I've received several questions via PM's regarding the stock market and investing in general, so I figured I'd try to answer these questions in this post:

In general, the level of investment experience should move through the following levels listed from simple to the more advanced:

1) Savings/ Checking Accounts
2) Certificates of Deposit
3) Savings Bonds
4) Index Funds (ETFs, Mutuals)
5) Bonds
6) Stocks

Everyone should be familiar with saving and checking accounts, as it is very hard to function in the US without them. In this area, you want to have the best interest rate you can get for your savings. Many local banks pay out less than 1% in interest for savings, and even less for checking. However, with a little searching, you can get a much better rate of return on your savings. Sites like www.bestcashcow.com are very helpful in showing you the banks that will give you the best interest for your savings. So the first step in investing is maximizing the return on your savings. That site can also be used to find the best rates for certificates of deposits.

Certificates of deposit, or CD's, are terms of agreement you can make with a bank to deposit your money without withdrawing in for a fixed period of time. CD timeframe rates are typically in the range of 3 months, 6 months, 9 months, 1 year, or even longer (3 -5 years). Usually interest paid on CD's are higher than that paid on savings, and the longer you are willing set the term of the CD, the higher the interest given will be. When entering into a CD, you want to be sure you can do without the money for the timeframes you specify. There are high penalty fees if you cash out a CD before it reaches it's full term (maturity).

Savings bonds are the US Bonds you can buy from the US Treasury. They pay out a fixed rate of interest and at the end of the term pay out the face value of the bond. You have several options when it comes to the type and time length of bonds as shown on the website.

All the investments noted above are deemed low risk and safe investments in that there is no risk of loss to your money.

OK, now we're moving onto the areas of investments that have risks associated them, meaning there's a chance that you can lose money. You should always keep that in mind with these type of investments.

The question I get more often than not regarding this area is "what should I buy"? or "give me a good stock tip". My response more often than not is the following: Here's my golden advice: Do your own homework and don't take tips.

What I mean by that is asking me, a friend, or some magazine or TV expert for advice without knowing what you should be doing on your own is like playing Russian roulette. Will the guy/gal who gives you a tip give you a good answer, or will it be off the mark? I know quite a few people who listened to "expert advice" and wound up losing money. I myself learned this the hard way when I first started investing and was eager to have someone who I thought knew more than me give me the names of some stocks to buy. After a few losing investments, I realized that these "experts" are far from perfect and make lots of bad calls. As the saying goes, if you want something done right, you have to do it yourself. I also make no claims on being an expert. The day you see the following post title or something similar "I've Done it! I've Made Enough Money to Leave My Corporate Job!", then and only then can you consider me as someone knowing a thing or two.

So how do you learn the ropes to do it yourself? Start with with keeping track of economic current events and the actions of the key players. You don't have to like it- just consider it a necessary chore. It should take more than 10 - 15 minutes each day to scan the headlines from any financial website. Some examples: USAToday, Yahoo, CNNMoney. Click on any on the headlines that interest you to learn more. If you can't do it everyday, then do it every other day or whatever schedule you can keep doing on a regular basis. As time goes on, it will start to sink in by osmosis. You will start to get a feel of the general state of the economy, which industries are doing well, and which ones aren't.

For more in depth study, you can go to a bookstore and peruse the collection of books on investing and stock selection. A book I started with and think is a great primer is "How to Make Money in Stocks".

This may sound like drudgery to someone anxious to get involved in stocks, but it's necessary if you want to succeed for the long term. Before you buy any individual stock , you should have good information about the company and be able to make a forecast of where you think the stock is headed, as well as the potential risk factors.

Also remember that stock market investing should be seen as LONG TERM, on the order of at least 5 years. There is a big difference between stock trading (short term) and investing (long term). Before you even THINK about "trading" stocks, you should be familiar with and have several long term investments under your belt.

Back to investments, you have to realize that the market will go down as well as up so the key is picking a good stock for the long term- and not get caught up in the day to day market fluctuations.

I would suggest starting with an index fund that tracks the S&P500 or the Russell 2000 and use  "Dollar Cost Averaging". Here's the gist of dollar cost averaging- let's say you have $2000 to invest in the market. Do you run out and put the entire amount in the market at once and hope for the best? That would be very risky if your timing is wrong. The safer way would be to put in $50 or $100/ month in the index fund. This way, if the market heads down, you are buying more shares and your account will gain more when the market moves back up. Now some might say "what if the market goes straight up- wouldn't it be better to put all the money in at once?" That problem with that is you can't be sure what direction the market will move in, especially if you are new at this.

After you are more comfortable and have done your research, then you can consider venturing out to buying stocks from individual companies.


An Example of Stock Analysis

As an example of stock analysis take a look at these two examples: - Note these are examples only and are not BUY or SELL recommendations.

WMT - Walmart

Walmart is a popular store and they are very competitive with their pricing. Now I feel we are headed into a recession which is going to hurt retail, but Walmart should still do well since folks will probably move from the higher priced stores to come here. If the recession is deep enough, even Walmart will be affected, but they should be the first store to improve when the economy improves. Fundamentals for this company are available online and can be found on most financial sites. Technical analysis is another area of research that helps you have market forecasts.

PPL - PPL Corp

As a electric utilities company, it should fare well in the long term during a climate of increased energy costs.


I'll answer any questions here...except for what stocks to buy- you should be doing your own howework and coming up with your own answers.

Status on my current short term "short" positions:

NYT - New York Times

Closed my position on Tuesday for a profit of about $3000.00. Not bad, but the trade took much longer than I thought - over three months when I was expecting only a few weeks. As a matter of fact, all my current trades are taking longer than expected.

BJS - BJ Services Company

Roller coaster movement in the stock has moved me from being at a loss - to having a profit - to being at a loss again- to having a profit again - to once again being at a loss. The reason I didn't cash out when I was in a profit is because my price target for the stock will have a bigger profit if it drops that far. So far it hasn't, but I'm waiting patiently.

TG - Tredegar Corp

Currently at a profit but still not close to my price target.

BMR - Biomed Realty Trust

Taking the biggest hits here, but I have the greatest hope for this position. This is commercial real estate and I think the current housing/mortgage crisis will eventually be affecting this area. The stock has shown surprising strength during this current rally, but I think it's just a matter of time for this to go lower.