Archive for October, 2009

Stock Market Investing: Value, not Price

Saturday, October 31st, 2009

cscoIBM may be underpriced at $120; while Ford might be overpriced at $7.  I once bought Cisco Systems for around $20 thinking that since it had fallen from $80 it was cheap.  Guess what, it fell further.  In fact, here we are almost nine years later and CSCO is just under $23.

Learn from my mistake, pay attention to fundamentals…P/E, Div Yield, growth rate, free cash flow, etc.  Your research should give you a number that the stock is worth to you.  Prices rise and fall.  Sometimes without a good reason.  Don’t get fooled by a “sale”.  Only buy or sell if the price matches your investment goals.  Not because a stock looks cheap.

I’m planning to share more of my lessons learned in upcoming posts.  Feel free to add your own stories in the comments below.

Stock Market Investing: Goals

Sunday, October 25th, 2009

Stock chart One of the most important considerations if you are beginning a stock portfolio is to figure out what your goals are.  Why are you setting this account up?  What do you hope to gain by putting your hard earned money into the stock market?

Examples of situations that call for different investment goals:

1.  A 70 year old on social security may need that investment to earn a good dividend that she can use for monthly living expenses.

2.  A 25 year old may be starting his retirement account.  He doesn’t plan on taking money out for 30+ years.

3.  A couple in their thirties might open an account to save money for their children’s future college tuition.  They’ll need to withdraw that money in large chunks in 15 years.

4.  A 45 year old earns six figures a year and wants to build as large a nest egg as possible, possibly setting up an inheritance.

Each of these examples requires a different strategy.  Various types of accounts(401k, 529, IRA, etc.) allow tax savings for the appropriate strategy.

You will also choose your stocks or mutual funds according to your goals.  McDonalds is a stable company that pays almost 4% in dividends.  Google is a company (and stock) that has been growing like gang busters but doesn’t pay any dividends.

Finally, your goals dictate which broker you should choose.  An online brokerage account is inexpensive, but provides little to no guidance.  A broker at a full service firm like Edward Jones may cost more, but can guide your investment decisions to match your investment goals.

Have fun and know what you want out of your stock market investments.