Getting Started in Stock Investing and Trading E-Book

Michael C. Thomsett

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: The Getting Started In Series
• Sprache: Englisch

Seitenzahl: 381

Veröffentlichungsjahr: 2010

Beschreibung

An up-to-date guide to the complex world of equities Getting Started in Stock Investing and Trading walks investors and traders through the essential information they need to know before they decide what kind of participant they want to be in equities. The book is filled with the key strategies and tools and offers a comprehensive guide for those entering this marketplace. The author does not argue that one method is better or more appropriate than another. Rather, he reveals the various methods and lets investors decide for themselves. The book covers investment risks, value investing, market strategies, trading methods such as day and swing trading, technical indicators, and diversifying your portfolio, and * Offers a thorough overview of strategies and tools that investors need to profit from the volatile equities markets * Provides examples, charts, and timely additions that reflect recent changes in the equities markets Other titles by Thomsett: Getting Started in Bonds and eight editions of Getting Started in Options. This book is another title in The Getting Started series, which makes complex issues easy to understand.

Leseprobe

Contents

Cover

Half Title Page

Series

Title Page

Copyright

Introduction

The Potential of the Stock Market

Part 1: Investing

Chapter 1: Investment Risks

Market Risk

Leverage Risk

Knowledge and Experience Risk

Sector Risk

Political and Economic Risk

Inflation Risk and Tax Risk

Fundamental Risk

Lost Opportunity Risk

Chapter 2: Value Investment

Value Investing and Control

Value Investing Myths and Facts

Setting Standards for Buying (and Selling)

Chapter 3: Market Strategies

A Basic Strategy: Buy and Hold

A Strategic Requirement: Diversification

Other Market Strategies

Ex-Dividend Date Buying

Chapter 4: Fundamental Analysis

The Balance Sheet

The Income Statement

The P/E Ratio: Finding a Bargain-Priced Stock

Revenue and Earnings: Fundamentals Based on the Operating Statement

Working Capital: Fundamentals as a Form of Money Management

Chapter 5: Alternatives: Stocks or Mutual Funds

Investment Clubs

Types of Mutual Funds

Mutual Fund Fees

Classification by Features

Other Conduit Investments

Variable Annuities

Part 2: Trading

Chapter 6: Trading Risks

Market Risk and Volatility Risk

Leverage Risk

Short Position Risk

Extreme Reaction Risk

Technical Knowledge and Experience Risk

Technical Risk and Market Culture

Chapter 7: Trading Methods: Day and Swing Trading

Day Trading

Swing Trading

Entry and Exit Signals

Chapter 8: Charting Tools and Interpretation

Traditional Types of Charts

Candlestick Charts: The Basics

Combining Candlesticks with Western Technical Analysis

Chapter 9: Essential Technical Indicators

Support and Resistance: The Trading Range as a Defining Attribute of Price

Popular Price Patterns and Their Meaning

Trend Lines for Spotting Reversals

Breakouts and Gaps

Moving Averages, Oscillators, and Volume Tests

Chapter 10: Technical Analysis, Dow Theory, and Practice

The Efficient Market

The Random Walk

Charles Dow and His Market Theory

Part 3: Combining Investing and Trading

Chapter 11: The Contrarian Approach to Trading

The Contrarian Concept: Why Go against the Market?

Contrarians and the Permanent Bear or Bull Mentality

Value Investing and the Contrarian Approach

Valuable Strategies

Merging Technical and Fundamental in a Contrarian Strategy

Contrarian Views in Perspective

Chapter 12: Mixing Speculation and Investing

The Fundamental/Technical Combination

The Dividend Timing Trading Strategy

Applying the Combined Approach as a Diversification Method

Chapter 13: Options to Leverage and Manage Your Portfolio

Definitions and Basics

Valuation of Options

Basic Long Option Strategies

Covered Calls

The Flexibility of Options

Chapter 14: Your Sensible Approach to the Market

Popular Stock Market Myths

Going Forward from Here

Glossary

About the Author

Index

Getting Started In

STOCK INVESTING AND TRADING

Books in the Getting Started In Series

Getting Started In Currency Trading, Second Edition by Michael D. Archer

Getting Started In Forex Trading Strategies by Michael D. Archer

Getting Started In Online Day Trading by Kassandra Bentley

Getting Started In Investment Clubs by Marsha Bertrand

Getting Started In Asset Allocation by Bill Bresnan and Eric P. Gelb

Getting Started In Online Investing by David L. Brown and Kassandra Bentley

Getting Started In Chart Patterns by Thomas N. Bulkowski

Getting Started In Online Brokers by Kristine DeForge

Getting Started In Internet Auctions by Alan Elliott

Getting Started In Mutual Funds, Second Edition by Alvin D. Hall

Getting Started In Stocks by Alvin D. Hall

Getting Started In Estate Planning by Kerry Hannon

Getting Started In A Financially Secure Retirement by Henry Hebeler

Getting Started In Online Personal Finance by Brad Hill

Getting Started In REITs by Richard Imperiale

Getting Started In Internet Investing by Paul Katzeff

Getting Started in Rebuilding Your 401(k), Second Edition by Paul Katzeff

Getting Started In Security Analysis by Peter J. Klein

Getting Started In Global Investing by Robert P. Kreitler

Getting Started In ETFs by Todd K. Lofton

Getting Started In Futures, Fifth Edition by Todd Lofton

Getting Started In Candlestick Charting by Tina Logan

Getting Started In Project Management by Paula Martin and Karen Tate

Getting Started In Value Investing by Charles Mizrahi

Getting Started In Financial Information by Daniel Moreau and Tracey Longo

Getting Started In Emerging Markets by Christopher Poillon

Getting Started In Technical Analysis by Jack D. Schwager

Getting Started In Hedge Funds, Third Edition by Daniel A. Strachman

Getting Started In Fundamental Analysis by Michael C. Thomsett

Getting Started in Options, Eighth Edition by Michael C. Thomsett

Getting Started In Property Flipping by Michael C. Thomsett

Getting Started In Real Estate Investing by Michael C. Thomsett and Jean Freestone

Getting Started In Rental Income by Michael C. Thomsett

Getting Started In Six Sigma by Michael C. Thomsett

Getting Started in Stock Investing and Trading by Michael C. Thomsett

Getting Started In Swing Trading by Michael C. Thomsett

Getting Started In Tax-Savvy Investing by Andrew Westham and Don Korn

Getting Started In Annuities by Gordon M. Williamson

Getting Started In Bonds, Second Edition by Sharon Saltzgiver Wright

Getting Started In Retirement Planning by Ronald M. Yolles and Murray Yolles

Copyright © 2011 by Michael C. Thomsett. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Thomsett, Michael C. Getting started in stock investing and trading / Michael C. Thomsett. p. cm. – (Getting started in….. ; 89) Includes index. ISBN 978-0-470-88077-7 (pbk); ISBN 978-0-470-93713-6 (ebk); ISBN 978-0-470-93714-3 (ebk); ISBN 978-1-118-03837-6 (ebk) 1. Stocks–United States. 2. Investments–United States. I. Title. HG4910.T48 2011 332.63′220973–dc22 2010028573

Introduction

The Potential of the Stock Market

In recent years, the stock market has been extremely volatile and many risks (and opportunities) were presented to investors and traders alike. Now more than ever before, it is essential for novice stock market investors to develop a complete understanding of the risks they face when money is placed in the market. This does not mean you should avoid investing; it does point out how important it is to become educated about risk in the stock market.

This book makes a distinction between investing and trading. An investor is an individual interested in identifying and buying shares of stock for long-term price appreciation, also called growth, and earning superior returns from dividends while protecting their capital. Part I of this book includes chapters about how to develop an investing program to build your portfolio based on the principles of fundamental analysis.

A trader, in comparison, is more interested in moving in and out of investment positions in the short term, making a higher volume of smaller profits. Traders rely on reading charts, spotting short-term trends, and taking advantage of the market's tendency to overreact to current news (meaning that the prices of stocks tend to move too far in one direction and then correct by reversing). This price swing is easy to spot in hindsight, but more difficult to anticipate ahead of time. Successful traders work on their skills in identifying the signs based on price charts. Part II is focused on trading skills and techniques, and is based on the principles of technical analysis.

The successful investor/trader learns how to combine the fundamental and technical analytical skills and uses both effectively. Mixing investment and trading speculation is a smart way to flexibly deal with a volatile and ever-changing market. Part III examines how this combined approach works.

The purpose in compiling this book is to present you with a range of valuable ideas, strategies, and market realities, all aimed at helping you to identify your appropriate risk tolerance level and then determine which investing and trading ideas are going to work best for you. Everyone is different, so no quick-fix or formula is going to work for everyone. In fact, trying to duplicate someone else's investing or trading system is not a wise idea because your unique profile (including income, assets, experience, and perceptions of markets and risks) demands that your approach make sense.

Today, many people are shy about the market. The volatility of recent years is a definite problem for anyone who puts capital at risk, but does that mean that staying out of the market makes sense? It does not. The alternatives are bleak. Savings rates are lower than ever before and do not outpace inflation. This means that even the modest inflation of recent years erodes the purchasing power of money left in savings. The only sensible alternative is to develop a program of investing and trading that minimizes risk while offering superior returns. Avoiding the market is just as great a problem as taking too many risks within the market; so the best approach is to develop a portfolio defensively.

A “defensively” built portfolio is one that is developed with complete knowledge about risk and opportunity, which you build and manage based on thorough research, acquired knowledge, and resistance of market forces. This book is designed with this necessity in mind. In the future, markets will go through cycles of relatively low volatility, followed by highly erratic months or even years. Investors and traders can earn profits in all kinds of markets, assuming that they have built a defensive portfolio and avoided taking risks they cannot afford. This makes it essential not only to understand risks, but also to define where you fit in the risk spectrum. Most people are going to be somewhere in the middle between extreme conservatism and extreme speculation, but that is a broad range. For this reason, both of the first two sections of the book begin with chapters examining and explaining a range of different risks.

The purpose in this endeavor is not to provide easy answers, but to help you to begin your journey into acquiring knowledge about a complex and changing stock market. Knowledge reduces risk and increases profit. This is the basic premise that has dominated the preparation of this book.

Part 1

Investing

Chapter 1

Investment Risks

Investing in stocks is an exciting, action-packed, fast-moving idea that for decades has excited many people—even those with little money to invest—with the possibility of building wealth.

It is possible to make money in stocks, but it is also possible to lose. The whole question of risk—exposure to losses due to a variety of causes—determines how slowly or quickly values change and which kinds of stock positions you end up taking. There are many industry sectors in the market, and each has its own risk characteristics. Some are especially sensitive to changes in interest rates, and others exist within a very specific market cycle of changes in profits.

risk

exposure to loss resulting from numerous market, economic, and company-specific causes.

Do you know the range of risks you face as an investor? Some people think that the sole risk they face is directly related to profitability. If you make a profit, you beat the risk; if you have a loss, you lose.

While this distinction is at the core of most investment plans, it is not the whole story. Every investor wants to earn a profit on every investment decision made. However, experienced investors also understand that it's a percentage game. You are going to have some losses along the way, and the key to succeeding is creating profits that are higher than the occasional loss, and for which the dollar amount is much greater.

Key Point

No one is able to create profits in every instance. The key to success in the market is experiencing more profits than losses.

cycle

an economic tendency for sales volume and profits to change predictably due to economic or calendar timing. Among the best-known of market cycles is that experienced in the retail trade, which goes through specific seasons of high and low sales volume based on consumer buying habits.