Your crash course in market investing
Jean Chatzky’s five tips to help you overcome your anxiety of the stock market
As an individual who travels the country on the speech circuit, I hear a lot of excuses for why people don’t have firm control over their finances. One of the most common excuse is a fear of investing.
I can surely understand why. The stock market just appears way too big for most of us to wrap our heads around — it is certainly not as easy as paying your bills on time or balancing your checkbook, and because there are no certainty — even people who claim to know which stocks will go up and which stocks will go down are often wrong — it can be pretty scary.
That is why, at some point or another, the market has intrigued most of us. I certanly was, as well as Karen Blumenthal, who admits that even after 2 decades as a Wall Street Journal reporter, she still did not quite get it. So she allows herself through a crash course of sorts. She made a decision that for a full year she was going to follow one of the country’s hottest stocks — and then write a book about her experience.
Her pick? Starbucks. Her book? “Grande Expectations.” Why made her decide on America’s favorite coffee shop as a model? To begin with, the innumerous number chain of stores is hard to avoid, especially in a big city. But Blumenthal says she really decided on the company because of the profit it generated for early investors — those who bought the stock when it went public in 1992 have undergone a gain of about 6,500% on their initial investment.
Of course, she admits, not everyone has that kind of luck. But her experience in the trenches did produce a few lessons that all investors should take to heart when they are ready to dip a toe in the market.
Consider your options
That does not mean you have to walk through almost every share on the market. Toan Tran, editor of the Morningstar Growth Investor, advise, “Stick inside your circle of competence.” One of the most important key is to know the company you’re investing in, and that will be a whole lot easier if you choose a business that already makes at least a bit of sense to you. Think retail versus biotech. Then, answer a few questions:
Is the company and its products or services likely to be in demand for a long time? How does the company liken to its competitors? Does the stock’s value accurately reflect what its worth?
Research
Study the annual report, which will give you the previous year’s earnings summary as well as an overview of the goals they have set for the future.
It will outline how and where they intend to expand (Blumenthal says China is Starbucks top priority), and any new products they plan to launch in the near future. Besides that, another good way to get an inner look at the inner workings of the company is by listening in to investor conference calls that are often re-broadcast over the net. This will give you access to the same set of information the big-timers get.
At the same time, don’t believe everything. You cannot rely solely on information straight from the horse’s mouth. It would almost be like letting your kid fill out his own report card. To get a weighted view, check out other sources as well. Besides Morningstar, Toan suggests surfing Yahoo! Finance and the company’s Securities and Exchange Commission filings on www.sec.gov.
VIA MSNBC
Keyword: Stock Investing
