? Should the market be at these high prices? If the answer is no, you know that the stock market can drop much lower than it can rally higher. Thus your risk is much higher than your reward. More about the risk versus reward will be discussed further in the article (yeah, it’s a long one).

Now that you’ve learned the technique to identify a fragile and correction/crash prone stock market, you now need to learn how to decide what your best plan of action is to be. If you read my other article “The Fundamentals of Successful Investing“, you know that having a plan is crucial. Even more so than usual, as a plummeting stock market catches most investors by surprise, so they have no plan to escape the chaos and ultimately fall victim to their emotions. This is arguably one of the reasons why panic selling occurs during a stock market correction and leads to a crash.   You have three basic decisions after you’ve reached your conclusion on the market, you can either:

1. Short sell the market
2. Buy long or stay long positioned the market
3. Sell your positions, stay 100% in cash and wait for a good re-entry point

So the question becomes, which move is the right one? To rationally consider the best choice of action, attempt to envision all of the problematic variables in the stock market. What could go wrong, what could go right, and what is realistically going to happen. If the potential risks of your plan of action outweigh the potential rewards of your plan of action, then you should reconsider. Remember, the key to successful investing is using a rational approach to form opinions of the market. If you know you’re putting yourself more at risk than you are at reward, you aren’t being rational.

If you find that the potential risks and rewards are about the same, then you should stay out of the stock market. When you can’t make a good decision because the stock market’s future looks too open to speculation, then there is no reward, just risk. Staying in a market that realistically could go either way (up or down) is not investing, it’s gambling. How can you have a plan of action when you aren’t even sure which way the market will go? The answer is to stay out of the market, and wait for a clear sign that the confusion has ended, and it is time to re-enter the market.

Walk the Walk, not just talk the talk. The techniques posted in this article are strategies I developed over time. Using these techniques I was able to avoid two stock market corrections in 2007. Here is a picture I took off my E-Trade account showing my performance versus the S&P 500. Note the stock market corrections that occurred and the performance of my portfolio not being affected. Click the image to enlarge it.

Penny stocks exist on a different market exchange that is mostly unregulated by the Securities and Exchange Commission (Known as the OTCBB and Pink Sheets). The chances of finding a legitimate penny stock are very low. Most penny stocks are simply shell companies, that go through cycles of momentum and stock price because of the individuals who trade them. One day a penny stock can be up 300%, then the next day it can be down 90%, yet literally nothing at all has occurred in the company. Here are the reasons to stay away from the Penny Stocks:

Low Liquidity, High Risk
Unlike the stocks listed in major exchanges such as the S&P 500, penny stocks have very low daily volume. What this means is that you can buy shares of a penny stock, and in some cases have no one to sell it to! On average, penny stocks have volume equivalent to a few thousand dollars being exchanged every day. You want and sometimes need good liquidity in a stock so you can make a quick entry and exit, especially in penny stocks where the stock price can tank on a whim.

Pump and Dumpers
If you ever receive an email or possibly an advertisement that claims you need to immediately “invest” in a penny stock, you’ve been a target of pumping and dumping. The idea behind this is to create unfounded hype for a penny stock the pumper already owns, then as his victims buy into his hype and drive up the price of the stock significantly, the pumper sells his shares for a large profit. Meanwhile, those that bought into the hype will quickly lose their money as the upward stock momentum drops and the stock price heads south.

Inability to do Homework
Penny stocks differ from the stocks on major exchanges in that they have little to no following at all. You almost never find a penny stock being talked about by the financial media. There is usually no analyst opinions on penny stocks, which should put up an immediate red flag. If this company were actually worth something, wouldn’t analysts be interested in it?

Enjoy the Ride
Penny stocks are known for their wild and violent swings in momentum. You could walk away from your trading station/computer for an hour and come back and realize your penny stock went up 25%, then plummeted into the red. With penny stocks, you need to spend many hours every day watching your positions, otherwise you risk missing the golden opportunity of profit.

Unfortunately, I know this article probably won’t sway any new investors to avoid penny stocks. The lure of rapid, high percentage gains is too strong for naive investors. But hey, if you end up losing half your portfolio from a penny stock, don’t say I didn’t warn you.

I believe that the chaos and voilatility that the market has been experiencing for over a month is going to finally settle. We have a clear and official stance by the Federal Reserve, and it is the correct stance. The goal is to keep inflation under control, while maintaining moderate economic growth. Now, I will begin to reinvest in the market, but I will do it slowly and cautiously, as there is still the possiblity of big events occuring like the Fed taking action if they see the economy begining to deteriorate due to the subprime lending issues.

Since I just created this blog today, I’d like to quickly recap my portfolio for the year. In February I went on the sidelines (definition) because I felt the market was unstable and had too little reason to climb higher, and two business days later, the market had a correction. My timing was so fortunate, but my reasons for going 100% cash were justified. The DJIA dropped roughly 400 points, and I was able to sit comfortably at my desk and enjoy not having to lose any money. I continued to stay out of the market as there was chaos for about 2 weeks. When the DJIA went down nearly 1000 points and was in the low 12000 range, I re-entered the market, investing in what I consider low risk investments, such as ETFs that mimic DJIA and S&P500 indexes.

As I write this entry, I am roughly up 14% for the year, the DJIA is up roughly 6% for the year, and the S&P 500 is roughly up 3% for the year.

Looking for advice? Consult yourself!
By no means do I suggest isolating yourself from the market analysts, infact I recommend you read and research everything the analysts say about the market and/or your stock(s). However, you should never invest only by what others are saying. This applies to every situation, from something you heard on an online message board, to any TV analysts opinions’ (I love Jim Cramer’s show and the Fast Money show though). If you are new to the market and feel that you can’t make decisions for yourself yet, then stay on the sidelines until you’ve gotten comfortable and confident enough to invest by your own decision making. Always remember that you never know what someone else’s agenda is when they offer you advice.

Get a feel for the market by keeping up with it
I need to state right away that investing by your gut feeling is the most foolish thing you could do, even more foolish than investing solely by what other people tell you. I highly recommend purchasing a subscription to the Wall Street Journal (I use the online edition), or any financial newsletter that will allow you to keep up with the current economic events. The reason it is important to stay up to date with market happenings is because there are always key events (ex: Federal Reserve meeting, Company earnings for a quarter, etc) that can significantly affect the market. If you’re new to the market, keeping up with the market by reading financial newsletters is also a great way to ease your way into stock market investing.

Have a plan
After doing your homework, and definitely before you buy/short the stock you’re interested in, you need to have a plan. Are you planning to hold for the long term? Looking for a short term momentum play? Know something the market doesn’t know (just kidding, that’s illegal)? You need to have a plan where you state clearly to yourself, this is where I want to get in, and this is where I want to get out. It is important to do this so that you can keep a clear state of mind, and stick to your goals. Otherwise, you can fall victim to your emotions. Which brings me to my next point…

Throw your emotions out the window
When it comes to investing, it is hard to not become emotional when you’re losing or gaining money. But to be successful in investing, you need to mentally train yourself to leave your emotions out of your thought process when you invest. It is imperative to realize that sometimes you will simply lose money, sometimes large amounts. As well, you sometimes will gain large amounts of money. Neither should matter in your thought process of what you plan on doing with your stock. If you ever become emotional while investing with stocks, you’re setting yourself up for failure. Which now brings me up to my next point..

Don’t be afraid of failure
If all you do is fear that your next move will put your portfolio in the red, you’ll miss out on the potential winning moves. Most investors are wrong more than half of the time they invest, so don’t feel discouraged if you’re taking on losses. If you let fear rule your thoughts, you’re once again falling victim for to your emotions. Condition yourself to realize that learning how to invest successfully is truly a right of passage. Always remember that if you invest rationally, with your emotions set aside, do your homework, and keep up with the market, you should ultimately be successful.

Trust Yourself If You Know You’re Right
To give you a personal example: I was on the sidelines with 100% of my money in cash thinking that the market was headed for a correction. It took over a month, and 500 points upwards in the Dow Jones Industrial Average, before I saw that same index drop over 1000 points downward. It is very trying on your goals and your opinion of the stock market when everything is happening to the complete opposite of your beliefs. In cases like this when you find yourself doubting yourself, it is important to sit down, and rationally consider the situation. Ask yourself questions such as: Has anything changed? Could it be that I was wrong? Is the market just being irrational? Re-evaluate your plan if necessary. In my case, I doubted myself every day, but I reassured myself that the upward rally in the market wasn’t justified, my initial beliefs of the problems in the market were still there, and in the end I came out correct. If you know you’re right, stick to your guns, but don’t be afraid to re-consider your position/beliefs.

Never invest in penny stocks
It has been said that trying to find a legitimate penny stock company is like trying to find a prostitute without any STDs. Just about every single penny stock is scam. Penny stocks operate on a different trading board, in which the SEC does not regulate, and that does not require for the companies to submit their annual earnings and other important documents. Most of these stocks are pump and dump stocks, offering no real value. Many first time investors are tempted to trade penny stocks (and I do emphasize the word “trade”, because you cannot invest in a penny stock) because of their perceived low cost and higher volatility that presents a potential for big gains. If you’d like more information on penny stocks, read my article “The Risks of Penny Stocks“.

The articles are written with an attempt at quality over quantity. Further, the articles range in difficulty from novice to intermediate to expert. Some articles are posted in more than one category due to some articles having a mixed range of difficulty.

Novice articles are written for new investors or individuals who are considering entering the stock market, usually containing information that is common knowledge to the average investor. Intermediate articles are for the casual investors. Expert articles contain information for investors who know the ins and outs of the market, and the length of the articles is usually much higher. However, don’t let your ego get in the way, even if you are a veteran investor you can still brush up on your basics with all of the articles.

Also, yes there are advertisements on this website, but you have no obligation to click on them. This website is not my main source of income, but I feel I should receive some reward for the value of my free articles. Understand this site is a hobby for me, I’m more concerned with making it successful so I can teach people how to invest the right way than I am with making money.

To get started on your path to successful investing, click “Articles” on the top to view all the articles posted. Or use the navigation bar on your right to browse between the most popular and most recent articles. If you’d like more information about the author or about this website, click on the “About” page on the top navigation bar.