Investing


main.jpgAlthough we don’t like to admit it, fear can often motivate our investment decisions. That’s understandable — the thought of losing even a portion of your savings can be scary. But unfortunately, fear can distort reason and sound analysis, causing investors to ignore both risks and opportunities of investing. It can also lead to “financial paralysis” — when an investor is so afraid of making the wrong decisions, they fail to make any decisions at all.

On Tuesday, February 27 this year, the Dow Jones Industrial Average dropped 416 points—the markets sharpest drop in three years. Two emotions—fear and greed—can lead to bad investment decisions

Here are some quick tips to help overcome anxiety and fear, and allow you to take control of your investment future.

Investing can be dangerous yet profitable endeavor. Many people have been burnt and decide not to ever invest again. This is the primary fear for investing in anything. They may give you excuse such as ‘I don’t have enough money’ or ‘I don’t know where to invest’. But the number one fear is always the fear of losing money. If a novice investor knows that he won’t lose money, he must have used all means necessary (such as loan) to buy as much investment opportunity possible.

Investing here can mean a lot of things from buying gold coin to real estate. There are several ways of how to reduce your fear of investing in common stock.

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warren-buffet-791235.jpg There was a one hour interview on CNBC with Warren Buffet, the third richest man in the world who has donated $37 billion to charity. (The richest now is Carlos Slim and Bill Gates is the second richest.) Here are some very interesting aspects of his life:

1. He bought his first share of stock at age 11 and he now regrets that he started too late!
2. He bought a small farm at age 14 with savings from delivering newspapers.
3. He still lives in the same, small 3-bedroom house in midtown Omaha that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall around it nor a fence.
4. He drives his own car everywhere and does not have a driver or security people around him.
5. He never travels by private jet, although he owns the world’s largest private jet company.
6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO’s only two rules. Rule number 1: Do not lose any of your shareholder’s money. Rule number 2: Do not forget rule number 1.
7. He does not socialize with the high society crowd. His pastime after he gets home is to make himself some popcorn and watch television.
8. Bill Gates, the world’s richest man, met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet (other than money!). So, he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
9. Warren Buffet does not carry a cell phone, nor has a computer on his desk.

His advice to younger people:

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Stay away from credit cards, Invest in yourself. He is prepared, however, and does so regularly, to outline general principles of sound investment. These have a consistent theme and can be summed up like this.

A. Money doesn’t create man, but it is the man who created money.
B. Live your life as simple as you are.
C. Don’t do what others say. Just listen to them, but do what makes you feel good.
D. Don’t go on brand name. Wear those things in which you feel comfortable.
E. Don’t waste your money on unnecessary things. Spend on those who really are in need.
F. After all, it’s your life. Why give others the chance to rule your life.
G Never invest in a business you cannot understand.
H Always invest for the long term.
I Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.
J If you’re doing something you love, you’re more likely to put your all into it, and that generally equates to making money.
K Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.
L In the short run, the market is a voting machine but in the long run it is a weighing machine.’

I see a parallel here between medical treatment and investment advice. In both cases, the choice of expert is an extremely high-stakes decision. If your doctor prescribes the wrong course of treatment, you may not wake up the next day. An incompetent investment adviser may leave you unable to ever retire.

choosing_a_doctor.gifInvesting to a lot of people is comparable to going to the doctor, you know you should but it’s kind of scary, so you put it off. Does that sound familiar at all? Well, the thought that should be even scarier is what may happen if you don’t start investing.

One of the biggest misconceptions about investing, whether it is the stock market, bonds, real estate is that you have to have a lot of money to do it, and you only do it so you can get rich. The truth is completely different.

The truth is, investing is something you do to secure your financial future and also build a retirement fund. Suppose you were downsized out of your job? Suppose your retirement is up in 10 years? By investing, you will be prepared to meet these new challenges.

That’s the real meaning behind investing, planning your retirement, not becoming a millionaire. I’ve found few of the biggest reasons why many people fail to get started investing in their financial future as follows:-

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tunlaptop1.jpgLosing sleep over buying a mattress could be understandable; people are tossing and turning on potentially bad beds because they dread mattress shopping.

Now let’s take a look at losing sleep while investing. The recent events in the stock and bond markets drew everyone’s attention. No doubt you took a look at your investments and, perhaps, worried about one or two. Maybe, you made some changes to your portfolio.

Let’s take a look at your experience and see if there are some lessons to be learned.

Did you lose sleep, literally or figuratively, over any of your investments? This is the gut check measure of risk tolerance. Investing is not an emotional decision, it takes hard work and discipline, but if you worry too much about an investment, it isn’t right for you. One of the hardest parts of investing is keeping your emotions out of it (i.e., taking a loss or selling your “favorite” stock).

Emotion will only cause you to buy at the market highs and sell at the lows. But, did your gut tell you to sell anything during the recent market correction? Rule number one of gut check investing is: if you lose sleep over an investment, it’s probably too risky for you. How do you know? This brings me to the second rule of gut check investing.

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etf_mistakes.gifThere are only two emotions in the market – hope and fear.The problem is you hope when you should fear, and you fear when you should hope. Sounds a little too smug, doesn’t it? What exactly does this mean? Loosely, it means that when a stock you are holding goes down, you keep holding it hoping it will rise whereas actually you should fear that it will fall more. And when an investment goes up in value, you do the opposite.

This is true for many of us. But fear and hope aren’t the only two emotions at play in stock investing, there are many more. Here’s the full list: doubt, suspicion, caution, confidence, enthusiasm, greed, indifference, denial, concern, fear, panic and finally, despair. Naturally, greed comes in only when markets are at the top. In the list above, the emotions before greed are the ones that are felt on the way up and the ones after greed are felt on the way down.

That’s why the investment pros often say in a mantra-like tone: “There is no such thing as a free lunch.”

The key to successful investing is not to avoid risk altogether but to recognize the risks you are taking. To avoid unpleasant surprises, do your homework. Nothing beats reading the prospectuses and checking the long-term performances of your investments. People rush into purchases even when they don’t understand what they’re buying, People do more research when they buy a refrigerator or a laptop than when they invest thousands in stock. (more…)

fotolia_top.gifBeginners who are not aware of current trade investments and who don’t have enough capital to invest may face a lot of setbacks. These factors, however, should not discourage an individual from investing. If you are too scared to take the risk, you lose a lot of opportunities.

Investing gives you the leeway to increase your income. If you just simply put your money in a savings account, a 2-5% interest will not do to secure your future. Since in this set-up you can easily pull out your savings account, it increases the likelihood of you spending the money in unnecessary expenditures. In a short span, your money is gone and that leaves you with nothing.

Lay down the cards. For beginners, the first thing to do when you plan to invest your money is to have a reality check. To start off, do you have a capital to invest on? It is not just capital but do you have a risk-capital?

Add up your assets and check which of these you are willing to bet and let go. This may be hard at first especially if all of which are valuable to you. But if you carefully choose which assets are of lesser value to you, this will make it easier for you to accept loss if your first investment fails. Since investing is also an expense, consider it a loss anyway but with a potential to grow.

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Market corrections are inevitable and healthy. Stock market corrections can be excellent opportunities to purchase common stocks at bargain levels. Veteran stock investors are not seeing anything in this turbulent market that is particularly unusual.

The fact that this market roller coaster is being pushed by a credit crunch instead of surging inflation or some other economic disaster doesn’t change the need to take a deep breath and sit tight.

Corrections, pullbacks, or whatever you want to call them are a natural part of the market cycle.

If you take a look at the past, there has never been a correction that has not proven to be a good buying opportunity. It has taken an average of less than three months for the market to make up those corrections, which is why most veterans plan to ride out the bumps.

When the market begins its return to normalcy, you don’t want to be on the sidelines. The secret to wealth has always been to “buy when there’s blood running in the street and sell when everyone is pounding at your door, clawing to own your equities.” You must have enough faith in yourself to buy when the rest of the market is selling.

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image003.jpg“People who read Cosmopolitan magazine are very different from those who do not.” so said Donald Berry in ‘Statistics’.

Now you will just not have any idea of how apt that statement is unless you’ve actually read Cosmopolitan (really read it, not just look at the pictures) but I like to believe that fund investors who read Mutual Fund Insight are very different from those who don’t. I have believed so far that there are two kinds of fund investors-thinking ones and non-thinking ones. And those who invest their time and money in reading this magazine must be the thinking ones.

What distinguishes the two? The non-thinking ones are the ones who just follow whatever seems to be the flavor of the day. The thinking ones are those who carefully weigh their options, consider the facts and then take rational decisions. However, in recent months I have seen that sometimes, the final step is the same.

The non-thinking ones unthinkingly follow the flavor of the day. The thinking ones think carefully, then just ignore the conclusions and follow the flavor of the day. They look at returns, ratings, portfolio statistics and whatnot, but then turn around and invest purely driven by the fear of getting left behind by everyone else.

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gorilla.jpgWhat do you say? Doesn’t every investor want to own great stocks? Of course they do and so do you, but the “great stocks” I’m talking about are usually the ones a well-meaning neighbor or co-worker tips you off to as the next Microsoft or whatever.

Usually these stocks fall into three categories:

Ornaments – all shiny on the outside, but hollow and easily broken at the slightest touch. They capture the attention of investors easily distracted from sound investing principles with their glitter, but ultimately fail because they are not viable businesses. In six months, no one will remember its name.

Bicycle – What your friend doesn’t realize is that this stock is tied to an economic cycle which is about to swing in the opposite direction.. She bought the stock when demand was high and the stock was fat, things are going to change soon and the tires are going flat.

Great but late – Your friend is right about the stock, it is great. Unfortunately, the market has bid up the price past the point where you can realistically expect to make any money. This is the “buying high” part of the equation that results in losses (buy high – sell low).
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22762432.jpgI am a bit of a gambler but am not the normal type of punter who you may see in the bookmakers on a Saturday afternoon. I am the kind of gambler who only likes to bet on what you might call a racing certainty. I love the thrill of all things to do with gambling but in my opinion there is nothing better than riding the stock market wave. What I mean by this is attempting to make money from investing in stocks and shares, trying to predict when to buy and sell etc. In this article I will write about the reasons why I believe more people should invest on the stock market.

Some people avoid the stock market because “it’s too risky.” But it can be riskier to not invest. If you put all your savings under your mattress, it probably won’t be enough to sustain you in retirement. If it’s all in a bank account earning 3% per year, on average, then that will barely keep up with inflation, at most. You can do better than that.

Many reasons for many people to do investments, one that can be very common to most of us is to make money. There are also personal reasons that you’ll want to start or join an investment club. You’ll finally have the opportunity to play the stock market in a safe environment that may be low risk and lets you learn more about a subject that greatly interests you.
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