Page 431 - How to Make Money in Stocks Trilogy

Money Management 301

People can also be hurt by well-meaning government policies and social
programs that were not soundly thought through before being imple-
mented, promoted, managed, operated, and overseen by the government.
The subprime fiasco from 1995 to 2008 was caused by a good, well-intended
government program that became incompetent, mismanaged, and messed
up, with totally unexpected consequences that caused many of the very peo-
ple the government hoped to help to lose their homes. It also caused huge
unemployment as business contracted. In the greater Los Angeles area
alone, many minority homeowners in San Bernardino, Riverside, and Santa
Ana were dramatically hurt by foreclosures.
Basically, no one should ever buy a home unless he or she can come up
with a down payment of at least 5%, 10%, or 20% on their own and has a rel-
atively secure job. You need to earn and save toward your home-buying
goal. And avoid variable-rate loans and smooth-talking salespeople who talk
you into buying homes to “flip,” which exposes you to far more risk. And
finally, don’t take out home equity loans that can put your home in a greater
risk position. Also beware of getting into the terrible habit of using credit
cards to run up big debts. That’s a bad habit that will hurt you for years.
You can make money and develop skill by learning about and concentrat-
ing on the correct buying and selling of high-quality growth-oriented equi-
ties rather than scattering your efforts among the myriad high-risk
investment alternatives. As with all investments, do the necessary research
before you make your decision. Remember, there’s no such thing as a risk-
free investment. Don’t let anyone tell you there is. If something sounds too
easy and good to be true, watch out! Buyer beware.
To summarize so far, diversification is good, but don’t overdiversify. Concen-
trate on a smaller list of well-selected stocks, and let the market help you deter-
mine how long each of them should be held. Using margin may be okay if you’re
experienced, but it involves significant extra risk. Don’t sell short unless you
know exactly what you’re doing. Be sure to learn to use charts to help with your
selection and timing. Nasdaq is a good market for newer entrepreneurial com-
panies, but options and futures have considerable risk and should be used only
if you’re very experienced, and then they should be limited to a small percentage
of your overall investments. Also be careful when investing in tax shelters and
foreign stocks only traded in foreign markets.
It’s best to keep your investing simple and basic—–high-quality, growth-oriented
stocks, mutual funds, or real estate. But each is a specialty, and you need to edu-
cate yourself so that you’re not dependent solely on someone else for sound
advice and investments.