The Bull Hunters Guide

This is probably another one of those common sense tips that tends to be overlooked and swept under the rug in favor of the latest “hot tip” or whatever happens to have come down the pipe. Nevertheless, these tips have been around for a reason: they’re important, and their wisdom bears repeating. This time around, we’re going to talk about the old adage of sticking with what you know.

Get the best results from what you know

You’ve probably heard this advice given most often in conjunction with the exercise of writing, under the pretense that by writing about the topics that one is most intimately familiar with, one can produce the best results. The same applies to investing. If you put money into industries that you don’t know the first thing about, you’re going to get into trouble and fast. Suppose that you open up your morning news paper to the technology section and read about Company X having developed an all new standard for etching circuits onto the surface of a microchip, one that can double the number of circuits of past chips. If you know nothing whatsoever about computer chips, then you wouldn’t know exactly what this meant for Company X. You wouldn’t be able to (accurately) speculate as to what it meant for them in terms of near future stock market activity and your hands would be tied. Everyone knows that following an industry’s developments is one of the best ways to know what’s going to happen in its corresponding market presence, so it pays to invest in those industries that you understand well enough to follow.

Satisfaction from investments

Furthermore, you’ll have the advantage of feeling more passionately about your investments, and you’ll derive a greater emotional satisfaction out of working with them. After all, part of the appeal of the stock market is that it’s a lot more fun than just letting your money sit in a bank somewhere! If you have an investment in a company that you used to work for, for instance, or a company that produces a product you use on a daily basis and feel a personal fondness for, you’ll have more invested than just your money. This isn’t just sentimentalism, either; the more you personally care for a company and its products, the more carefully you’ll be inclined to follow the trends that affect it, and ultimately affect your investment.

See you next week for part 9 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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This week, we’re going to cover another one of those “common sense” strategies that nevertheless always seem to be so helpful. The real problem with common sense is simply that: it’s common. It’s always right there, out in the open, so as time passes, people tend to overlook it. A pretty ironic situation, really. In light of that, let’s take a look at one of the bits of conventional stock market wisdom that really needs to be driven home, especially for young investors.

Compounding growth

Like with any other type of savings, compounding growth is more or less the end all and be all of investment. What starts as a 1000 dollar investment that gains 10 percent becomes a 1100 dollar investment. If it hits that same growth again, it becomes a 1210 dollar investment, and then a 1331 dollar one. Simply put, the longer you have your money working for you in some type of investment, the more growth it can achieve.

As such, it is critically important to start investing in the market as early as you can. Young investors need to take a look at the idea of diversification and find some way to balance that virtue with the virtue of having a few core stocks that you tend to keep with you over the life of your portfolio (always keeping an eye on them, of course).

Early means more time to profit

Investing early has another meaning as well: if you invest your funds early in the life of company, they will have more time to spend with that company as it matures and develops. If it goes on to be a successful company, you will have maximized your earnings by investing in them as early as you possibly could.

Remember, the real name of the game here is compounding. Receiving a gain on money that you invest is exactly equivalent to investing that new larger amount. As your initial investment grows, so to does the potential for future growth on that investment. Developing a long term strategy can help you go a long way.

See you next week for part 8 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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We’ve covered a lot of investment tips in this blog so far, and the majority of them have dealt with the idea that you shouldn’t be motivated into making sweeping changes to your portfolio or overall investment strategy as the result of panic. In other words, we’ve stressed weathering the storm, because this is one of the most important lessons that a beginning investor can learn to set his or herself apart from the total amateurs. Today, however, we’re going to shift gears a little bit and start dealing with that part of the stock market that tends to get everyone excited: the fast-paced fluctuation.

Buy and hold forever?

We’re going to bust a piece of conventional wisdom right now. It used to be the case that there were certain stocks out there that one could buy and hold forever. So called blue chip investments that would continue to grow and grow throughout the life of the investor, providing a constant return and a continuous source of reliable growth. However, those were simpler times.

Changes to the marketplace

Nowadays, industries are much more competitive and there are many more fish in the sea. The internet represents a whole new arena upon which corporations do battle, and it has so far proven to be one that can change the face of the entire market in both positive and negative ways. It’s a different world, and it’s one that’s in constant shift. New technologies come and go (or come and stay) with a much greater frequency than they used to, and the old adages just simply don’t hold. Even the best investment can wither over time, and even if it doesn’t totally turn over and start producing losses for you, it could very well be the case that your money would easily be producing better results elsewhere.

Watch your investments

As such, always watch all your investments. Don’t take some for granted and just assume they’re doing well because they’re your “safe” ones. Actually look and analyze, all the time. Staying on top of the game and know how each stock you own is moving at any given time is the line that separates the uncertain, hesitant investor from the confident, successful one.

See you next week for part 7 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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We’ve talked a little bit in the past about avoiding panic and not succumbing to the urge to totally change your investment strategy due to a forecasted bottoming out in a typically sound industry or other similarly baseless projections. However, this of course does not mean that you should stick in there and weather every storm that comes along. Of course there will be a time when you actually should sell some of your interests and move on to greener pastures.

Adjusting or abandoning your strategy

The real trick is knowing the difference between adjusting your strategy and abandoning it altogether. Say for instance that much of your portfolio is occupied by investments in sound technological industries, like telecommunications or other technologies that have been around a long time and have become an integral part of human life. Huge surges and catastrophic losses are effects that tend to plague the life of new industries. The longer a stock has been around, the more it tends to equalize. Over time, the chances of a massive gain or loss will tend to stabilize and an investment can be considered to be lower-risk. Therefore, don’t panic in the case of these investments, even if they look shaky. You are very unlikely to “lose the farm” due to a single stock bottoming out, especially if the stock is in an area with a long history.

Selling stocks in your portfolio

However, like we mentioned, there will of course be times that you should adjust your strategy. Selling one or two of the particular stocks in your portfolio is a far cry from selling everything and starting over and should be considered a normal part of trading. The general rule of thumb to be followed is to look at each stock individually. If you have net losses in any stock, ask yourself whether or not you would buy shares in it today, as a new investment. If the answer is no, go ahead and sell it off. Chances are that waiting to break even on a stock like that will just frustrate, and in the meantime, you could be putting that money into a stock that will perform better.

Making a calculated move to greener pastures is what a smart investor does. This is adjusting your strategy, and is the technique to shoot for.

See you next week for part 6 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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In the last couple of installments, we’ve talked about things like acknowledging that slumps and temporary downs are a normal part of the stock market, as well as the fact that analysis of past performance is not in any way a reliable indicator of future performance. Today, we’re going to put those two principles together to understand a little bit about how to deal with situations that look truly bleak; how to handle them without resorting to panic.

Panic is the enemy of your finances

Panic is the enemy in any situation regarding finances. Financial matters are extremely important to all of us because they represent more than our bank account or our portfolio, but also our livelihood and the quality of life that we are able to lead. As such, every financial decision is one that warrants a lot of sound deliberation and consideration before committing to it. It’s unfortunate, then, that the fast pace of the stock market sometimes encourages people to make rash decisions, especially when they think they see dark clouds looming on the horizon.

The downward trend of panic

Say that you have money invested in several different stocks, and you’re beginning to notice an overall downward trend. For whatever reason, this leads to a panic. You start to picture how it would be to lose every cent that you’ve invested and be reduced to nothing. You sell off every stock you own and adopt a totally new strategy, investing in a number of totally new stocks across the board, whose performance seems more likely to live up to your standards. However, in doing so, you miss out on a unpredicted surge in the stocks you just sold.

Adjust your investment strategy

If you had taken just a little more time to think about things, you might have realized that your stocks were in a sound industry, one that had been around for years. As such, the risk of a total bottoming out is virtually nil. You could have adjusted your strategy and maybe invested in some other stocks without totally selling off your current interests. However, panic robbed you of that potential.

Panic is the enemy. Let rational, sound judgment be the basis of your financial life, not it.

See you next week for part 5 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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