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

---

Powerful Hidden Techniques Mystery Formula - The Covered Call Option Trading Buy-Write Strategy

For better or worse, most option trading investors purchase stocks... Read More

High Volatility Investments

Penny stocks and options are high volatility investments that attract... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #4

Can you concisely summarize your investment philosophy in a few... Read More

It Must Be Joe Cockers Market

Agonizing displays of poor theatrics failed to entertain my mind... Read More

Porters Five Forces Analysis

If you've ever listened to Warren Buffett talk about investing,... Read More

How Eating Bitumen Made Me a Better Stock Trader

Stock market trading is a fascinating activity.There are so many... Read More

Preparing to Invest: How to get started

Investments can be a source of great potential earnings. The... Read More

Exchange Traded Funds

They call 'em ETFs.There are hundreds of them.The mutual funds... Read More

Keep Stock Market Investment Profits

Have you had one of those huge investment winners ?... Read More

The Demise of Buy & Hold

Based on consistent results I think Buy & Hold should... Read More

Are You An Investment Dummy Like Me?

I am good at a few things. I can certainly... Read More

A Secret Revealed: Why Most (Day) Traders Fail

The following perspective on (day) trading comes from my many... Read More

Larry, Moe and Curley, Investment Brokers

Larry, Moe and Curley were sitting in their favorite restaurant... Read More

The Cost of Green Eggs and Ham

Young readers know that March 4th is the birthday of... Read More

Press Release Scams and Successes: Reading Between the Lines

Press releases are a means through which companies can keep... Read More

Investing and Understanding What You Buy

"There is nothing more frightful than ignorance in action!" Johann... Read More

For Entrepreneurs A SIMPLE Plan May Be Best

Q: I own a small decorating business and I'll be... Read More

Have Analysts Gotten Honest?

It caught my attention when I heard an analyst on... Read More

Five Sure Fire Way to Secure Your Financial Future

"You can be poor when you're young, but you can't... Read More

Property Investment Just Got Exciting

There is an area in Brazil that has lower crime... Read More

Guru Focused: Robert Olstein?s Short Sells

While it is rather rare that value gurus sell stocks... Read More

Can Your Annuity Do This?

Okay, so I can tell you I have sat in... Read More

Useful Tips on Investing

Here are some useful tips on investing. When you make... Read More

Retirement ? Its Sooner Than You Think!! (Honestly)

Many people hear "retirement" and think- what? 401K? Roth vs.... Read More

Love The Thrill of Risk? Invest in an Annuity!

With the stock market in steep decline, people are looking... Read More