Before Investing,
Understand the Markets
As a professional trader, I have trained myself to
separate emotion from money. If I lose, I need to be
able to get right back into the Markets and keep going.
Using a far from technical term, people get "wiggy"
about money. So investing is difficult for people and
often apprehension or enthusiasm take control and people
just do not think clearly when investing.
There are two common mistakes that people make when
investing that just defy common sense. First, you should
never invest in something you do not understand. To
test for understanding, can you explain it to your girlfriend
or teenage daughter? If you can't, you don't understand
it and you have no business investing in it.
The second mistake is investing more than you can afford
to lose. Money is made and lost in the Markets. My mantra
is:"If you would not take it to a craps table in
Vegas, you should keep it in your checking account."
Financial Institutions and Hedge Funds have hundreds
of people specially trained to value stocks. When it
comes to information, the odds are stacked against the
individual investor. If you feel the compulsion to trade
single stocks, trade them like your grandparents did.
When picking stocks, start with stocks you believe in.
If you shop at Whole Foods every week, maybe you want
to look at that stock. If you love your iPod, maybe
Apple is a good candidate. The general idea is that
you should start your list with only companies you know
and then determine what you want to purchase based on
the balance sheets. Picking stocks like this seems old
fashioned, but it works and puts the odds more in your
favor.
The sooner you realize that the world is not just Stocks
and Bonds, the sooner you will be a better investor.
Just as Wall Street firms have people valuing stocks,
they also have people looking at all 5 of the Major
Markets: Equities, Bonds, Currencies, Commodities and
Credit. These Markets hang in a delicate balance. As
the economy moves through its natural cycle, certain
assets vie for advancement while others fall out of
favor. These markets move in a very predictable way
like seasons changing. If you learn about these other
Markets, you will be a better investor in stocks. If
you really take the time to become financially literate,
you will sleep better at night because you will understand
the mechanisms moving the Markets. It might seem like
an overwhelming task but just 20 minutes a day learning
something new will quickly translate into smarter investing.
A good way to start is to take a term you are hearing
on Bloomberg television or in the Financial Times
and look it up on the web. Read the Wikepedia page on
that product or concept. If it is too technical, comb
the web for a better definition. In one month, you can
learn 40 new terms, which will open up a whole new world
of understanding. Eventually, you will begin to develop
interest in new Markets. And, if you really get stuck,
you can always email me and I will include your question
in my post the next day.
THMR in no case will be liable for
direct, indirect or incidental damages resulting from
the use or accuracy of information on this website,
and the subscriber or reader of this information expressly
agrees to discharge and hold THMR without liability
for any activities, claims, proceedings or liabilities
with respect to the use or accuracy of the information
on this website as a term and condition of subscribing
to this website or using the website's information.
Contact Information:
Allyson Heumann
Editor, The Heumann Market Review
http://www.theheumannmarket.com
Copyright Protection and Reprint Rights: This
article and accompanying sidebar are fully copyrighted
by the author, but can be reprinted without permission
provided the article links back to this page: http://www.800Muses.com/muse-profiles/muse-allyson1.htm
|
