Everyone would agree that investing in the stock market is not child’s play. For a person to make a consistent as well as a sizable profit in the market would requires a person to have years of stock picking experience to be able to feel right about their stock selections.

The reasons why some people are making bad choices of choosing a stock, is because of bad timing and of-course bad luck. But, it would take them some consistently messed up thinking an an approach that would lead into picking a stock broker who recommends stocks which end up suffering bankruptcy. The reason for these stock brokers in losing their money is mostly because of the lack of stock research when they are investing in a company’s stock. Another reason for this is that their investing is based on a totally baseless speculation.

Even after the years of worldwide economics research as well as thousands of books that are being written as to how to they could identify the best stocks for them to invest in, we are none the wiser and there appears to be few people who have the perfect formula to be able to select the best stocks for a person to invest in.

The reason for this is that to perform a good job in stock picking, you need to be willing to think outside of the box.  You need to be able to determine those stocks which have opportunities to rise in value before anyone else does.  This means doing some homework and being willing to take some risks.  The risks are not unfounded gambling but are based on true research into what makes a winning stock and then finding it.

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A stock market investing beginner should first read as much as he can and get some suggestions from other investors who are experienced.  Investors who know the market well – and the best sectors and companies to invest in, can be an invaluable resource when beginning to invest in stocks.

When you choose to invest in stocks, it is important that you are consistent and give it serious effort to succeed. Make sure to spend enough time to learn and understand all the processes that are involved with exactly how to buy stocks the right way. Firstly, you should know the aspects and elements concerned that play a major role in the ebb and flow of the markets and what drives them. Through reading articles, books and browsing reliable Internet sources, you will be able to expand your knowledge on how the stock market industry works for a good baseline education in investing.

Despite impressive results when one knows the ins and out of trading in the stock market, buying stocks also has a lot of potential risks and downsides. Before engaging in trading of any kind, plan for the worst case by setting sell limits both low and high. Getting assistance and guidance from someone who invests professionally or from a member of a stock brokerage may prove useful to you as well.

Understanding a variety of portfolios and how they work will give you strong  knowledge advantage. In making investment decisions, make sure you know the taxation rules for stock market investing. For a good source of information you can consult your preferred brokerage online since many provide you with all that you need to know about various portfolios, stocks and more. Again, a reliable look for a reliable source only when using the Internet as a research basis.  Even though a particular informational site  may seem up to date, some information does not supply the correct investing information that you are looking for.

Finally, all the points above will not help you if you are not diligent and have a hard working mindset. If you keep yourself updated on trading and tax rules, as well as market sector and company profiles, then your efforts will definitely pay off in future profits with your stock investments and making the right investing choices for your stock portfolio.

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One website I personally have found to be very efficient and dependable is Zacks.com and I’ve been using them since 2006. When the opportunity came along to have them as an affiliate, I welcomed them aboard. Zachs is the one site that has become more helpful now than ever especially with the uncertainty of the economy. Their investing research is outstanding, as well as diverse. Zachs has been around since 1988 and has performed well over that time. According to the site, they’re up an average of 28% each year since their start.

As a premium member you have all that Zachs has to offer including up to date e-mails of stocks that you list in your portfolio. Find out about the latest rating of stocks, up to date information about what’s going on Wall Street, Mutual Funds, options, and ETF’s along with their Research Wizard program that will help you screen and back-test stocks that you’re interested in.

If you’re already a member, that’s great, but if you haven’t been a member before, here’s you opportunity to take advantage of a 30 day FREE trial of Zachs Investment Research premium membership. If after the 30 day FREE trial, you’re not satisfied with what Zachs has to offer, then just cancel it. I’m pretty certain that most of you will continue the great membership from Zachs.com.

Reader Question: To those readers who are, or were a member of Zach’s, what did you think of their service?

Click below to get your 30 day FREE trial of Zach’s Premium Membership. See you there!

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For every stock that you own, you must spend at least one hour per week for each stock. Even though the balance sheet and the company’s growth was on the right path when you first bought into the company, that doesn’t mean it will continue on the same path. The company may decide to go into a different area to try and grow the business, It may work in the distant future, but that doesn’t mean that it will help in the near future as it ay reduce their revenue for the short term. Many other things can also and will affect the stock including the company’s competitors or even the overall markets.

Is the company is a sector that is in favor with investors? Is there another sector that will affect the one that you’re in? If oil goes up in price it will affect sectors like the airline industry in a negative way, but at the same time it could give the alternative energy sector a boost. Like I said, once you understand how sectors affect another you’ll be able to capitalize on the situation.

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Here are the other five things to know when shorting stocks.

6. Margin Calls – This is probably the scariest thing about owning a short position in any company.If the stock you’ve decided to short moves in the wrong way (stock price rises), your broker will insist that you do one of two things. One, deposit more money into your account, enough to cover the purchase price of the stock at the current price. The other choice is that your broker will insist that you sell some of your long positions to cover the margin call or they will do it for you in their own way.

7. Early Sale – If the original owner of the shares that you borrowed decides to that they want to sell the stock, you must replace it — either by finding other shares through your broker or buying it on the open market. Remember all you did originally was “borrow” the shares.

8. Short Squeeze – If you’re new to the stock market then this is a term that you might not be familiar with. It’s a term that is used quite often on Wall Street. A short squeeze is when the price of the stock jumps up in value quickly, causing short traders to “cover” their positions. Which means that they have to buy shares to cover the ones that they borrowed. This typically causes higher prices, which prompts more people to sell and to take profits. This is something that you may never want to get caught in the middle of because of the ferocity of the situation as well as get quite expensive.

9. Properly Covering You Position – You may not even realize it, but you can have a short and a long position at the same time. When you go to “cover” your short position, you need to tell your broker clearly that the shares you’re buying are to cover your short position. If you just buy the share while still having a short position, you’ll have conflicting positions. Many times people are in a rush to cover their position, that they may not even realize their mistake of overlooking their selection, especially online traders.

10. Dividends And Taxes – If you have borrowed and shorted a dividend-paying stock, you will receive the dividends, but you, in turn, must pay the original owner the value of those dividends. Also, should you hold a short position for more than one year, well, tough luck — the IRS still treats capital gains as short-term gains. Ah, Uncle Sam is always reliable!

I hope these ten things I’ve given to you will help you in your trading. If you are new to the stock market, then it’s wise to stay away from shorting stocks until you learned more of the basics.

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A DRIP is a program run in-house by a publicly listed company. They are often offered to employees of the company, but they are also open to external investors who can meet the companies minimum share threshold to participate – usually this threshold is quite low.

The benefit of DRIP investment is that you can start with a very low volume of shares, and gradually increase your shares over time. You usually set a fixed cash amount that you will use every month to buy more shares, and this can be set up to be automatically deducted from your bank account – in essence, it is a forced savings system. The strength of a DRIP lies in the fact that any dividends paid by the company on your shares are automatically reinvested, and this has a compounding effect on your number of shares over time. Many companies also offer shares to participants in the program at a reduced rate, and of course you pay no brokers fees if dealing directly with the company!

Although it might not suit day traders out for short term gain, a DRIP is a great tool to have in your arsenal when building a long term portfolio.

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… or Shorting Stocks For Dummies (Because they don’t have a book out for it yet)

If you’re a beginner investing in the stock market and trading stocks, there’s probably many terms and phrases that you’re not familiar with.  One of the many terms that you’ve heard by now is “shorting stocks“. The idea behind it is that an investor expects a company’s stock to go down in value and he/she will invest in it accordingly.

Typically when you buy shares of a company, you buy at a low price and then sell it at a higher price than what you paid. In shorting a stock you “borrow the share from a broker and sell them at a certain price and at a later time, you buy those those shares at a lower price to return to the broker. Of course, there is more to it that just this simple explanation of the process.

1. Risk – There is more risk involved in shorting a stock then there is in buying a stock to go up (long) in value. If you borrow a stock while it’s trading at $20 and it runs up to $100, then you’re out $80 a share. Unlike when you “go long”, you can only lose $20 a share as it falls to $0.

2. Locating A Stock – In the past year there has been a law passed that prevents someone from borrowing stock if you can not locate any available shares. In recent years, a trader would borrow shares that no one had and wait for the price to drop to buy the covering shares, but how can he buy them if no one had any? In this case it was referred to “naked shorts”.

3. Outstanding Short Position – The number of shares of a company held short, it is measured in absolute numbers, and/or a percentage of the float of the stock. Usually if the position is more than 10%-20% of a company’s total shares, it means that the bad news has already been factored into the stock’s price. If you find a company with a large short position, you need to avoid it all together.

4. – Margin Account – To be allowed to short stocks you will need to open what is referred to as a margin account. A margin account is where the funds will come from for you to borrow the stock. Take into consideration that you will be charged from your broker a “broker loan rate” (fee) based on the price of the stock. Also you will not get any interest on the margin account or have it rolled over into a money market account on the funds not being used.

5. Liquidity – Just like I said about an outstanding short position, if a company has too many share outstanding (liquidity) you need to avoid the stock. A stock that is not highly liquid should not be shorted. In this case you may find yourself stuck in the stock where you may not be able quickly liquidate your position.

In a future post, I’ll discuss more stock shorting tips for you.

Here is part two of 10 Things To Know About Shorting Stocks.

Reader Question:
To our readers who invest in the stock market, what’s your advice for beginners who want to to learn how to short stocks?

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Chasing a stock is a common mistake you need to be aware of, or your portfolio will take a beaten. This is when a stock had some good news come out and you missed the information when it was first released. In other words, the stock price made some good gains and you didn’t take advantage of the situation. I’ve seen stocks jump in value by over 30% and watch other traders try to guess at if the price would come back down temporarily so they could jump in. As the price goes up, they try to stay near the low end of the trading range, hoping for the pull-back. When the pull-back does come, it comes in the from of profit-taking from other trader and investors that got in on the initial news.

This can also take place over a period of a couple of days where the stock price jumps as much as 100% or better, only to have it come back down to levels of the original price before the move up.

Just because the stock price has moved up in a relative short period, doesn’t mean you should jump in for a quick gain. The traders that do that are very experienced in investing and this practice should be left for them to do. Any stock that you are planning to get into should be one that you’ve researched. You should be very familiar with it’s balance sheets, as well as other financial information in regards to the company. If not, take some time to check out a stock market site for information. You can never do enough research.

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One strategy that I use and I do use it quite a bit is referred to as channel trading. It’s help me many times in the past as well as made me plenty of money. It takes a while to really be able to do it, but it’s relatively easy. What is channel trading? It’s a technique that deals with a particular stock that a trader has been watching, where the price of the stock stays within a average range.

Stock prices do trade within a range that is typical to the value of the company. Let’s say that stock “XYZ” has been trading within the price range of $20 per share to $28 per share. When the price is down around the twenty dollar area you start building a position as the price of the stock gets over the twenty-seven dollar range you start getting ready to dump the shares.

Take into consideration that this is not a perfect system. There might be times that the stock will drop below the low range as well as the company having strong fundamental and a good balance sheet will push the price into a new range and you will have to start studying to figure out the new range. Sometimes profit-takers will sell off their position a little early because of fear within the markets.

If you look around you can find some good stocks that trade over a $20-$30 range. Of course most of those have a higher price tag (over $120 per share). Take your time and you will find many that will work great for you, but remember this is not an exact science. Before investing in any company, you must do your due diligence. As I always say, research is the key to successful stock trading. If you take your time and check out a good stock market site, you’ll save yourself headaches later on.

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