Category Archives: INVESTMENT INSIGHTS

Profiting from bear market – New Telegraph Nigerian Newspaper

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The current low prices of stocks occasioned by the downturn of the economy present bargain hunters investment opportunities. CHRIS UGWU writes

A bear market refers to a market-wide decline in stock prices of at least 15-20 per cent coupled with a pessimistic sentiment about the market. Clearly, these times are nothing to look forward to and fighting back can be dangerous. However, according to Investopedia, bear markets can provide great opportunities for investors.

“The trick is to know what you are looking for. Beaten up, battered, and underpriced: these are all descriptions of stocks during a bear market. Value investors such as Warren Buffett often view bear markets as buying opportunities because the valuations of good companies get hammered down along with the poor companies and sit at very attractive valuations. Buffett often builds up his position in some of his favorite stocks during lessthan- cheery times in the market because he knows that the market’s nature is to punish even good companies by more than they deserve,” said Investopedia.

Continue reading Profiting from bear market – New Telegraph Nigerian Newspaper

Intrinsic Value and Its Relationship to Margin of Safety by KenFaulkenberry

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The purpose of this post is to examine intrinsic value and its relationship to margin of safety. The two go hand in hand, or at least they should. These two concepts are the backbone of value investing and the basis for Benjamin Graham’s book, The Intelligent Investor (affiliate link).

Intrinsic value (a.k.a. fundamental value), is the perceived value of an investment’s future cash flow, expected growth, and risk. In other words, intrinsic value is the future cash flow discounted back to a present value.
While the definition may be quite simple the calculation is much harder or imprecise. Because there are literally hundreds of variables that go into the estimate of intrinsic value, the accuracy of such a calculation is dubious at best. We will talk about how to overcome this dilemma shortly.

Continue reading Intrinsic Value and Its Relationship to Margin of Safety
by KenFaulkenberry

Why Saving Money Won’t Make You Rich

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Is saving money your winning strategy to building wealth? If it is, then you had better seek for another strategy with better chances of success. This is because no one has been able to build wealth just by saving money. Managing savings is a good discipline which can result in having a comfortable quality of life, but not a wealthy quality of life.

Following are some reasons why saving money alone won’t make you rich:
1. The rich don’t ascribe success to savings From the study of multi-millionaires and billionaires in the last couple of years, not one hinged their success in amassing wealth to saving. A good number of them mentioned taking advantage of opportunities, meeting needs, solving problems and surmounting obstacles as the key that propelled them to achieving substantial wealth and fortune.

2. Currencies lose value Every currency whether it is the euro, pound sterling, dollar or naira continues to depreciate in value on a regular basis. The value of the naira and what it could buy, for example, in 1976 cannot be compared to what it is now in 2016. By 2056, it will have drastically decreased in value and there is no sign that this trend will abate. Putting money into savings for the long term yields funds whose values will have seriously depreciated from what it is today. This is the major reason why you cannot build wealth just by saving money because the money’s value is constantly being eroded. The prices of goods and services constantly increase while the value of money used to purchase them goes in the opposite direction.

Continue reading Why Saving Money Won’t Make You Rich

The Importance of Multi-Asset Investing by Nathan Jaye, CFA.

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Everyone knows that
multi-asset investing
is on the upswing.
“Assets managed in
such strategies are
growing at one of the
fastest paces in the industry worldwide,”
says Pranay Gupta, CFA, formerly chief
investment officer for Asia at ING
Investment Management and manager of a
global multi-strategy fund for Dutch
pension plan APG. In their new book
Multi-Asset Investing: A Practitioner’s
Framework, Gupta and co-authors Sven
Skallsjö and Bing Li, CFA, set out to
answer questions about which practices
and ideas actually work. In this interview,
Gupta explains how the relentless quest
for alpha has made allocation an under-
appreciated and “under-innovated” skill,
shares insights into replacing asset
allocation with what he calls “exposure
allocation,” and discusses why the
standard model for making investment
decisions has “exactly the wrong
emphasis from a portfolio risk and return
standpoint.”

Continue reading The Importance of Multi-Asset Investing by Nathan Jaye, CFA.

3 Timeless Investment Principles to Learn From Benjamin Graham

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Warren Buffett is widely considered one of the greatest investors of all time, but if you were to
ask him whom he thinks is the greatest investor,
he would probably mention one man: his teacher,
Benjamin Graham . Graham was an investor and
investing mentor who is generally considered the
father of security analysis and value investing .
His ideas and methods on investing are well
documented in his books, “Security
Analysis” (1934), and “The Intelligent
Investor” (1949), which are two of the most
famous investing texts. These texts are often
considered requisite reading material for any
investor, but they aren’t easy reads. In this article,
we’ll condense Graham’s main investing principles
and give you a head start on understanding his
winning philosophy.

Continue reading 3 Timeless Investment Principles to Learn From Benjamin Graham

8 Basic Principles For Investing Wisely by Investor Guide

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1. Start Investing Now
We say this not just to discourage procrastination, but because an early start can make all the
difference. In general, every six years you wait doubles the required monthly savings to reach the same level of retirement income.
Another motivational statistic: If you contributed some amount each month for the next nine years, and then nothing afterwards, or if you contributed
nothing for the first nine years, then contributed the same amount each month for the next 41
years, you would have about the same amount. Compounding is a beautiful thing.

2. Know Thyself                           The right course of action depends on your current situation, your future goals, and your personality. If you don’t take a close look at these, and make them explicit, you might be headed in the wrong
direction.
Current Situation: How healthy are you, financially? What’s your net worth right now? What’s your
monthly income? What are your expenses (and where could they be reduced)? How much debt are
you carrying? At what rate of interest? How much are you saving? How are you investing it? What are your returns? What are your expenses?
Goals: What are your financial goals? How much
will you need to achieve them? Are you on theright track?
Risk Tolerance: How much risk are you willing and able to accept in pursuit of your objectives?
The appropriate level of risk is determined by your personality, age, job security, health, net worth,
amount of cash you have to cover emergencies, and the length of your investing horizon.

3.Get Your Financial House In Order
Even though investing may be more fun than personal finance,it makes more sense to get
started on them in the reverse order. If you don’t know where the money goes each month, you shouldn’t be thinking about investing yet. Tracking your spending habits is the first step toward improving them. If you’re carrying debt at a high rate of interest (especially credit card debt), you should unburden yourself before you begin
investing. If you don’t know how much you save each month and how much you’ll need to save to
reach your goals, there’s no way to know what investments are right for you. If you’ve transitioned from a debt situation to a paycheck-to-paycheck situation to a saving some money every month situation, you’re ready to begin
investing what you save. You should start by amassing enough to cover three to six months of
expenses, and keep this money in a very safe investment like a money market account, so you’re
prepared in the event of an emergency. Once you’ve saved up this emergency reserve, you can
progress to higher risk (and higher return) investments: bonds for money that you expect to
need in the next few years, and stocks or stock mutual funds for the rest. Use dollar cost averaging , by investing about the same amount each month. This is always a good idea,but even more so with the dramatic fluctuations in the market in the past
10 years. Dollar cost averaging will make it easier to stomach the inevitable dips. And remember, never invest in anything you don’t
understand.

Continue reading 8 Basic Principles For Investing Wisely by Investor Guide

DO YOU KNOW THE CAN SLIM METHOD FOR INVESTING IN STOCKS?

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CANSLIM is a philosophy of screening, purchasing and selling common stock. Developed by William O’Neil, the co-founder of Investor’s Business Daily, it is described in his highly recommended book “How to Make Money in Stocks”.

The name may suggest some boring government agency, but this acronym actually stands for a very successful investment strategy. What makes CAN SLIM different is its attention to tangibles such as earnings, as well as intangibles like a company’s overall strength and ideas. The best thing about this strategy is that there’s evidence that it works: there are countless examples of companies that, over the last half of the 20th century, met CAN SLIM criteria before increasing enormously in price. In this section we explore each of the seven components of the CAN SLIM system.

C = Current Earnings
O’Neil emphasizes the importance of choosing stocks whose earnings per share (EPS) in the most recent quarter have grown on a yearly basis. For example, a company’s EPS figures reported in this year’s April-June quarter should have grown relative to the EPS figures for that same three-month period one year ago. (If you’re unfamiliar with EPS, see Types of EPS.)

How Much Growth?
The percentage of growth a company’s EPS should show is somewhat debatable, but the CAN SLIM system suggests no less than 18-20%. O’Neil found that in the period from 1953 to 1993, three-quarters of the 500 top-performing equity securities in the U.S. showed quarterly earnings gains of at least 70% prior to a major price increase. The other one quarter of these securities showed price increases in two quarters after the earnings increases. This suggests that basically all of the high performance stocks showed outstanding quarter-on-quarter growth. Although 18-20% growth is a rule of thumb, the truly spectacular earners usually demonstrate growth of 50% or more.

Earnings Must Be Examined Carefully
The system strongly asserts that investors should know how to recognize low-quality earnings figures – that is, figures that are not accurate representations of company performance. Because companies may attempt to manipulate earnings, the CAN SLIM system maintains that investors must dig deep and look past the superficial numbers companies often put forth as earnings figures (see How to Evaluate the Quality of EPS).

O’Neil says that, once you confirm that a company’s earnings are of fairly good quality, it’s a good idea to check others in the same industry. Solid earnings growth in the industry confirms the industry is thriving and the company is ready to break out.
A = Annual Earnings
CAN SLIM also acknowledges the importance of annual earnings growth. The system indicates that a company should have shown good annual growth (annual EPS) in each of the last five years.

How Much Annual Earnings Growth?
It’s important that the CAN SLIM investor, like the value investor, adopt the mindset that investing is the act of buying a piece of a business, becoming an owner of it. This mindset is the logic behind choosing companies with annual earnings growth within the 25-50% range. As O’Neil puts it, “who wants to own part of an establishment showing no growth”?

Wal-Mart?
O’Neil points to Wal-Mart as an example of a company whose strong annual growth preceded a large run-up in share price. Between 1977 and 1990, Wal-Mart displayed an average annual earnings growth of 43%. The graph below demonstrates how successful Wal-Mart was after its remarkable annual growth.
A Quick Re-Cap
The first two parts of the CAN SLIM system are fairly logical steps employing quantitative analysis. By identifying a company that has demonstrated strong earnings both quarterly and annually, you have a good basis for a solid stock-pick. However, the beauty of the system is that it applies five more criteria to stocks before they are selected.

N = New
O’Neil’s third criterion for a good company is that it has recently undergone a change, which is often necessary for a company to become successful. Whether it is a new management team, a new product, a new market, or a new high in stock price, O’Neil found that 95% of the companies he studied had experienced something new.

McDonald’s
A perfect example of how newness spawns success can be seen in McDonald’s past. With the introduction of its new fast food franchises, it grew over 1100% in four years from 1967 to 1971! And this is just one of many compelling examples of companies that, through doing or acquiring something new, achieved great things and rewarded their shareholders along the way.

New Stock Price Highs
O’Neil discusses how it is human nature to steer away from stocks with new price highs – people often fear that a company at new highs will have to trade down from this level. But O’Neil uses compelling historical data to show that stocks that have just reached new highs often continue on an upward trend to even higher levels.
S = Supply and Demand
The S in CAN SLIM stands for supply and demand, which refers to the laws that govern all market activities. (For further reading on how supply and demand determine price, see our Economics Basics tutorial.)

The analysis of supply and demand in the CAN SLIM method maintains that, all other things being equal, it is easier for a smaller firm, with a smaller number of shares outstanding, to show outstanding gains. The reasoning behind this is that a large cap company requires much more demand than a smaller cap company to demonstrate the same gains.

O’Neil explores this further and explains how the lack of liquidity of large institutional investors restricts them to buying only large-cap, blue chip companies, leaving these large investors at a serious disadvantage that small individual investors can capitalize on. Because of supply and demand, the large transactions that institutional investors make can inadvertently affect share price, especially if the stock’s market capitalization is smaller. Because individual investors invest a relatively small amount, they can get in or out of a smaller company without pushing share price in an unfavorable direction.

In his study, O’Neil found that 95% of the companies displaying the largest gains in share price had fewer than 25 million shares outstanding when the gains were realized.

L = Leader or Laggard
In this part of CAN SLIM analysis, distinguishing between market leaders and market laggards is of key importance. In each industry, there are always those that lead, providing great gains to shareholders, and those that lag behind, providing returns that are mediocre at best. The idea is to separate the contenders from the pretenders.

Relative Price Strength
The relative price strength of a stock can range from 1 to 99, where a rank of 75 means the company, over a given period of time, has outperformed 75% of the stocks in its market group. CAN SLIM requires a stock to have a relative price strength of at least 70. However, O’Neil states that stocks with relative price strength in the 80–90 range are more likely to be the major gainers.

Sympathy and Laggards
Do not let your emotions pick stocks. A company may seem to have the same product and business model as others in its industry, but do not invest in that company simply because it appears cheap or evokes your sympathy. Cheap stocks are cheap for a reason, usually because they are market laggards. You may pay more now for a market leader, but it will be worth it in the end.

I = Institutional Sponsorship
CAN SLIM recognizes the importance of companies having some institutional sponsorship. Basically, this criterion is based on the idea that if a company has no institutional sponsorship, all of the thousands of institutional money managers have passed over the company. CAN SLIM suggests that a stock worth investing in has at least three to 10 institutional owners.

However, be wary if a very large portion of the company’s stock is owned by institutions. CAN SLIM acknowledges that a company can be institutionally over-owned and, when this happens, it is too late to buy into the company. If a stock has too much institutional ownership, any kind of bad news could spark a spiraling sell-off.

O’Neil also explores all the factors that should be considered when determining whether a company’s institutional ownership is of high quality. Even though institutions are labeled “smart money”, some are a lot smarter than others.

M = Market Direction
The final CAN SLIM criterion is market direction. When picking stocks, it is important to recognize what kind of a market you are in, whether it is a bear or a bull. Although O’Neil is not a market timer, he argues that if investors don’t understand market direction, they may end up investing against the trend and thus compromise gains or even lose significantly.

Daily Prices and Volumes
CAN SLIM maintains that the best way to keep track of market conditions is to watch the daily volumes and movements of the markets. This component of CAN SLIM may require the use of some technical analysis tools, which are designed to help investors/traders discern trends.
Conclusion
Here’s a recap of the seven CAN SLIM criteria:

C = Current quarterly earnings per share – Earnings must be up at least 18-20%.
A = Annual earnings per share – These figures should show meaningful growth for the last five years.
N = New things – Buy companies with new products, new management, or significant new changes in industry conditions. Most importantly, buy stocks when they start to hit new price highs. Forget cheap stocks; they are that way for a reason.
S = Shares outstanding – This should be a small and reasonable number. CAN SLIM investors are not looking for older companies with a large capitalization.
L = Leaders – Buy market leaders, avoid laggards.
I = Institutional sponsorship – Buy stocks with at least a few institutional sponsors who have better-than-average recent performance records.
M = General market – The market will determine whether you win or lose, so learn how to discern the market’s overall current direction, and interpret the general market indexes (price and volume changes) and action of the individual market leaders.

CAN SLIM is great because it provides solid guidelines, keeping subjectivity to a minimum. Best of all, it incorporates tactics from virtually all major investment strategies. Think of it as a combination of value, growth, fundamental, and even a little technical analysis.

Remember, this is only a brief introduction to the CAN SLIM strategy; this overview covers only a fraction of the valuable information in O’Neil’s book, “How to Make Money in Stocks”. We recommend you read the book to fully understand the underlying concepts of CAN SLIM. Click on this link William J O’neil – How To Make Money In Stocks to download the book for free.

60 Stock Tips For Investment Success: by Blain Reinkensmeyer

  1. As a new investor, be prepared to take some small losses. (see also 10 Great Ways to Learn Stock Trading)
  2. Always cut your losses at 8% below your purchase price. (read our stop loss orders guide)
  3. Persistence is key when learning to invest. Don’t get discouraged.
  4. Learning to invest doesn’t happen overnight. It takes time and effort to become successful at it.
  5. When getting started, it is important that you pick the right full service or discount brokerage. If you use a broker, make sure he or she has a good track record.
  6. As a beginner, set up a cash account, not a margin account.
  7. It only takes $500 to $1,000 to get started. Experience is a great teacher. (Read our Investment Guide to Proper Portfolio Allocation)
  8. Avoid more volatile types of investments, such as futures, options, and foreign stocks.
  9. Concentrate on a few, high-quality stocks. There’s no need to own twenty or more stocks.
  10. Don’t get emotionally involved with your stocks. Follow a set of buying and selling rules, and don’t let your emotions change your mind (see 50 Ways You Know You Are An Emotional Investor).
  11. Don’t buy a stock under $15 a share. The best companies that are leaders in their fields simply do not come at $5 or $10 per share.
  12. Learning from the best stock market winners can guide you to tomorrow’s leaders. (navigate our stock chart examples archives)
  13. Always do a post-analysis of your stock market trades so that you can learn from your successes and mistakes.
  14. A combination of fundamental and technical investment styles is essential to picking winning stocks.
  15. Fundamental analysis looks at a company’s earnings, earnings growth, sales, profit margins, and return on equity among other things. It helps narrow down your choices so that you are only dealing with quality stocks.
  16. Technical analysis involves learning to read a stock’s price and volume chart and timing your decisions properly.
  17. To make big money, you have got to buy the very best companies at the right time.
  18. Strong sales and earnings are amongst the most important characteristics of winning stocks.
  19. Buying a stock as it is coming out of a price consolidation area or base is crucial to making large gains.
  20. Always pick stocks from the leading industry groups or sectors. The majority of past market leaders were in the top industry groups and sectors.
  21. Many big winning stocks come from sectors such as drugs and medical, computers, communications technology, software, specialty retail, and leisure and entertainment.
  22. Volume is the actual number of shares traded by a stock (Find out how to read volume on stock charts).
  23. Stocks never go up by accident. There must be large buying, typically from big investors such as mutual funds and pension funds.
  24. In studying the greatest stock market winners over the past 45 years, bases formed just before the stock broke out into new high ground in price and then went on to make their biggest gains.
  25. The most common pattern is a “cup with handle” names so because it resembles a coffee cup when viewed from the side.
  26. The optimal buying point of any stock is the “pivot point”.
  27. On the day a stock breaks out, volume should increase by 50% or more above its average.
  28. A decrease in price on decreased volume indicates no significant selling.
  29. Replace the old adage, “buy low and sell high” with “buy high and sell a lot higher.”
  30. You want to buy a stock at its pivot point. Don’t chase a stock up more than 5% past its pivot.
  31. Chart price and volume action frequently can help you recognize when a stock has reached its top and should be sold.
  32. History always repeats itself in the stock market.
  33. Most big stock market leaders breaking out of a sound base will go up 20% in eight weeks or less from the pivot point. Never sell a stock that does this in four weeks or less, you may have a big winner.
  34. The general market is represented by leading market indices like the S&P500, Dow Jones Industrials, and the NASDAQ Composite. Tracking the general market is key because most stocks follow the trend of the general market.
  35. Ignore personal opinions about the market.
  36. A typical bear market will decline 20% to 25% from its peak price. A negative political or economic environment could cause a more severe decline.
  37. Knowing when to both buy a sell a stock is key for success.
  38. three out of four stocks , regardless of how “good’ will eventually follow the trend of the overall market.
  39. After four or five days of distribution within a two to three week period, the general market will normally trend downwards.
  40. Bear markets create fear and uncertainty. When stocks hit bottom and turn up to begin the next bull market loaded with opportunities, most people simply don’t believe it.
  41. At some point on the way down, the indices will attempt to rebound or rally. A rally is an attempt by a stock or the general market to turn up and advance in price after a period of decline.
  42. Most technical market indicators are of little value. Psychological indicators like the Put-Call ratio can help confirm changes in the market’s direction.
  43. Once you determine you are operating in an uptrending general market, you need to pick superior stocks.
  44. Potential winners will have strong earnings and sales growth, increasing profit margins and high return on equity (17% or more). They should also be in a leading industry group.
  45. Using a chart service can help you determine if the timing is right to buy a stock.
  46. There are two basic types of investors: growth stock investors and value investors.
  47. Growth investors seek companies with strong earnings and sals growth, superior profit margins, and a return on equity of over 17%.
  48. Value investors search for stocks that are undervalued and have low P/E ratios.
  49. When starting to invest, keep it simple. Only invest in domestic stocks or mutual funds. (Education on Fund Loads Scams and Mutual Fund Fees are necessary before investing. Consider ETF investing as an alternative)
  50. You get what you pay for in the market. Low-priced stocks are usually cheap for a good reason.
  51. Options are risky because investors do not only have to be right about the direction of the stock but also about the time frame in which they believe the price will go up or down.
  52. Futures, due to their highly speculative nature, should be attempted only be people with several years of successful investment experience.
  53. Wide diversification and asset allocation are not necessary. Concentrate your eggs in fewer basket, know them well and watch them carefully.
  54. If you have less than $5,000 to invest, only own one or two stocks. If you have $10,000-two or three stocks; $25,000-three or four stocks; $50,000-four or five stocks; and, $100,000 or more-own no more than six stocks.
  55. If you already own the maximum number of stocks buy want to add a new stock to your portfolio, force yourself to sell the least profitable stock to get money for the new name.
  56. When purchasing a stock, only buy half of your desired position at the initial buy point. Buy a small amount more if the price rises 2% or 3% above your first buy. Average up in price, never down.
  57. Don’t let yourself lose money after you already had a reasonable profit.
  58. 40% of stocks will pull back to their initial buy point-sometimes on big volume- for one or two days. Don’t let this shake you out of your stock.
  59. Sell a stock if its earnings per share shows a major deceleration in growth for two quarters in a row.
  60. Subscribe to Investors Business Daily (Investors.com).

Can You Really Make a Fortune in Penny Stocks? by Alexander Green, Chief Investment Strategist, The Oxford Club

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At first glance, penny stocks seem to make sense. After all, it’s easier for a 50-cent stock to go to a dollar than for a $50 stock to go to $100, right?

No. It’s not.

Over the years, dozens of studies have shown that lower-priced stocks don’t do better than higher-priced stocks. In fact, they do considerably worse. Ironically, it’s not easier for a 50-cent stock to go to a dollar. But it is a whole lot easier for it to go to zero.

There are other reasons why making a fortune in penny stocks is easier said than done…

Three Reasons to Avoid Penny Stocks

For starters, the vast majority of tiny, unprofitable companies are such ridiculous long shots they don’t even merit your attention. Other than that:

  • Most companies offering penny stocks have little if anything in the way of profits, not to mention the first prerequisite: sales.
  • Secondly, you could drive a cement mixer through the bid/ask spread on many of these shares. If a stock is offered at 30 cents and bid at 24 cents, for instance, you’re down 20% as soon as you get your trade confirmation. (And that’s before commissions.)
  • Thirdly, penny stocks are thinly traded and easily manipulated.

You may buy a penny stock and see it zip higher, but then have trouble getting out.

It’s pretty disheartening to know you can drive down the price of a stock simply by selling your shares at market.

Beware of Penny Stock Scammers That Promise a Fortune

There are plenty of outright scammers in the marketplace.

Often referred to as a “pump and dump,” a penny stock scam is when the insiders talk the stock up on one hand while bailing out like there’s no tomorrow on the other. That’s usually because despite the great story – and make no mistake, the stories are fabulous – the company’s business prospects are usually nil.

But penny stock promoters want you to trust them, to believe in the hot tip and ensuring fortune to be made.

If you’re going to evaluate a penny stock, here’s how they’d like you to do it. By the multi-billion-dollar market they intend to operate in. By the enormous profits they’ll generate when their technology is finally commercialized. By the proven reserves of the mining company operating next door. By the results of their Phase I trials. By any criterion you can think of besides what the company is actually doing right now.

Because what the company is doing right now is… usually nothing.

If you insist on verifying this on your own, at least take a few basic precautions.

How to Size Up a Penny Stock

Start by reading the company’s most recent quarterly or annual report. Does it have sales or earnings? What kind of debt is it carrying? How long has the company been in business? Who are the people behind it?

In other words, if you’re going to roll the dice, make sure it’s a genuine speculation, not just a mindless crapshoot… or worse.

Also, take a look at what the insiders are doing. If the insiders – the ones who can hardly contain their enthusiasm for the company’s business prospects – are dumping the stock en masse, you know all you need to know. Run.

Some will say I’m unduly pessimistic. (Penny stock promoters, especially.) And, clearly, a few successful companies did start out as penny stocks.

But for every success story there are at least 100 penny stocks whose charts bear an uncanny resemblance to the last flight of the Hindenburg.

In short, there are plenty of smart ways to invest your money. Toying with penny stocks and expecting to bank a fortune, in my view, is one of the dumbest.

HOW TO BUILD A WELL DIVERSIFIED PORTFOLIO

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  1. Create an investment plan. Learn how to invest in stocks and bonds. Ask experienced investors for advice.
  2. Stick with your investment plan. If you must adjust your investment plan, do it for the right reasons, such as a change in the long-term outlook for one of your investments or the realization that an investment no longer meets your goals.
  3. Put your money into different investments that have low correlation with each other. By spreading your money among a variety of investments that may rise and fall at different times, you’ll avoid taking those big “hits” that your entire portfolio could suffer when one asset class is hit hard. You will also need to “rebalance” your holdings occasionally (at least once a year) to make sure the percentages of your portfolio taken up by different assets still fit your risk tolerance and time horizon.
  4. Reduce the size of an investment that’s too large. If you put a large amount of money in a single stock, for example, you are taking a substantial risk. Check current capital gains rates for your bracket. If they are low by historical standards, take advantage of the opportunity to sell off shares of a stock, and move some of that money into other asset classes, thereby diversifying your portfolio. Having too much in one investment is a risk that may not be worth taking.
  5. Keep investing. Although good past performance does not guarantee future success, over the long term stocks have significantly outperformed all other asset classes. Keep investing in high-quality stocks and don’t get dissuaded by short-term “bumps” along the way.
  6. Look for rising income opportunities. To boost your investment income, consider buying stocks that have historically increased their dividend payouts from year to year. Dividends may now be even more attractive if you live in the US, because they are taxed at a maximum rate of just 15 percent. (Keep in mind, though, that stocks are not fixed-income investments and may not pay dividends.)
  7. Don’t forget “growth-and-income.” Many investors are attracted to the potentially high returns of “growth” and “aggressive growth” stocks. But there’s almost certainly a place in your portfolio for good, solid “growth-and-income” investments, which provide opportunities for capital appreciation and current income.
  8. Limit exposure to risky investments. Be cautious about investing in emerging markets, “junk” bonds, technology stocks, and commodities such as oil and gold. Before adding these volatile investments to your portfolio, do your homework and read every investment book or article you can lay your hands on. Consult a fee-based financial adviser, one who comes highly recommended.
  9. Build a “bond ladder.” Building a “ladder” consists of owning bonds with various maturities. They will pay off in a “staggered” (“laddered”) schedule and thereby help to protect you in all interest-rate environments. When market rates are low, you’ll have your high-rate, long-term bonds working for you. If rates rise, you can reinvest the proceeds of your short-term bonds into new bonds issued at the higher rates.
  10. Reinvest, reinvest, reinvest. If your investments generate dividends or interest that you don’t need to meet monthly expenses, consider reinvesting that income to put the power of compounding to work.
  11. Follow principles, not predictions. No one can predict with any accuracy what future years will bring to the financial markets. So stick with the investment principles that never go out of fashion, such as diversification, investing in quality, and maintaining a long-term perspective. If you formulated a good investment plan to begin with, there’s no reason to abandon it no matter what the markets do in the short term.