Your Questions About How To Pick Stocks To Buy

Susan asks…

What do you have to know about a company before buying their stock?

Say I wanted to invest in General Motors’ stocks. What should I know about the company itself to conclude whether or not it’s a good decision?

John answers:

Here is a great website to learn everything about reviewing stocks – from how to pick to analyzing the profile of companies.

Http://www.fool.com/investing/beginning/investing-strategies-your-first-stock.aspx

It’s a beginners guide and should help you understand the market a great deal.

Linda asks…

What do you think about these stock picks?

I’m going to invest 15,000. Half would go to gold coins. The other half would go to stocks like Apple, Google, Coke, CAT, AEP (It’s a utility stock).

I want to keep these stocks for thirty years but cash the gold within 10 years. I’d like medium risk, I can take the risk because the money isn’t really needed.

What do you think? Any particular news that I should know?

John answers:

I think you should consider ETFs or mutual funds. Because it is difficult to have a diversified portfolio starting with $15,000 i.e,. 5 holdings is not a diversified portfolio, your stock picks are good stocks but, just think about it Google (GOOG) is selling at $576 a share so you can buy less 10-15 shares, APPL is at $335 so ditto. If you buy into ETFs or Mutual funds you can get a diversified portfolio with just one buy e.g., total stock market ETF from Vanuard, Schwab, ishares etc. In my opinion you need to have at least $50,000 in order to be able to purchase enough stocks to have a well diversified portfolio of 15-20 positions. Also, the days of buy and hold for 10 years is over.

Thomas asks…

What is the best stock option strategy if i want to acquire a stock at lower price?

Which of the strategies below mentioned allows me to buy a stock at lower price if i can wait?covered strangle
long call calender spread
cash backed call
cash secured put

John answers:

If I had to answer this question on a multiple choice test, where I could not qualify my answer is any way, I would have to choose “cash secured put”. If I was actually making a trade in my portfolio, that might or might not be what I would do.

In reality, the covered strangle is the only one of the strategies listed that guarantees you will acquire the stock at all, and it guarantees that you will get at least some shares at less than the market price at the time you purchase them.

With the cash secured put, you may never own the stock if the stock price does not decline. While it does guarantee that if you buy the stock you will pay less than the market price for the stock at the time you wrote the put option, it is entirely possible that the stock price will have dropped enough that you will pay more than the market price at the time you buy the stock. Consider the following example:

A stock is trading at $50 per share. You sell a put option with a strike price of $45 for $2. At expiration, if the stock if trading for more than $45 you will never acquire the stock. If the stock is trading below $45 you will buy the stock paying $45 per share, or a net price of $43 per share after subtracting the premium you received from the put. If the stock price has really crashed, say down to $30 per share, you will still pay $43 per share for it. So while it is true that paying $43 for for a $30 stock is better than paying $50 for it, it is still paying a lot higher price than the market price at the time you actually bought the stock.

The other problem with the cash secured put is that you do not benefit from a big increase in the stock price. If, instead of dropping to $30 per share the stock had gone up to $80 per share, your only profit would be the $2 per share premium you received from selling the put. You would have never acquired the stock, which was you wanted to do in the first place.

When you write put options you end up buying the losers you picked but never buying the winners you picked. Trading options should be based on expected volatility at least as much as the direction you expect the stock to move. I find it difficult to call any option strategy the “best” strategy without any mention of volatility.

I apologize for going off on a tangent, but I have been on various option message boards for over 10 years, and I have traded options in my own account for a lot longer than that, and I am tired of seeing people lose money because of some dubious advice about the “best” way to do something.

Jenny asks…

Where can I buy a motherboard for my HP desktop?

I need to buy a motherboard for my HP a1600n desktop (ASUS A8M2N-LA). Are there any stores in NYC (Manhattan preferably)? If you think I can place another motherboard than the one referred to above please tell me. Thanks.

John answers:

Obviously, HP would be the first choice of many people. Not me, because they are way too expensive. You should be able to get the specs for this board from the ASUS web site. Take those to a local store that sells motherboards and let them match what parts you have to a new board.

For example, you probably want to reuse your current CPU, memory and add-in cards. If not, consider a much more modern and faster motherboard/CPU/memory combination.

If it were me, I would analyse your boards specs and pick the best one. I would then order it from my suppliers, since I carry only an extremely small variety in stock. I’m saying that so you know that you don’t have to take just what they have on the shelf.

I have no idea what the other answer was talking about, so I can’t comment on it, but what’s that about Windows?

Paul asks…

What candies should i buy for my wedding buffet?

I am planning a candy buffet for my wedding of about 100 guests. Our colors are going to be blue, white and silver. I have 12 gorgeous bowls for candy but im not sure what to put in them. My biggest worry is my wedding is going to be on labor day (September) in Iowa and im having an out door event so i have to be careful with the candies i choose. What would you pick???

John answers:

M&Ms will last well, and you can even buy select colors individually at Walmart now a days. In my town they even have the school colors in stock, its kind of funny. So maybe look into that?

I really cant think of anything else that is blue and white off the top of my head >.<

But advice I CAN give, is that make sure there is some chocolate, and some non chocolate as well. I LOVE chocolate, but my fiance hates it and would have no use for a candy bar if it was all chocolate. Likewise I would be annoyed if there was no chocolate. I am sure with 100 guests there will be some who would prefer one over the other, so give everyone an option.

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