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Investing 101 Archive

  • There's no substitute for hands-on experience, particularly when it comes to investing. During the holiday season that means every one of the seemingly endless visits to stores and malls is another opportunity to come up with investment ideas to help pay for whatever it is you're buying.

    This practice of shopping a company is just the first step in a stock picking process. Commonly referred to as "The Peter Lynch technique" in reference to Lynch's seminal "One Up on Wall Street" book, investing in what you know is one of the building blocks to successful money management.

    Of course, you have to know what it is you're looking for when you shop. In the attached clip Brian Sozzi of NBG Productions runs through three specific qualities you probably want to see before rushing out to buy stock of the company from which you buy that sweater or toy.

    1. Customer Service Slightly Better Than Expectations

    The important point here is expectations. The way Walmart (WMT) treats its customer is different than the standard of care to be expected at Saks (SKS). A well-run company gives the customer what he or she should anticipate when they pull into the lot. At a discounter that means a clean store and a clerk at every register when the store is packed. At a high-end store exemplary service means "anything you want."

    What a shopper should never feel is ignored, even if they're suspected of Showrooming. "Just because I have a smart phone doesn't mean I don't need attention," says Sozzi.

    Read More »from Investing 101: Three Things to Look For When Shopping for Retail Stocks
  • There's more to "short selling" than meets the eye. In this edition of Investing 101, we take a look at the basics of shorting, what it is, how it works and who might do it. To help us along, we brought in Tim Smith, senior vice president at Sungard's Astec Analytics, a market data firm specializing in securities lending and borrowing.

    1) What is Short Selling?

    "It's the opposite of long buying," Smith says in the attached video, explaining that when people buy securities, they think the price may go up. But when they sell a security short, he says "they do that because they think the price may go down." On Wall Street, there are several different iterations of shorting, but they all essentially mean the same thing; that a stock or index is overpriced and expected to go down in value. "It's another investment management technique,'' Smith says.

    2) Who Should Sell Short?

    While this practice of bearish bets is open to anyone, Smith says it is "really a game best left to the pros" simply because the risks surrounding shorting can be huge. "The argument goes that the downside for short selling is infinite," Smith points out, "and by that I mean, if you think the price of a share is going to go down and you put on a short position, the price could actually go up, and it could go up to infinity." For example, if you buy a $20 stock and it just goes completely out of business, the most you could loose by being long - and wrong - is $20. The flip-side of this is if you are short a stock at $20, the most you could make is $20 if you were right and that stock indeed went zero. But the catch, or mismatch, is if you're short - and wrong - that $20 stock could, theoretically, go to $1 million or more, so your ultimate exposure or risk is infinite.

    Read More »from Investing 101: The Art of Selling Short
  • "Experience is the name everyone gives their mistakes," author and poet Oscar Wilde once wrote. And how right he was. But what if we could gain the benefit of our errors without having to pay a painful price?

    That's exactly what we are tackling in this installment of Investing 101, as we identify behavioral mistake that will will cost you money. To do so, we contacted Lou Harvey, president and CEO of Dalbar, a Boston-based financial services research firm, who has studied and written about the matter for years and has compiled this list of the five biggest behavioral blunders.

    1) Mental Accounting

    As Harvey describes it, the hallmarks of this investing mistake are erratic behavior and an ever-changing risk tolerance. If you're the type of person who takes big risks in one area but takes almost none in another, you might be suffering the effects of mental accounting. In Harvey's words, it's like conceptualizing different buckets for risk, but then putting all the buckets in the same pool.

    2) Herding, Following the Crowd

    It's often stated on Wall Street that the market rarely rewards the masses or that stocks always take the course of inflicting maximum pain. "The crowd often is mistaken," Harvey says, "and very often late, too." The problem with being a follower, he says, is that the leaders — whether going in or out of an investment — typically make all the money. "The people who come afterward miss out," he says.

    Read More »from Investing 101: The Top Five Behavioral Mistakes That Will Cost You Money

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ABOUT INVESTING 101

Breakout’s Investing 101 helps you gain insight on money management and trading. Whether you’re managing your own retirement account, just beginning, or an advanced investor in need of a good refresher, Investing 101 will help you learn, grow, and keep you informed of the basic steps to effectively manage your money. Expect investing tips that focus on trading strategies, asset allocation, and portfolio management.





Investing 101

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