No bull investing straightforward advice_8 doc

If you do not want to invest in mutual funds because they move too slowly for you,then you can invest in individual stocks.. Look into single stock futures, ered options programs, LEAPS

Begin a program of investing regularly in mutual funds.

Consider a DCA approach in lower-priced quality stocks

Use DRIPs or DRIP mutual funds as your vehicle of choice.Add to your investments every month, even if only with asmall amount of money Select the mutual funds using theMOM method described in Chapter 7 or use the DCA ap-proach explained previously If you do not want to invest

in mutual funds because they move too slowly for you,then you can invest in individual stocks

If you invest in individual stocks, make your selectionsbased on the MOM method I taught you or use the DCAapproach

If you begin with $500 or less, try to restrict your buying tostocks under $5 per share, so that you can trade 100 shares

at a time Trading in less than 100 shares at a time will costyou more in commissions, eating into your profits

Parlay your profits By this I mean invest your profits bybuying more shares

If you buy mutual funds, choose the automatic ment plan for your dividends

reinvest-As you can see, you will need to begin at a relatively slow pace

if you have a small amount of capital The idea is simple Think of

it the same way you would money in a savings account At currentinterest rates, money in the bank will not grow rapidly In fact, bythe time you factor in even the low rate of inflation, you are likelyjust marking time and not getting ahead Therefore, it’s to youradvantage to put your money in a more promising “bank,” thestock market Investing on a shoestring budget can be fun as well

as challenging, but you must remember a few important caveats:

As a small investor, you do not have the money to makerisky investments based on tips or rumors Avoid these atall costs or you will see your small amount of money dis-appear rather quickly.

Invest only in well-established companies that have had alengthy history of paying dividends and whose debt is low

Avoid high-flying stocks that may have a great deal of ise or “sex appeal” but that do not meet the qualificationslisted in the first two points

prom-
If and when you get dividends from your investments, putthem back into your investing account

Do not be tempted by e-mail or postal solicitations to vest in new stock issues or in stocks that do not meet therequirements outlined here

in-
If and when your total investment portfolio has doubled,you can expand your investments to include more riskystocks and perhaps ventures outside the stock market—but do so with caution

If and when you have doubled your investment, use a stoploss procedure to lock in at least 70 percent of the profityou have made (Stop loss procedures are discussed in my

book Stock Market Strategies That Work, as well as in other

books on investing.)

A wealth of free information is available via the Internet.You should not have to pay for any of the information youneed in order to follow the procedures outlined in thischapter

Remember that the approach I have suggested here is aconservative approach You will need to take baby steps atfirst

S T R AT E G I E S F O R A S H O E S T R I N G B U D G E T 153

A FEW PORTFOLIO SUGGESTIONS

FOR BEGINNERS AND SMALL INVESTORS

Here are a few suggestions for the three different levels ofstarting capital discussed in this chapter:

1 $5,000 up to $20,000 If your initial capital is over $5,000

but less than $20,000, you can follow the DCA approach

as well as the momentum approaches discussed previously.Invest in the core conservative stocks that make up the 30Dow Jones stocks, mutual funds, and only a few higherrisk stocks, such as those in the biotechnology field Donot get involved in things such as futures, single stock fu-tures, futures options, or stock options Do not day trade

or short-term trade For amounts over $20,000, you can

be more aggressive Look into single stock futures, ered options programs, LEAPS (long-term stock options),and even a small amount of futures trading You can evenexplore some day trading in stocks Read more booksabout technical analysis and higher risk investing

cov-2 $2,500 to $5,000 Stick to conservative stocks, use the DCA

methods, do not use the momentum method until youhave more than $10,000, and use the DCA method inmutual funds

3 Less than $2,500 Be very conservative Begin with DRIPs

and other mutual funds You can invest in a few ual stocks Reinvest your profits Add regularly to your in-vestment account even if the amounts are small You canbuy mutual funds in very small dollar increments

individ-Finally, for all levels, I suggest that you avoid investing

in “load” mutual funds These are mutual funds that charge a

fee for investing There are many “no-load” funds that will dowell for you You can find mutual funds on line at zacks.com ormorningstar.com Attempt to buy only mutual funds that have afour-star rating or higher You can use the DCA moving averageand/or momentum methods with mutual funds in order to timeyour entry.

You can expand your base of operations when you have its to show for your efforts This will, of course, depend on howmuch money you have to start with and how much you can in-vest monthly As a general rule, I suggest moving to a higherlevel of risk when you double your money or your available in-vestment capital increases by at least 35 percent

prof-In closing, I want to emphasize that investing is a dynamicprocess Conditions in the investment markets are constantlychanging in the marketplace, and you must be adaptable Youcan make money if you buy low and get out when the marketsare high, or you can buy while prices are rising and get out whenthey have risen sharply Either way is acceptable The keys to suc-cessful investing are consistency, self-discipline, a long-term per-spective, and knowing when to get out I have not given too muchattention to exit timing because stocks can, at times, exceed yourmost ambitious expectations To set a price or a time target wouldnot be a good thing Therefore, my rule for exit is simple: Con-tinue to lock in a percentage of your profit as prices move inyour favor Allow the market some leeway Lock in 70 percent ofyour profits, and if you close out your investments because yourstocks or mutual funds have retraced their gains, then beginyour program again with your expanded base of capital

S T R AT E G I E S F O R A S H O E S T R I N G B U D G E T 155

C H A P T E R T E N

GETTING SERIOUS

Strategies Beyond the Shoestring Budget

Now it gets interesting. Once you’ve graduated beyond theshoestring budget, or if you already have enough to begin at thislevel, the odds of making your money grow more rapidly aremuch better than if you had started with less than $5,000

FROM $5,000 TO $20,000

As I indicated in Chapter 9, there are a number of thingsyou can do immediately with from $5,000 to $20,000 Here aresome specific suggestions, all of which can be explored in detail

if you have an interest:

Expand into the new single stock futures market This market

offers many opportunities for investors who are more sive But before you do this, make certain that you under-

aggres-157

stand the futures market The major difference betweenstocks and single stock futures is that you will be investing

20 percent of the amount of your purchase For example,

if you buy 100 shares of a $20 stock, it will cost you $2,000

If you have a margin account with your broker, it will costyou $1,000, and $1,000 will be borrowed from your broker.You will pay interest on the amount you borrowed In sin-gle stock futures, you will pay 20 percent of the total valueand no interest charge This is a more risky procedure, andyou will need to know about futures and the specifics ofsingle stock futures I highly recommend two of my books

as a prerequisite to expanding into this area: Profit in the Futures Markets (Bloomberg Press, 2002) and How to Trade the New Single Stock Futures (Dearborn Trade, 2003).

Another area you may want to look into is covered option writing

in stocks There is considerable information available on

this procedure, and most brokerage houses have well-runprograms for this approach

Begin to investigate short-term trading using technical analysis

in stocks There are many books you can read in this area

to learn the best procedures Among these I recommend

my book, Momentum Stock Selection (McGraw-Hill, 2001)

Expand your base of mutual fund investing to include more aggressive funds such as those that invest in foreign stocks, tech- nology, and biotechnology.

MORE THAN $10,000 BUT LESS THAN $25,000

Now we’re entering the serious stage At this level, you canconsider all of the areas recommended in the previous section;

however, you also can consider the futures markets, day trading

in stocks (if you have the time), or stock options trading

MORE THAN $25,000 BUT LESS THAN $50,000

Consider all of the areas outlined above and add futures toyour portfolio Studies have shown that a balanced portfolio in-cluding stocks and futures performs better than a portfolio con-sisting of stocks exclusively Do not put more than 15 percent ofyour funds into traditional futures trading, and do not put morethan 20 percent of your funds into single stock futures or out-right stock options (as opposed to covered options programs)

As before, there are many excellent educational resources youcan consult to expand your base of knowledge in these areas

MORE THAN $50,000

This level, once attained, requires more attention and moreserious input, including that of a financial advisor I have previ-ously recommended that you either hire a financial advisor orbecome your own financial advisor The key is to be conservativewith 70 percent of your investments and more aggressive withthe remaining 30 percent Keep your eye on the long term andexpand into real estate, coins, art, and other collectibles Youmay also venture into other areas such as franchises

INVESTING IN PRECIOUS METALS AND COINS

Some of you may want to invest in coins or precious metalsonce you have reached the $25,000 level or higher Investing in

G E T T I N G S E R I O U S Strategies Beyond the Shoestring Budget 159

precious metals and/or coins is a special procedure to help tect your money in times of inflation or economic stress Invest-ing in these markets is not the panacea some people would haveyou believe It is merely a protective strategy designed to keepyour profits from deteriorating I highly recommend the five-

pro-part investment strategy I outlined in my books, Beat the nium Crash (New York Institute of Finance, 1999) or Investing in Metals (Wiley, 1998).

Millen-If you have decided to expand into metals, consider the lowing advice:

fol-
Understand the general aspects of each of the metals markets My

main task here is to provide you with a working knowledgeabout the basics of each major metals market Althoughsuch information is generally known to many investors,there are important facts about the metals that are not gen-erally known These will assist you in planning your pro-tective portfolio

Learn if, how, and when to invest in each market Although

some metals are ideal investment vehicles, others are not,because they are not in short supply or heavy demand.Still other metals prices are tightly controlled by a smallgroup of producers or suppliers These metals may or maynot be suitable for investors And still other metals maynever be liquid enough to be suitable for any investor atany time Not only will you need to know which markets

to buy, but also how to buy them and how they react ing periods of extreme volatility and emotion

dur-
Learn about the various investment vehicles available to you, cluding stocks, futures, options, coins, mutual funds, and others.

in-Although you may know a little about each of these areas,you may wish to know more, and in particular you may

want to know when each of these choices is best for you.Clearly, you will want to have some degree of diversificationwhen an economic crisis develops This information willhelp you develop a balanced portfolio of holdings.

Help plan a strategy for future moves in the metals markets

Al-though this book will answer many questions, it cannotpossibly answer all of them There are numerous sources

to which you can turn for assistance, some of which are inbook form Still other questions can be answered by yourinvestment advisor, financial planner, broker, or tax con-sultant But remember that opinions about the direction

or expected direction of the metals markets are only ions If you have understood what I have explained in thisbook, and if you share my concerns, then you will have avery good idea of how to protect yourself from what, I feel,

opin-is inevitable

Any opinion stands a good chance of being right If you havedone your homework, if you have done your research, and if youhave studied hard to anticipate the direction of the next majormarket shift, then do not allow your opinion to be swayed by oth-ers Although it may be reasonable to solicit input regarding howmuch money to commit, how much risk you can take, or what thetax consequences of your investments might be, you might want

to ignore advice about the anticipated direction of the markets.Someone else’s knowledge and studies may not be as intense or ascomplete as yours Don’t forget to use the STF and GIM methods.Finally, remember that investing in metals is, as I have statedpreviously, a highly emotional thing The psychology of investing

is a field unto itself (I have two books on this subject to which Iwill refer at various points.) And though you may have done athorough job of researching and preparing your plan, you mayfail if you lack the discipline to implement your program thor-

G E T T I N G S E R I O U S Strategies Beyond the Shoestring Budget 161

oughly, consistently, and without the fear or greed that are oftenthe undoing of otherwise successful programs Keep your emo-tions in check and be aware of your motivation for taking spe-cific actions at given times.

Although I have attempted to provide as much pertinent formation as possible about each of the metals, I realize that con-ditions are changing rapidly in our modem world Technology

in-is growing at an exponential pace, and with it, new applicationsfor metals are found virtually every day For example, researchersrecently introduced a powerful new drug for cancer treatmentthat uses platinum as its base While the use of certain metals isdeclining, applications for other metals are on the rise By the timeyou read this book, some of my comments may be out-of-date;however, the core elements presented here will likely never be out-of-date As long as human beings continue to advance technol-ogy, metals will continue to play an essential role in their efforts.And finally, as long as you keep in mind the fact that metalsare responsive to extremes in emotion, and that extremes inemotion are a function of market conditions, you will do well.When emotions reign supreme, when traders and investors are

in a frenzy, and when markets appear to be out of control, cious metals will be the preferred investments Emotional mar-kets are difficult to control or predict; however, these marketshave established certain correlates over the years One is the factthat metals will move as a result of emotional extremes It is ourjob first to know this fact and then to use it to our advantage

pre-PROTECTING YOURSELF WITH

INVESTMENTS IN RARE COINS (NUMISMATICS)

Investors can participate in the metals markets through thepurchase and sale of coins There are several ways to do this: