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8 Ways to Reduce Stock Investment Risks

Investors, Drive Down Wall Street with Care!

With all the hullabaloo about speculation, an amateur investor may naturally assume that Wall Street is strictly for gamblers. This is a great pity, because probably a long-term investor can get better results in the stock market than elsewhere, provided he follows a few fairly simple rules. Also, it would help in the public understanding of how free enterprise, and especially big business, is owned, if more of our non-gambling citizens participated in owning corporate stocks.

Let us compare stockholders with motor-vehicle drivers. Every year automobiles, trucks, and their drivers cause a fantastic number of deaths and personal injuries, not to mention property damage. The great majority of drivers are careful at least nearly all of the time! Most accidents are caused by a comparatively small number of careless and reckless drivers. A cautious citizen, knowing that he or his family may be the victims of the next accident, could conceivably protect himself by refusing to use motor highways. But the trouble is that motor vehicles save us so much time and energy, and give us so much pleasure when used sanely, that we know their good qualities far outweigh the bad. So we continue to drive, and to hope that the wild drivers will behave, while in our vicinity! In Wall Street, the speculators, in spite of the commotion they raise, are only part of the community, the same as the reckless drivers on the highways. And in contrast to the highway problem, a cautious amateur can invest in such a manner that he runs low risk of having his finances wrecked by the gambler mindset.

Traditionally, being an equity owner of business involves serious risk, sometimes complete failure. An investor, knowing the instances of bad results in small business ventures, may assume that in buying corporate stock he must expect to run somewhat comparable risks, and so he makes no attempt to learn how to reduce the danger. Apparently a great many shareholders have attitudes more or less like this. They may not want to gamble, but they don’t bother even to inquire how Wall Street investment risks could be lowered. A serious market investor, wanting to avoid gambling in stock investments, must do some serious investing thoughts. The 8 main ideas for reducing the risks are mentioned below:

1. Avoid Investment Egotism. Realizing that there are several million stockholders in this country, admit to yourself that probably quite a lot of these people are just as smart as you are. Be satisfied with results a little better than average. Don’t let your ego runs for 50% if the market average is performing 25%.

2. Avoid Prophets, especially the positive ones. The stock market reflects events and rumors from all over the world, and no man or any group of men can be sure of what is going to happen, or when. Some prophets are paid to write for some companies. They do not always deliver genuine opinion. I would refer to their comments and analysis, but rely on your judgment of market sentiment and stock fundamentals for investing decision.

3. Don’t Borrow on Stock. Market price might drop and wipe you out. You do not want excessive interests to incur, and in the worst case, you do not want a lender’s call back that affects your key assets like home or business ownerships. Maintenance of your personal and family’s stability is a priority over stock investment.

4. Diversify your Stock Portfolio. Don’t put all of your capital into one investment, or into just one type. Put part of your savings into common stock, the other part into fixed-price items cashable at any time, to preserve the dollar value. Own stocks in a good number of companies. The larger the number, the better the chance of getting average results. And for real diversification, the companies should be in several different industries. For instance, pick a steel manufacturer, an oil refiner, an electric-power company, an electronics manufacturer, an IT firm, a department-store chain, and so on.

5. Check stock Marketability. Before you buy, make sure that you can sell or redeem it easily and promptly. Stocks of big blue-chip corporations like Microsoft, GE, Google are more liquid and hence easier to be transacted in the market.

6. Choose Skilled Management team. Find out how to pick a stock with great management level of proven competence. Warren Buffett investigates into a company’s leadership, credibility in its past performance delivery and the management’s capability to propel further growth.

7. Time your Buying and Selling. Adopt rules on timing of your buying and selling stock. The time of action is a major risk in owning stock. After you buy, maybe the price drops; and after you sell, perhaps the price rises. Maintain a standard ratio between the current market value of your stock and your reserve. Also, buy and sell stock only in small installments, never moving a large portion of your capital within a short time. By spreading installments over many months, you obtain a fair average price per share. Patience has a big factor in success of stock investments. If you could sit and wait for the correction times to buy quality stocks, you are on your way to success!

8. Review periodically. Don’t put stock away and forget it. At regular intervals, as for example after the close of each week, check back to see how well your stock has performed during the past few weeks or months in comparison to other stocks you might buy.

Can you afford Investment Risks? Drive Carefully! A reader’s reaction to these ways of reducing risk may be: “Those are nice ideas, provided a man has considerable capital, but they are impractical with only small savings. A broker’s charge is a high percentage on a small transaction, so a little investor cannot afford to make a large number of small purchases and sales. Also, the fee for first-class advice is too high for an ordinary investor to pay.” This reader’s complaint is valid, provided he insists on owning stock in the customary old way-that is, being a direct owner of stock in corporations engaged in manufacturing, mining, transportation, retailing, and so on. But the mutual funds, the open-end type of investment companies, make it quite practical for a man with only small savings to use every one of the ideas listed above for lowering the risk of owning stock. An investor learns and matures through time. I urge you to take the above 8 ideas, study deeper into them for applications. Risk avoiding tips given here need to be internalized before positive results could happen. I wish you well in your stock investment venture!

Important Things to Consider in Starting a Home Business

Home businesses are starting to boom nowadays. People seem that they are likely interested in putting up business in their home. Starting a business from home can be profitable in so many ways. You just need to choose the right product or service that you want to offer considering your office or business is in your home.

Starting a home business needs a lot of research and planning. Regardless of what type of business you want to put up, there are some things that you should consider for a successful home business.

The first thing that you should do in starting a home business is to choose the type of business. It is advisable that you go for a sole proprietorship if you want to start a home business. You have the absolute authority of all the business decision. This is also the easiest way because you can freely apply all your ideas with your business. However, you can also have a partner that can help you with the decision you make. Other opinion can help you improve your business.

Whatever the product or service you want to sell, you must still settle on a particular type of business. You can choose to franchise a product or service but it would cost high because most of franchiser provide you all the equipments and things you need. Also it is assured that your business will earn lots of profits because it is already proven that this business is selling well.

In order to have a successful business in your home, choose the right type of business. As a prospective business owner you must see what the people will go for the most and what is the most in-demand. It is a must for every business owner to have goods and services that will sell more and earn more profit.

The next thing that you should do is to construct a business plan. The business plan that you’ll create should contain all the important items and things which are necessary in your business. It should be in detail and clearly identifies all things needed. It is important to create a business plan because this will be your guide throughout the planning stage. You’ll be able to see if your business would bring a success.

You should also consider additional manpower that would help you run the business operations. Decide how many employees you’ll need to add and if they’ll be part or full time employees. And of course don’t forget the wages that you’ll give to these employees.

The most important thing in starting a business is the capital. You must determine your financial capacity. See to it that you have enough capital that can sustain your business. Will you have enough investment and savings that can cover all the expenses for at least half a year?

In this point you’ll be able to decide if you still pursue your business or revise your plans. You also have an option to borrow money if you really want to continue your business.

These are some guides that you can follow in starting a home business. Upon creating your business plan you’ll be able to see your business idea. By that time you’ll be able to decide what kind of potential business you’re going to put up.

3 Key Advantages Of A Large Stock Investment Fund

There are vast differences between large investment companies and the smaller ones in terms of fund size, return performance and the management team. How stock investors could benefit from investing through a large stock mutual fund? Just to name 3 key advantages here for investors’ reference.

1. Lower Expenses for Diversification

The more obvious advantage of an investment fund rests on the mere fact that it has much more capital than any but a few individuals own. It can diversify into a reasonable number of stocks with reduced percentage of expenses over your total investment sum.

An investor wanting to reduce the gamble in owning common stock must hold stock in a good many companies. Momentarily ignoring the existence of investment companies, suppose a man decides that for adequate diversification he should own stock in fifty companies, and for the companies he selects the average price per share is $30. Conceivably he could buy ten shares in each company at a total cost of $15,000, plus at least $3,000 expenses.

In return for his money, the first things he gets back are fifty stock certificates, which he must keep safe. When he sells a certificate at any time in the future Uncle Sam requires that he know when he bought it and the cost. Also, in the course of a year he will receive some 200 dividend checks, for a total of perhaps $60. The whole thing sounds silly, doesn’t it?

This example suggests three negative points about an investor’s obtaining diversification without using an investment company:

(A) He must pay out at least a few thousand dollars, and not many investors start with that amount of money.

(B) The expenses incurred in making small, direct purchases of stock may be higher than on the same total amount bought through an investment company, especially if a buyer figures in the fees for later sale of the stock.

(C) Even if an investor has capital enough to buy many times 10 shares in each of fifty or more companies, he still takes on a lot of work in selecting and keeping track of so many companies, and in handling his certificates and dividends.

2. Professional Investment Manager

Another advantage of having considerable capital in one pool under an investment fund is that a large fund can afford to pay the salaries of a competent portfolio manager and research deputies. Aside from the sales charge, most of the expense incurred in a typical investment company is the fee paid to the group responsible for keeping the fund invested. Usually this fee is fixed at a rate equivalent to 0.5 to 1 per cent of the fund’s assets each year. Suppose a fund’s capital is a mere $500 million; 0.5 per cent of this is $2.5 million, which the fund can pay for its investment managers, assistants, and operations expenses. A fund far smaller than this may be able to hire a skilled manager, because he expects a rapid growth of the fund’s assets, and consequently of his management fee. Or the same management organization may be in charge of more than one fund, with some of the assets of each fund invested in stock of the same companies, thus reducing the work for each fund.

It appears that in 2005 the investment companies with the best performance records are apt to have total assets of at least $300 Billion either in one fund or in a group of funds under the same management.

3. Fund Maturity and Track Records

Large size also implies maturity. It is practically impossible for a fresh investment company to accumulate $3 billion of assets, let alone 100 times that much, until either the fund has been in existence for a good many years, or else its management group has an established reputation strong enough to draw capital rapidly into a new fund. In 2005 most of the funds, or groups of funds, with $300 million assets or more, are at least twenty-five years old. So a fund with a good performance record is apt to have age as well as size. The giant of the industry Fidelity Investments was founded around 1930 by Edward Johnson II.

These comments on size may cause a reader to wonder: “How does a new investment company get started?” One answer is that many investors are so careless that a salesman with colorful prospectus can sell them shares in a fund with neither size, age, nor reputation. Or a buyer inclined to gamble may want to “get in on the ground floor,” whatever that means.

Of course, a fund can be large and still have poor or mediocre management. Large size merely gives a fund its perceived stability and the opportunity for a fine performance.