It's time for some Kittellian stock tips. But First...
If you're in debt (other than a home mortgage), get rid of that debt first. If your debt is a car payment, that still constitutes as bad debt. And you can look forward to my next post, the "Kittellian Car Buying Guide."
Second off, stock away an emergency 3-6 month supply of cash that can get you by in the event you lose your regular stream of income. Put it in a high-yield savings (good luck) or a CD. Either way, you must be able to get to it quickly.
Thirdly, there are safer ways one should save for retirement than purchasing individual stocks. But that's a whole other entry...from covering the tax benefits of Roth IRAs, to discussing the advantages of a company matching 401k.
Now, let's do talk Vegas...because that's what the stock market is, one huge gamble. But there are key ideas to minimize your risk when purchasing individual stocks.
Rule 1: SUPPORT COMPANIES THAT YOU SUPPORT!
If you love a company, and what they provide (not to mention, how they provide it), you should feel comfortable supporting them as an investor. Then when you support them as a consumer, you can feel even better about directly steering the performance of the stock.
Rule 2: BUY LOW!
I know, "DUH!!!" But so many are obsessing about the doom and gloom of the current economy, while you should be celebrating the fact that the world is ON CLEARANCE. Imagine a red tag sidewalk sale on Wall Street. Look at how close the company is trading against its 52 week low. Also, look at the performance 5 years back (at the start of this mess), and ask yourself "am I getting a bargain."
Rule 3: IS THERE A CHANCE THE COMPANY WILL GO OUT OF BUSINESS?
I purchased some Ford stock a while back. The American automotive sector was getting hammered by gas prices, and foreign competition. I saw a 5 dollar per share price on their stock. I didn't have much faith in Ford, but I was pretty sure this 'Merican icon wasn't going to file for bankruptcy anytime soon. And they didn't take any of the Federal bail-out money, so that was reassuring. So I purchased as much as I could. Thank you Ford, for bouncing back.
Rule 4: IS TIME ON YOUR SIDE?
Not to sound ageist, but I'm assuming most of you reading this are far from retirement and consider yourselves "young". That said, if you're pretty sure 2012 isn't the beginning of the end, then it shouldn't be too hard to convince you that the markets should rebound. Invest now, and ride out the tough times. If those investments don't totally fail due to bankruptcy or buy-outs, then they'll most likely do just fine. Just don't sell them. I wish I could find the quote, but the concept is still poignant, no matter who said it (so I'll say it). A powerful stock broker was once asked "What was the biggest mistake you've ever made in the stock market?" Their answer: "I sold some stock."
Rule 5: FEAR IS YOUR FRIEND
Remember when BP really F'd up a while back. Remember when their stock took a tumble? Did you ever think their evil ways would put them out of business? Well, they're not going anywhere, and those that purchased their stock when it was 5 miles under the ocean saw 40% growth within the month. Did I buy BP? Nope. I'd say it's because I have a heart, but I was worried federal fines would put them out of business. But a stock I do own is Bank of America, because I bank with them, and I send them a mortgage payment each month. Now I hear about Wikileaks planning on spilling tons of dirt on Bank of America which might tank their stock. And I say, "Bring it on". Sure, I'll lose more money, but I already purchased it cheap (thanks banking scandal). But now I can look forward to the potential Black Friday pricing it's about to have. And when it tanks, I'll buy even more for my money. When I'm 50, if the stock is performing well, I'll move it into something more secure and less volatile... like a Scrooge McDuck coin-filled swimming vault.
Just remember buying stocks = gambling. If you ever go into a casino with the plan of coming out with more money, you have a problem. Instead, look around and pick out a couple marble tiles that you can feel proud of purchasing. If you lose everything, chalk it up to an entertaining evening. If you can't afford to lose all your stock investments, then don't play. But in the meantime, it's a pretty fun game. And if it all comes tumbling down, just be sure your TiVo is full of old episodes of Man vs Wild. Because no amount of money helps you in the wild.
I agree with your first rule: get out of debt first, and save up 3-6 months of living expenses. Although, I disagree with putting your 3-6 mos in a CD. The rates suck just as bad as a glorified saving account AND you get assessed a fee if you pull it out early. You want it liquid, without having to pay fees.
ReplyDeleteInstead of a savings account or CD, I recommend a money market account, which has slightly better rates than a savings account (barely) and it is very liquid, without fees.
It's important to note the 3-6 months is not an investment. So, forget about the interest rates. Where you place that amount is simply a vessel to hold your emergency money.
As for buying single stocks... I don't recommend that either. If you must do the single stock thing, only throw 10% of your investment money to that. Everything else should equally go to 4 types of Mutual Funds, Small Cap, Medium Cap, Large Cap, and International. The mutual fund managers are buying stocks held inside the funds low as well. Except they do it with more money and more funds, another word for "diversification."
Look for long track records of 10 or more years.
Also, if you have a 401K at work, max that out to the point where they match. After that everything else goes to Roth IRA Mutual Funds (containing the 4 I mentioned above).
Oh, another rule, before getting out of debt... stop investing. You need that money to attack your debt first.
- comments by Rob Kittell, John's older brother