Be honest with your investment ability

So how are you guys doing in the midst of our 30-day “play the market with Monopoly money” experiment?

I actually know the answer to that question based upon the feedback I’ve received.

Let me address some of your concerns.

I’m beginning to feel a bit like a broken record on one particular matter — and based on the frequency of this question, it’s very clear to me that there’s a segment of readers here who don’t read beyond one or two columns.

I call these my “one shot wonders,” whom I can only assume find a link to this site from another site or Google, read one column, and then send me a message asking me to explain the entire market to them in 20 words or less — or better yet –if I could just give them one stock name that’s going to soar — that’s all they need.

And then they usually try to post the message a second time, followed by a third post asking why their first two posts aren’t showing up.

The reason is because this is a site about the stock market and investments that is geared toward the newbie investor. While many similar sites let anyone post who wishes to, and fly by the “every man for himself” and “buyer beware” motto — I refuse to let this site be infiltrated by those who wish to drive a stock price higher or lower by spinning the information about a stock, in the hopes of artificially driving the stock into a price that is personally beneficial to the spinmeister.

It simply ain’t gonna happen here on my watch.

On the other hand, on my business blog for members-only of EnterActive Media, it is every man and woman for themselves — but that’s a site aimed at the more seasoned investors, who don’t fall for the bull. They laugh off any nonsense.

You will occasionally find a few members from my EAM site wander over here to post a message, and they are allowed to do so with access I’ve granted them.

If they ever violate the trust I’ve given them and they start dropping stock names and trying to put some spin on them — even if they have the best of intentions — they know they’ll quickly be banned from both this site and my EAM site. Since there has long been a waiting list to join that forum — I think I can trust them.

Now that I’ve repeated that info — let’$ talk money!

I feel like a proud mom to so many of you who are really getting the hang of the way to trade the current market — and have shared with me what positions you took on each day during our play-money game — and I know you’re starting to feel that itch to start trading some real money.

Good for you — but be careful.

The market is volatile, it not only can shift from day-to-day, but often from minute-to-minute.

Before planking down a cent of your hard-earned money, double-up your due diligence to make damn sure you know what you’re buying — and why you’re buying it — and then monitor that stock like it’s an infant on life support.

The fact is when you do your due diligence, and you find a company that makes a good product that there’s a demand for, no matter what’s going on in the world, and the P/E ratio is great, and their balance sheet is outstanding, and they don’t have a heavy debt load, and the analysts aren’t waving any red flags, and you truly understand what the company does — terrific — you’ve just begun your homework.

But you’re still not ready to buy a single share.

You darn well keep those sleeves rolled-up and find out who owns it. Which large funds hold a large stake in the company, and check to see how long those funds have held it, and what the likelihood is they will continue to hold it.

Then find out what the option traders are doing with the stock. What are the puts and call spreads. It’s okay, even though you’re not ready to start trading options, you should at least have a fundamental understanding of how the options spread on a stock can affect it,

Also, is there about to be a big announcement from the company, either about a new product you’ve read about in their analyst reports that they’ll soon be rolling out, or they’re due to file their quarterly report, or something else about to happen — and decide if you should be ahead or behind that announcement.

How about their competitors? Are they about to make a major announcement or roll-out a new product, or file their quarterly report? If so, how is that going to impact your stock?

I don’t say all this to try to douse your spirits — just to point out that learning how to actually buy low and sell high is something a first grader could do. In fact, I often believe a first grader would be better at it, as they wouldn’t be so emotionally invested in it, and would just make the trades automatically.

But as an adult, you should know, and be prepared to do, all the research that goes along with it.

Which brings me to the other side of the coin — those of you who are aggravated.

You find it all too much.

You’re still thinking there’s just got to be a shortcut way to do your own investing.

There isn’t.

There are three choices for those who wish to invest:

1. You can be a complete moron, skip the due diligence, buy a stock in a company you don’t know much about, and hope you get lucky — that’s not my style.

2. You can make a commitment that you’re not going to look for any “hot tips.” You’re not going to fall for anyone on the Internet hyping or dissing a stock. And you are going to spend many-many hours researching a company, its competitors and its entire sector before you invest a penny.

Here’s one “tip” you can use: If every time you complete your due diligence you think you’ve picked a winner — you’re probably fooling yourself. My ratio is more about 20 to 1. For every 20 companies I think are great — I find only one that’s really worth investing in.

But don’t think of it as wasted time. The next time you consider buying either that same company or its sector, you already have a base in place form earlier research that will make your new due diligence much smoother, and you can compare what you knew about the company previously to what it is currently doing today.

3. You’re other option is to be honest with yourself and admit that even if you spent a good 20 hours researching a company and bought some shares for a good price — you know you don’t have the stamina or fortitude to continue the due diligence while you’re invested in it, and you’re planning to just close your eyes and hope a year from now that you made a wise decision.

I’ve never been a fan of Russian Roulette.

Don’t do it.

Instead, invest that time in researching funds and fund managers to take your money and invest it for you.

Personally, whenever possible I steer clear of mutual funds, as I enjoy doing my own research, refuse to pay the management fees — especially the back-loads, and there’s usually a dud or two in the fund’s portfolio that I’d rather not own.

But if I wasn’t planning to do my own research, or felt I’d lose interest once I owned a position, then I’d likely find a fund manager I trusted and whose largest positions were in investments I agreed with.

There’s no shame in admitting investing on your own is not for you — there really isn’t.

I just came in from an exhilarating afternoon of kite-boarding on the ocean — but I’m smart enough to realize that I’m unable to ski on snow, so I don’t go up the slopes, unless I plan on sliding down on my rear end.

Be honest with what your capability and commitment level is to investing — and you’ll be much better off.

And just to show there are no hard feelings for those of you who realize that trying to eventually keep up with the big guys over on my EAM site just isn’t the right move for you, I’d like to give a free plug for you to begin learning about mutual funds on Morningstar.

For all the rest who are committed to investing on their own — let’s see how you can do when I don’t spoon-feed you some names to do due diligence on.

Yes, guys, you may have had some nice pops in Hershey and other names I’ve given you over the last two weeks, but would you have honestly been playing those names if I didn’t mention them?

You don’t have to answer to me — just be honest with yourselves.

Just remember the usual disclaimer: Don’t base any of your investment decisions on anything you read here. Do your own due diligence, or at least enough research to pick the right professional to do it for you.


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