Your Questions About How To Pick Stocks To Buy

Mandy asks…

What is a stock to invest in that would get me the most amount of money in 10 days?

I am doing a project for my econ class, and we have to ‘invest’ fake money in the stock market and see who makes the most money in a 10 day period…any ideas?

John answers:

Buy both a put and a call option both with strikes as close to the current stock price as possible and as close to expiration as possible. Fake money investments don’t have to deal with a lack of liquidity so you don’t have to worry about exercising the options besides the expiration will be after the ten day period. The options should be dirt cheap, especially if they’re out of the money. Pick a high flying stock that will either continue flying high or crash due to the number of nervous investors jumping on late like Apple or Google. What you want is a stock whose price will change a lot over the ten days, the direction doesn’t matter, indeed a crash will be ideal. You’ll make money regardless of the stock going up or down and as a percentage of your investment the price movements will be huge. Being close to expiration, the extrinsic value should have already decayed leaving just the intrinsic correlation with the underlying stock price.

David asks…

Do I have to use a broker to start investing in the stock market?

I’m interested in buying some stock to have as just another means of income for retirement. I don’t have a vast amount of money to invest. I’m just beginning.

John answers:

You first need to pick a company to invest through. Some of the best are Vanguard, T. Rowe Price, Fidelity, and Schwab. Avoid the big banks like the plague. Don’t let them rip you off with loads (sales charges) and fees. Check how much the company charges you as an expense ratio. A good one might charge you 0.2-0.8 %. If they charge more than 1% than go somewhere else. And if they charge any kind of 12b-1 fee, hold on to your wallet and RUN.

Start with some basic books to teach you the fundamentals. Two excellent reads are The Complete Idiot’s Guide to Investing and Investing for Dummies. Before doing anything, make sure you have enough in savings in case things go south for at least 6 months.
You need to learn also some important concepts in investing, such as dollar-cost averaging and compound interest – two of your best friends to make money for the future.
Also you need to think of what you are investing for exactly.

Maria asks…

What is the Process to buying dividend stocks?

I understand the basics of buying regular stocks but would like to know where i can go to learn the process to buying dividend stocks and how to claim them. and please keep it simple.

John answers:

Just like buying any other stock you trigger the order through your broker. If you use online brokers like eTrade the dividends will be deposited right back into your account.

The harder part of course is to FIND the dividend paying stocks that you would like to buy. For this you can use any stock screener. I recomend Zacks.com (http://www.zacks.com/stock/screener/stock-screener.php?type=SS). It lets you filter the list of all available stocks down using different criteria like industry, earnings, ratios and dividend rates. This will allow you to pick an equity that fits your investment profile AND pays a dividend.

Remember though, that dividends in conjunction with the expected returns on the stock (future price increases) are really just a result of the risk that the market sees in the security. So higher rick equities are likely to pay higher returns. For a very good basic level explanation of these principals check out Retire Young Retire Rich (http://www.bestbooksontrading.com/2011/08/rich-dads-retire-young-retire-rich.html). The book is a little light on equity trading information but a great resource for some basic risk vs reward understanding.

John asks…

What are the basics needed for investment in stock markets?

Hey i want to make some money by investing but i dont know one thing about it. What are stocks?What are equities?Can you please explain the basics?Please,please,please explain or recommend a site for that.

John answers:

I agree with “A Nobody” in that before you spend $,01 you better know what you are doing and why you’re doing it.

Yes important to have your own trading/investing rules along with a good money management policy

Here are some investing/trading rules that have worked for many investors/traders
1. The first and primary rule should be never enter into a trade without knowing when and where you’re going to close the trade.
2. Never invest on emotions; feelings have no place in determining investments.
3. Only buy stocks with real sales and real earnings, does not apply to pennystocks since they are crap shoots and are traded as fun things and not as investments.
4. Only consider buying stocks with each of the last three years’ earnings up 25%+, return on equity of 17%+ and recent earnings and sales accelerating.
5. Avoid cheap stocks, buy only higher quality stocks selling $10 a share and higher.
6. Never buy if the firm is filing or in bankruptcy.
7. Learn how to use charts to see sound bases and exact buy points.
8. Stay with up trending stocks, never buy on down trends. This does mean “the trend is your friend”.
9. Always buy companies with new ideas, styles or products.
10. Cut every loss when it’s 8% below your cost. Make no exceptions so you can always avoid huge, damaging losses. You can always average “up”..
11. Follow selling rules on when to sell and take profit on the way up.
12. Never average down
13. Always sell when management cuts sales or earnings forecasts
14. Buy when market indexes are in an uptrend.
15. Reduce investments and raise cash when general market indexes show five or more days of volume distribution.
16. Pick companies with management ownership of stock.
17. Select stocks with increasing institutional sponsorship in recent quarters.
18. Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock’s industry
19. Don’t buy because of dividends or P-E ratios.
20. Find out if the market currently favors big-cap or small-cap stocks.

Lisa asks…

What kind of chicken do you buy & how much are you willing to spend?

I buy the frozen bags of boneless skinless breasts usually on sale for $5 for a 3# bag. But lately I’ve noticed the quality seems to have gone kaput! The chicken seems fatty & is salted way too much. Does anyone else agree? I’m cheap, so I tend to buy on sale & stock up. I’m now rethinking this strategy. What do you buy/spend? And do you stock up & freeze, or buy spur of the moment?

John answers:

I buy whole chickens and cut them up. About $3 I some time buy the boneless breasts for tacos, and salads and that,but never frozen fresh.
Look for the sale and freeze yourself.
I think you’ll like this also freez you chicken in diferent marinades, as they thaw they will pick up the flavor and this saves you time.

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