Investing can be a very cumbersome process. Research shows that on the average, you must spend one hour per week for each stock you own. For average diversification, let us assume you have a portfolio of ten stocks (as I do, I will get to that later), that means you are required to check those stats up on Yahoo! Finance, do some homework on Moneycentral and listen to those conference calls for 10 hours! That is more time combined than your average person spends in church, in shops or even driving per week (if you are not a junkie). But those ten hours are necessary to insulate you from the critical ups and downs of wall street: basically you have to do your homework. But that gets me to the subject of discourse today: why do you invest?
It will be foolhardy for anyone to spend 10 hours weekly of their precious lives weekly without having a good reason for doing so. The reason you invest will be directly related to your stock picking strategy and your horizon for holding on to your investments (short, intermediate or long term). The manner you invest will also be affected by the reasons you are investing. In my opinion you can invest for a number of reasons. One fellow said he is investing to leave his children a great deal of inheritance: I don't blame him, but my friend then the stock market is not for you! Simply buy life insurance for less than 12 dollars a year and you can be very well assured you successors will have a very good life after you sucker is thrown in the grave!
The first market type people invest simply to generate cash for daily living. If that is you then you need to be looking at terrific growth stocks like Google (GOOG), Broadcom (BRCM), Seagate (STX) , Genentech (DNA), Amgen (AMGN) or Apple (AAPL). Basically the best place you want to be is technology or biotechnology. Those are terrific growth sectors. Utilities and transportation as well as Oil and Gas also offer significant opportunities in this day and age though they might be one step too far in 2006 in my opinion. This profile is very risky, it is a boom-burst cycle. You have to chase growth and that means taking investment as a full time job: mutual funds can never be a very nice way to play this so you either put in the ten hours multiply by four or you are screwed. Cos Jim Cramer will game the market like you trust me, and the guy is a genius- how you beat him still beats my imagination.
However, some people also are trying to game the market so that they can be comfortable in retirement. The name of the game here is asset preservation and right sizing. Depending on how far you are away from retirement, you want you portfolio to be rightly sized in growth, value , international and bond holdings. This spread and asset diversification will allow you to hedge the market appropriately and avoid being caught up in an Enron like mess when you are 5 years away from retirement. Any one that has 5 years to retire and was caught in enron by the way was playing with fire and they knew it. Enron was an unbelievably hot growth stock working wonders, about to be retirees go value and bonds not growth: don't be greedy!
And to you my young friend that will like to retire early like me, we have a new game in town. This group of people are young and fresh minds, lucky one that have a good paying white or blue collar job in their twenties. If you want to stop working at 45-55 to go travelling or build that your dream home in the desert of mexico or coast of florida then you need to get into my head! The way to go is simply two words: dividend reinvestment. This means you need to get into dominant market players like ExxonMobil (XOM), MO (Altria) or Bank of America (BAC) all which I own, with terrific dividend yields and invest in them one step at a time applying the lessons of dividend reinvestment and dollar cost averaging. What will make you money is disciplined approach to investing in select group of what Jim Cramer calls Best of Breeds. Just pay up and watch it grow with dividends payment above 2% (inflation adjusted) much better than any money market yield for that matter, and then you use it to buy more. With couple of little additions yearly, you are on you way to Hawaai baby!
Can I Afford to invest? How do you pick the stock ? Where do I do it? You might ask- I am here to help, next time I will use my own personal nest egg of 10 bullet proof (or you can say ridden) stocks to show you what is going on in my wacky brains! It is a simple step by step methodology that will show you a poor student can start early as well- remember that for every year you don't invest 2000 dollars between the ages of 18 and 25 you are losing quarter of a million dollars twenty five years down the road.
It is time to say good bye today. Always remember you will lose more money thinking a good stock is expensive than buying an expensive stock thinking it is cheap. That is from experience. See you next time..and stay in brain wave mode!