How To Invest In Stocks - Learning To Pick Winners

It is hard to go on the Internet these days without seeing an ad offering exclusive advice for making it big on the stock market, or to enter a bookstore without seeing several books on investing for beginners. Infomercials promise fast, easy profits and easy-to-learn systems. But in reality, the only teacher of these lessons is the stock market itself, and learning how to invest in stock is a process that can take years.

Trend spotting is one of the most important lessons one must absorb in order to learn investing. Every bull and bear market has winning and losing stocks that outperform their peers and the overall market. One of the most important steps in learning how to invest in stocks is recognizing the signs of a company whose stock is about to soar.

As the price of oil slowly rises, certain stocks will gain momentum in the oil sector while others will perform in line with the sector, and some will not perform as well. Picking the correct performs in a hot sector requires careful planning, some luck, and patience. In the end these huge winners become the momentum stocks that fund managers and investors all want to purchase.

It often takes some time to see a considerable profit in investments; it can range from several weeks to months. So one must be patient enough. Active investors have the strategy to get into a core position and trade it actively. However, some other investors look out for a right time to buy and then wait for the investment to hit a particular price before they sell it or until they find another nice investment to get into. Definitely, not all positions can be profitable, so the true strategy would be to be flexible enough to get rid of losers too.

Timing can be everything and it often means the difference between a profit and loss in the short term. With good timing one can even turn a profit on a mediocre performer. So a large component of timing a stock, sector or the market, is luck. But real winners will go up because buyers will continue to bid up shares in the weeks ahead. Investors often add to their positions at suchs times, especially during occasional dips in price. Holding more shares means more profit in the long run.

There are seemingly endless sources of information about hot stocks and hot sectors, in the present and the near future. To know how to invest in stocks, one must be able to sift through all the noise to find winners. This will require research, patience, discipline, and luck, but it can be done by any intelligent person with an inquiring mind.

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Review Or Go Broke

Too many investors receive their monthly statements without giving any thought to what is happening to their money. They may glance at it or not even open it. This is the road to the poor house and peanut butter sandwiches for the rest of their retirement life. A few minutes now each month is all it takes to be either rich or poor when they no longer want to or have the ability to create income. They will be glad they spent the extra 15 minutes checking on what is being done with the money.

The average working person or business owner should not own anything but mutual funds or ETFs (exchange traded funds) because these are less volatile and easier to evaluate. However, if stocks are owned the first thing to ask is if they are selling for more than was paid for them. If not the investor should realize this is not where the money should to be. The best course of action is the sell NOW and put that cash to work in a different equity that is going up.

If the investor is in doubt about a particular issue let the market determine whether it should be sold or held by putting a reasonable permanent stop loss order in place. If it continues to decline market action will remove the weak position.

Brokers discourage everyone from doing this. Keep in mind this is not their money, it is YOUR money. He will tell you he will watch your account, but he won’t. The average broker has 300 accounts and unless the investor has a large 6 figure account or trades frequently he does not have time to review.

It is also a good idea to enter a trailing stop on every position. This will protect profits when the next major bear market hits and it will. No one knows just when. A few years ago Enron was on every brokers buy list right up to the day it started down never to recover. A stop loss would have saved investors most of their money.

Stops are the silent protector of money. No watching is required. When equities decline investors need protection. Always be concerned about paying attention. If you don’t the loss is your fault. Small losses are acceptable, but big losses are the killer of dreams.

The investor should call his broker or financial planner monthly to review any weak issue to be sure it is removed. Never allow a big loss. Even in 401Ks and similar tax-sheltered plans the fund manager should be held responsible for losses.

Review or go broke.

Al Thomas’ book, “If It Doesn’t Go Up, Don’t Buy It!” has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2007 All rights reserved.

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