Learn The Stock Market And How to Trade

Here is my third part of stock market 101 – 101 facts and thoughts about investing in the stock market.  I hope this has intrigued your brain a little about other aspects of investing than you may be currently focused on.  If you have any questions or suggestions for post please let me know either buy email or by commenting below.

1. The market can remain irrational longer than you can remain solvent.  Please let me know where this quote comes from, it’s one I find myself reminding MYSELF about as I’m telling people that some stock price is ridiculous for reason x, y, or z.
2. Under current known conditions for stocks, the longer you hold a position the more likely you will end up positive on the investment.
3. Diversification reduces risk to a point, then it only reduces returns.
4. Investing in non-correlated investments reduces risk with less of an impact on returns.
5. Remember to consider the impacts of inflation when looking at investment time frames.  4% returns sound good until you figure in 3% inflation.  4% doubles your money every 18 years, however if after inflation your real return is only 1% your money value, or spending power only doubles every 72 years.
6. The rule of 72 – Take 72 and divide it by your yearly % return to figure out how many years to double your investment.  Example – 6% yearly return: 72/6 = 12 or your money will double about every 12 years.
7. Try figuring out your own inflation versus what the government says it is.  Look at your bills and see how much they have increased over the last year.  For some people it may be less, others more.  I drive a lot so when gas prices fell I had much more spending power.  Others, high food prices may be affecting them more.
8. When looking at returns and stock prices don’t think in absolute numbers.  One $500 stock or 100 $5 stocks still cost you $500 to buy in.  If both stock prices increase by 1% you’ll earn the same money from either stock.  You want to look at percent gains or losses in general.
9. Don’t feel you have to be 100% invested all the time, make sure you have the ability to jump in on great opportunities when they come around.
10. Don’t feel you have to reinvest your dividends in the same company you get them from.  Just because a stock was a good buy a year ago doesn’t mean it is now.
11. Reading about investing is good, talking about investing is better.  When you have to explain your reasoning to others or answer questions you’ll refine your thinking to the next level.
12. When you buy a stock without margin the most you can lose is 100% – however, when you short sell a stock there is infinite loss potential (well – until the broker calls you)

Alright, this 101 stock concepts is getting hard.  Mostly because it’s difficult to remember what I already said.  The other hard part is some of these ideas have fired me up to write some more post on them.  So following my previous pattern maybe I’ll get 6 more done tomorrow

%RELATEDPOSTS%

Related posts:

1. Stock Market 101
2. Stock Market 101 – Part 2
3. ETF’s in Stock Market Investing