When NOT to Invest

Unfortunately, many investors who are seduced by the lure of easy money try to become "active" investors before they have the skills, the resources, or the appropriate intellectual framework to do so.

This is not to say that investing in stocks is extraordinarily difficult ... It is not!

However, beating the market on a regular basis is far from easy and requires that an investor bring to the investing process a singular discipline, knowledge, or passion that will allow him to rise above the herd.

Like in any other competition, not everyone can win! In fact, for every amount of money that outperforms the market, somebody else's money is not doing quite so well!

How can you tell if you are ready to become an "active" investor? Not an investor who buys and sells stocks on a regular basis, but active in the way the academics mean it -- someone who selects his own stocks. It is not like there is a licensing process or anything. In fact, there is not even a formal course of instruction. Much like parenting, you tend to find out if you are really cut out to be an investor only after you have made a pretty substantial commitment!

In my opinion, you should not be investing in stocks:

... If you need the money within two to three years at the least.

... If you don't like to do math.

... If you use the word "play," "gamble," or any similar speculation-oriented word when you describe your investments!

... If you think indexes matter more than what companies you own.

... If you are unprepared for volatility. A lot of people look at the returns for the stock market only to turn pale at the first loss! If you cannot stand to lose money, you should not own stocks... Period!

... If you think you will only ever buy stocks that go up. You are not perfect! No system is perfect. No provider of advice is perfect. You can -- and will -- lose money at some point during your investment career! You can minimize this loss if you do your homework and are careful about valuation, but money lost is money lost.

... If you believe that the share price alone or share price movements alone tell you anything about the underlying quality of the company or its business. All too often people buy low-priced shares with the idea that they are cheap, only to find out that they are low-priced because the underlying business sucks.

... If you couldn't write down a list of why you bought and what might make you sell. If you don't know why you bought a stock in the first place, how can you know when to sell it? Bad scene. Avoid it.

... If you cannot tell the difference between a balance sheet and an income statement. Especially if you don't even know where to find a copy of either.

... If you cannot make a rudimentary assessment of the underlying quality of a company.

... If you cannot define any of the following words: gross margin, operating margin, profit margin, earnings per share, costs of goods sold, share buyback, revenues, receivables, inventories, cash flow, estimates, depreciation, amortization, capital expenditure, market capitalization or valuation, shareholder's equity, assets, liabilities, return on equity.

... If you only have one source of information about the company. I don't care whether it is your best friend, a message board, or some content provider. If you cannot independently verify the facts, you are bound to get unintentionally bamboozled. No one likes to admit he is wrong. If you depend on one source of information, odds are when it finally coughs up the conclusion that it made a bad call it will be too late!

... If you cannot name the major products a company makes or the company's major competitors.

... If you don't use the Internet. Seriously folks, come on! Almost all of the disadvantage of being an individual investor from the information side was erased by the Internet. If you aren't on it, you are at a major disadvantage to all of the other players.

It is like trying to wrestle with no limbs!

Ioannis - Evangelos C. Haramis was born in Greece in 1951 and he studied in Greece, USA and in Belgium. He has been active in the stock markets since 1972. Since 2002 he is New Business Development Managing Director at an Investment Bank and the publisher of http://www.greekshares.com

Copyright ? 2005 I.E.C. Haramis

haramis@greekshares.com
http://www.greekshares.com

---

Wit and Wisdom on Money, Wall Street and Success - Part #1

I love to collect quotes as they concisely promote a philosophy which is readily understandable.In my 25+ years of investing I have collected hundreds of quotes related to Wisdom, Wall Street and Success.... Read More

Chinas Inscrutable Currency Strategy

Purpose: Expose Opportunities for Smart InvestorsThe move by China's central bank to drop the yuan's rigid peg to the dollar on the day of my return after a three-week trip to Asia left... Read More

Finding False Gold in Penny Stock

As far as traders go, many do not see the penny stock as a solid way to do business. Many believe that dealing with penny stock is a risky business. And it really... Read More

The Cost of Green Eggs and Ham

Young readers know that March 4th is the birthday of Dr. Seuss. Many parents trip their tongues over Seuss stories like "Green Eggs and Ham". "Do you like green eggs and ham?/I do... Read More

Getting Started In Investing

Are you ready to open your pathway to financial independence?Well you should be. The sooner the better. But, how do you get started?There is so much to know about investing and the truth... Read More

Investing and Asset Allocation

Sometimes you spend sleepless nights worrying about which stocks to buy and which to sell, which funds to own and which to dump and whether to get into bonds.All of these are legitimate... Read More

Investing & Online Stock & Share Trading: Money & Risk Management - Atkinson Portfolio Planner (1)

This article was originally featured in Daryl Guppy's 'Tutorials in Applied Technical Analysis', voted no 1 trading newsletter in Australia by Shares magazine & no 4 in the world by US Stocks &... Read More

The Perfect Economy?

The U.S. economic data reported this week showed strong output growth with tame inflation. Industrial Production expanded at about 1% in June, three times greater than expected, while both the June Consumer and... Read More

California Deparment of Corporations and Franchise Opportunities Law

What CA Needs To Do To Address Issues in FranchisingWe should not allow anymore degradation of California through incessant over regulations in the franchising sector. No other sector of our economy provides as... Read More

Angel Investors: Who They Are & When Are They Appropriate

Angel investors are individuals who invest in emerging business ventures. Angels typically provide both capital and know-how to companies who are in either their start-up or expansion phases. To reflect the increased risk... Read More

Copy Cat or How to Use a Successful Trading System

How many books have you read about successful traders? How they did this or that and made a fortune and are still doing it. You say to yourself, "I'm going to follow his... Read More

Raising Capital Using a Public Company

Going public in this manner is ideal for companies that may not be large enough to attract an underwriter for an IPO and those that don't need to raise capital immediately. They want... Read More

Playing With Money - And Making More

Ready to start playing with your money? Not interested in complicated businesses or boring bank C.D.'s? Here are some methods that aren't quite a business because you can do them once, or just... Read More

Creating a Financial Future - Putting Your Plan Into Action Part 1

This column has previously discussed "picturing the future that we desire", and outlining a plan to achieve it. We mentioned that the plan must include goal-setting, measurement, and implementation. That implementation is this... Read More

Investing Pointers for Neophyte Investors

If you know next to nothing, how do you go about the business of investing? The first thing you need to know about investing is, how much do you really know? If its'... Read More

Dumb Money

Many people have, at one time or another, taken some of their hard-earned funds, and decided to put them in the stock market. These well-meaning individuals either acted on a tip they saw... Read More

Need To Trade!

You don't HAVE to be trading.As a novice trader, you'll often feel the need to trade.You may be bored or frustrated. Or you just want to try a certain type of trade.STOP!Realize that... Read More

Just Say NO to Your Stock Broker

We have all heard that slogan that started back when Nancy Reagan was in Washington. It was all about drugs. Now I want to remind you this can be your slogan when you... Read More

The Myth of the Earnings Yield

AbstractA very slim minority of firms distribute dividends. This truism has revolutionary implications. In the absence of dividends, the foundation of most - if not all - of the financial theories we employ... Read More

Critical Investors Business Daily Responsibilities - If not Followed Could Cost You Millions!

When thinking about the investors business daily responsibilities in today’s market environment, the best remedy for this situation is for you to get more involved in your own investing decisions.The problem is that... Read More

Investing and Understanding What You Buy

"There is nothing more frightful than ignorance in action!" Johann Wolfgang von Goethe (1749 - 1832)I don't really know how cars actually work. Not really! I know how to drive them, but if... Read More

Can Your Annuity Do This?

Okay, so I can tell you I have sat in front of countless numbers of people who have made mistakes when purchasing and owning annuities. And I have visited people who wish they... Read More

When Its Too Late to Save for Retirement

You are 55 years old (or somewhere around there) and your company is going to force you to retire at 65. You have $35,000 saved in your 401K and that's all. The house... Read More

New U.S. Mint Coins a Golden Opportunity

In April, the U.S. Mint revealed plans to strike in early 2006 new .9999 bullion coins to go after the growing world market for .9999 fine (24-karat) gold coins. Studies show that pure... Read More

The Basics of Tax-Free UK Financial Spread Betting

Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.Quite simply, if you think a particular index, share, commodity, currency or sector will rise, you place an UP... Read More

Porters Five Forces Analysis

If you've ever listened to Warren Buffett talk about investing, you've heard him mention the idea of a company's moat. The moat is a simple way of describing a company's competitive advantages. Company's... Read More

Bearish or Bullish?

If you are interested in stock investing and the stock market, you may have plenty of questions. Even if you have already started investing, you may still have many questions about the details... Read More

Consolidation Period

The economic data reported Fri showed continued above trend growth with disinflation (at the core level, excluding food and energy) in the second quarter. Real output growth has slowed from about 4% in... Read More

Coca-Cola - A Value Stock?

There has been much talk lately about Coca-Cola and its potential as a value stock ? as it now spots a dividend yield of 2.6% (which is the highest dividend yield since the... Read More