The Best of Both Worlds: Trade Education
Ten years ago, I made the first investment in the stock exchange. Since then I’ve been hooked on the stock market. With the same enthusiasm I used to Certus Trading Review with hundreds of different markets each year, trying to find the right one that would create significant wealth.
The initial $1,000 you would have invested in Microsoft if it had been public would be close to $300,000. America Online’s growth rate has increased 12,000% in the last 10 years. It has also fallen steadily over this time. Even though statistics such as these are often promoted by brokers and journalists, most investors have difficulty staying in an investment for any length of time. Financial markets are full of temptations to lure you into new positions with every passing second. Investors will eventually have to confront the disillusionment of thinking that the grass is always greener in other markets. Even if MUTUAL FUND investors, you still want to get the best possible return.
This dilemma was something I had to face years ago while I was working as a broker. One of my clients explained to me that he knew how much money was made by trading the short term swings, but that he wanted to hold on for the long-term. I had to think hard for several days before I could give him my advice.
The following strategy was presented to him by me. It literally blends the best of both the TRADER/INVESTOR worlds. Traders look for quick wins. Investors see the long-term as a way to make a profit. The dividends can be reinvested to purchase more stock or the real possibility of the stock being split. This is often a benefit for long term investors. These seemingly opposite viewpoints can be combined to produce a unique perspective that helps eliminate stress related to decision-making. This strategy will make you realize that every seed that is planted in the financial marketplace holds the promise to produce ten thousand trees. It’s my FOREST-STRATEGY. It’s another way for you to reap the dividends of your short-term trading efforts by also acknowledging the importance and importance of long-term investment.
Let’s say you have $10,000 to invest. 1) Search for a company. Ideally, it should be in the Standard and Poors 500 Index. The Dow Jones Industrial Average contains only 30 stocks, so you can narrow your list. These are long-standing companies that have a strong financial history. You can research them to your heart’s desire.
2) Check out the Price Earnings Ratio for your company. How do you calculate the Price Earnings Ratio of your company? What were the highest and the lowest price earnings ratios in the last five year? You should look to purchase a company that has a historically low earnings ratio but is a leader of its industry. Use the Price Earnings Rate as a guide. Avoid trying to pick bottoms. 3.) Look at a price chart to see what’s happened in the past and where a good place to buy is.
4) You should place your trade with the intention for a 10% profit target. Once you have achieved your profit objective, you can sell enough shares to eliminate your initial $10,000 investment. Then, your $1,000 profit will be refunded.
5) Repetition the steps 1 to 3 for any other company you are looking for.
6) Repeat, Repeat, Repeat.
One drawback to this type of trading, however, is that you give up a lot more upside if you’re with a great firm. You can see the PROBILITIES of how many IBMs, Aols, Yahoos you have. Or are there Microsofts out there relative to the entire stock market? I love this trading style because it eliminates the greed factor that many investors feel when trying to hold on to the top tick. This style of trading allows you to create a diversified portfolio. Thirdly trading is a great game with potentially lucrative long-term consequences. You can trade this way every month by planting a seed in quality companies that can quickly become a Forest of Wealth.
Some trades could take over a year to complete. Some trades could reach their profit objective within weeks or days if they are truly fortunate. You can’t control your downside if you don’t manage it. It is okay to use any of my RISK Management Strategies, including Partial Covered Calls or other Option Selling techniques. When used correctly these techniques can dramatically increase your returns.
This is a type of trading that I actually enjoy. (My broker loves it too, as it generates many additional commissions for him. It is also why this method is so easy for me. I rarely pay attention to my profit after I take them. You can relax knowing that you have increased 10% your wealth and that you are only interested in planting seeds in the financial landscape at companies that meet your criteria. But I do want to emphasize the fact that you should be aware that there are downsides. This is not a risk-free …. method, but it’s ideal for anyone who wants to trade and also invest at the same time.
Keep your investment principal safe and let your profits grow. Let’s look at the bigger picture. This is a Johnny Appleseed meeting the financial markets. This is what many of the most successful investors do when they invest in Initial Public Offers. Learn as much as you can. But, let’s not forget to be cautious.