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Buy and Hold Investment Strategy

Before expanding on the questionable value of “buy and hold”, it’s probably best to take a deeper look into who’s spending their millions of dollars of marketing money convincing you that “buy and hold” is the best idea and why.

“Buy and Hold” Promoters

“Buy and hold” promoters vary but I’m going to single out the mutual fund( http://www.stockrhythms.com/investing-in-mutual-funds.htm ) companies at this point since they seem to have the deepest advertising pockets and are highly visible in their promotion of “buy and hold”.

Mutual funds have a strong vested interest in having you buy into the “buy and hold” mentality since their entire business model depends upon the average investor keeping their money parked…through good times and bad.

Remember, the mutual fund companies are earning a profit from your investment even while you are accepting losses!

So “buy and hold” is really the greatest investment strategy available, it’s just a matter of perspective. If you like that your mutual fund company profits while the Bear Market ravages your account value, then “buy and hold” is for you!

So let’s look at some data to see how this really works.

“Buy and Hold” Facts

Between 1929 and 2002, there have been 14 Bear Markets with an average of 39% slashed off the value of stocks. During this 74 year period, it took an average of 3.5 years to return to breakeven!

Every time a “buy and hold” investor loses money in a down market, they lose invaluable time to reaching their financial goal. After eliminating overlapping Bear Markets, 41 years were spent suffering through a Bear Market or returning to break even.

In other words, “buy and hold” investors spend 2/3 of their time just to break even!

“Buy and Hold” Myths

My favorite myth or scare tactic used by investment gurus is; “buy and hold” investing is critical since you cannot afford to miss the bull run when it hits. And they go on to cite what happens to those that miss the “big days”.

Ah…good point, what does happen? If you would have invested $100 in 1926 and just left it there until 1993, your investment would have climbed to $80,000. Conversely, if you had tried to time the market and missed the 30 best months, your investment would have only been worth $1,200.

“Buy and Hold” Does Work Better?

So I’ve just convinced you that “buy and hold” does work better right? But what would have happened if you used market timing and missed the 30 best months and missed the 30 worst months? Your investment would now be worth $120,000 or 50% more than simple “buy and hold”.

Not to get too carried away but if you had avoided the 30 worst months and still managed to hit the 30 best months, your investment would have increased to an astronomical $8,600,000. Now I’m not going to try to convince you that market timing is going to hit every winner and miss every loser but I also don’t think it’s fair for the “buy and hold” advocates to represent only one side of the equation to their benefit either.

“Buy and hold” is a guaranteed method of losing money during every Bear Market. Give yourself a fighting chance by looking at a better way to invest.

“Buy and Hold” Replacement

So how do you avoid losing money every Bear Market with “buy and hold”? The simple answer is “get out of the stock market when it’s the Bears turn”. Of course, that’s usually harder to do than to say.

This is where we can help you to become a better stock market investor. Not only are we going to show you how to avoid the Bear Market losses, we’re going to show you how to profit from the Bull Market and then turn around and profit from the Bear Market.

And I’m not talking about extreme market timing, I’m talking about a conservative, time tested investment process.

A Better Investment Plan

There is a better way to position yourself for a higher probability of investment profits than extreme market timing( http://www.stockrhythms.com/market-timing.htm )or passive “buy and hold”. One that has been tested and proven with over 74 Years of Stock Market Research! Our proprietary Olympic Ring( http://www.stockrhythms.com/how_it_works.htm ) investment system has been issuing profitable trading signals, trade after trade, year after year, and we can start doing it for you too!

Maximize your returns while lowering your overall risk through the use of a highly scientific and emotion free system. And unlike the “buy and hold” investment plan, you’ll be positioned to profit from the Bear Market and the Bull Market. Nowwon’t that be a change!

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Emotions Don’t Work in Stock Market Investing

Investing in the stock market is a difficult proposition, and a decision which is supported by emotion for a majority of the people, and this leads to a process wherein people actually start having an innate conviction that quite probably it is not feasible to invest and win simultaneously. People normally act unreasonably and emotionally in places and proceedings where money is implicated, and additionally when they are involved with imperative decisions concerning money as well. The most noticeable facet of emotional stock market traders as well as investors is that they indulge in spreading affirmative news as they have already purchased a stock when they were investing in the stock. However, it is a proven fact that if emotions occupy a central position in the sphere of stock investing, it hampers your efforts to be objective.

Prior to investing in the stock, ensure that all the relevant decisions have been taken. In case you happen to have purchased a stock, assess the market charts, although they primarily bear optimistic and bearish displays on them, and this encourages a spurt of emotion. It is then rendered futile trying to make you comprehend that the optimistic indicators are more prevailing and the stock should be in a far more elevated rank. After all this is your primary anticipation from your investment, however your assessment on the results on the charts was somehow not quite that purposeful.

It is also worthwhile to comprehend that investing in the market should never be dependent on estimation which has been expressed in the varied public polls. In the frenetic world of the media, there is an absolute overabundance of display pertaining to useless reports pertaining to the economy as well as the stock market, and they are chiefly determined by the varied public opinion polls. It is quite difficult to stay abreast of the current news which are being displayed on the television, and then ensure that you are prejudiced by it and you should steer clear of making stock market investment decisions centered on what you have heard.

If you want your stint at investing in the stock market to be an unbiased and purposeful one, it is imperative for investors not to be taken in by what they have heard on the varied news channels when they are in the process of making important decisions pertaining to stock market investing. It is not impracticable that you might be in a position wherein you have invested in a bubble stock that is about to burst and this could occur at just about anytime.

It is worthwhile to be aware of the fact that emotions are detrimental within the sphere of stock market investing. It is advisable to maintain a balance so that you are not heartbroken when you suffer a loss and neither are you too happy when there is a gain. It is essential to make every effort for a proper balance when you are investing in the stock market.

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Learning the Ropes of Stock Market Investing

Stock market investing is ever evolving because it encounters a lot of changes even by the minute. As with an actual market, the law of supply and demand also applies to the stock market as prices go up and down depending on how much are being bought and are sought after and how many are being sold by companies and individuals. One thing that you should know about stock trading is that if a stock is deemed expensive and is rising, this does not mean that it is always safe to buy and invest in them. Cheap stocks also do not mean that they are extremely unstable or volatile. Trading is actually quite a tricky endeavor so one should educate themselves constantly about the industry that they want to invest in for them to not waste their money. A lot of beginners are getting discouraged knowing this fact as there are lots of things that one should learn and master.

There are a couple of concepts when it comes to the actual stock market investing and there are three strategies under it. Choosing whether to go the route of short, medium or long term investments will help you in choosing the stocks that you should invest in. Short term investments is considered risky when compared to the other two as even small things can affect the stocks or investments in this strategy. If you want to do this, you must sink a lot of your time in monitoring the stocks’ performance and how much it opens and closes daily.

The medium term stock market investing strategy takes a bit longer to come into fruition and is considered complicated to delve into. Gap trading, Fibonacci trading and contrarian investments fall under this category of strategic investing.

The safest strategy to go into is the long term stock investments and they also give bigger profits as compared to the two. The consequences for this strategy however is that the pay off is considerably longer. Long term investments do not have a lot of risks and investors go into this to enjoy a regular income from their investments. You should be highly knowledgeable in companies and industries before you invest in a long term stock as your capital will be tied for a longer time. Keep in mind that investing is not just a light hobby but something that needs to be taken seriously and if you are considering on entering stock market investing, you should treat is as like your own business.

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Lay A Strong Investment Foundation Through A Stock Market Investing Guide

The first step to take when pursuing any stock market investing opportunity is to find a high quality platform that you can rely upon and make trades with. There are many platforms available for consumers to take advantage of so it is important to weigh your options when considering these resources. When trying to identify the best platform for you it is important to not only compare the various rates you will be charged for making trades but to also assess the resources they provide you in relation to stock tracking and conducting market research.

Once you have been able to identify the best platform to support your stock investing goals, the next step in a high quality stock market investing guide is to identify potential stocks you may be interested in and beginning the research process. Research represents an invaluable tool that investors rely upon to identify market trends, as well as determine the value associated with making an investment in a particular stock. Stock values are constantly fluctuating so it is important to identify what is impacting these businesses and how a change can benefit your investment goals.

Step three of the stock market investing guide is to weigh the value of every stock you are considering to invest in. The value associated with the stock is dependent upon many different factors such as the opportunity to profit off of your investment. While one stock may provide you with an opportunity to make a small profit while another stock may provide you with the opportunity to make a larger profit, it is also important to weigh the risks that may affect whether the stock will succeed. Often the safer opportunity will provide you with a smaller profit but will give you results rather than the risky endeavor of an alternative.

The final step of your high quality stock market investing guide is to take advantage of the research you conducted and make an investment so you can begin to profit. Not all stock investments will be successful so it is important not to place all of your financial resources into a single stock.

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Main Stock Market Investing Myths

1. Only rich people and stock brokers can make money in the market

The stock market is a place where anyone can make money as long as they know how. The Internet has leveled the playing field even more, by providing access to data and research tools that were previously available exclusively to brokers. Therefore, even ordinary folk with a tiny capital can start small and build their portfolio consistently to earn huge profits.

Individuals also have the freedom to aim for long-term gains, whereas stock brokers do not have that luxury. Most of their investments need to perform well even in the short-term. Therefore, individual investors are at a greater advantage when it comes to making money over the long-term.

2. What goes down must come up

Stocks are not physical objects and they are not obligated to obey the law of gravity. When a company performs well and as long as market conditions are conducive, a stock could keep increasing consistently. There is no reason whatsoever for it to come down when there is no other opposing force acting on it. When a stable company with great products or services is run by efficient managers, its stock prices can keep growing steadily. The overall market trend often prevents that however. And companies that are poorly managed and have a declining stock price, may go bankrupt and never recover.

3. Investing in the stock market is very similar to gambling

While people totally ignorant about the share market can be excused for having that opinion, investors and even novices in the market should never entertain that idea. Gambling is an activity where everything is left to chance, but investing in stocks is done by careful analysis of a company’s performance, market forces, and several other factors that can influence the prices of stocks. Therefore, stock market investing is not a leap in the dark, but rather a careful strategy based on solid rules, analysis and a certain amount of intuition gained over years of experience.

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Stock Market Investing – A Primer for Beginners

Investing in Stock markets

Investing in the stock market gives superior returns over the long term and is more tax efficient than all other forms of investment. If done rightly you can get a return of 12-15% over the long term. You can either invest directly or through mutual funds.Stock market investing requires patience, risk-taking capability and time. Never invest on tips or just because a particular company is the flavor of the season. Reading financial reports and checking financial ratios may not be easy for everybody but you could look at a few things before making that investment.

Going by your gut instinct is good if you have long experience in picking stocks and if you keep in touch with news flow on what is going on in the sector or the particular company. If you are a beginner it is better to test your hypothesis with some data before you jump in to buy. It would be a good idea to start reading a business magazine which gives in-depth articles about companies or a particular sector.

If your investment decision is based on recommendations by some popular business news channels then the outcome may not be very positive. It is best to take information from all media, do some study yourself, arrive at your own conclusion and start investing. Stock Market investing is not rocket science and if you can keep in mind a few points, you too, can pick up good stocks and reap the benefits of higher returns. If you plan to invest in the stock market then the first lesson is to cultivate patience and humility. Try not to invest when the market is running up. Do not think that you will lose the opportunity and buy at a higher price. Always time your purchase when sharp corrections take place. Always remember that success does not beget success in the stock market. Do not be overconfident if you get a few picks right.

Choosing a company to invest

There are more than 6,000 stocks listed in the Bombay Stock Exchange and over 1,200 stocks listed in the National Stock Exchange. Many are listed on both. The stock exchange itself takes the best stocks [30 for BSE Sensex and 50 for Nifty] to make the index and usually picks the companies that are consistently profitable and those that have good corporate governance and show consistent performance. So one easy way out is to select a few among these index stocks in a downturn.

Another method would be to check the last quarter performance and then select a few companies that have shown good growth in sales and profitability. You can get this data from moneycontrol.com (website) or stock specific magazines like Capital Market or Dalal Street. Then look at quarterly performance over, say last 4-6 quarters and see if operations are improving. Look for consistent sales, operating profit and net profit numbers. A rising interest cost without a significant rise in sales in the subsequent quarters will indicate that the capital is not being deployed efficiently. If other income is contributing to a big chunk of the profit, be cautious. Do not go for companies which have mountains of debt. You can check this in the balance sheet or just by looking at the interest being paid from the quarterly result statements. In this way you could get a fix on a list of stocks that you need to keep watch on. Once you have a list of companies ready, visit their websites and check out the products they make. Search the Internet for news on the selected companies. Make a start, put in maybe 1 hour a week and you will soon be surprised to find that stock picking is not as difficult as you thought.

While buying the selected company fix an amount you would like to commit to a particular stock and allot about 50% of the money and then watch the movement. Please do not get into the habit of monitoring daily. You can do it on weekends and incase the stock moves down you could steadily increase your holding. If it runs away do not jump and invest the balance; wait for it to stabilize and see if it offers value at the higher price. Time your buys in a falling market and sells in a rising market

Profit Booking

Warren Buffet’s philosophy is to buy a stock and sleep on it and reap value. It is often mistaken that Warren Buffet never sells his stocks. This is not true. He is an exceptional stock picker, so unlike us he starts with a big advantage. But he too reviews his investments and sells ones that make money or deviates from his stringent criteria. I would recommend that once you have picked up a stock and it has risen more than 25-50% [you can decide on the limit] you should sell maybe 10-15% of your position. This helps you to recover the capital until you fine tune your stock selection and learn your ropes in the fine art of stock selection. You could temporarily move this profit to a fixed income instrument for further investment in the same stock or any other during the next correction or switch to some other company that you have identified. Never have any emotional attachment to a stock.

Day trading /Short term trading

Stock market investing comes at the higher end of the risk spectrum. If you think that making money everyday by buying and selling on the same day [day trading] and for the short term [within 1 year] is easy, it is fraught with greater risk. In the short term, stock market movements are volatile and impossible to predict. You may think you are an expert at spreadsheets and reading graphs but most of the time it is like throwing a dice. A few can do it but they usually make money more out of years of experience in analyzing daily movements. If you plan to do day trading be extremely cautious. Never do day trading on tips. If you are doing short term or day trading you should never keep your loss making companies with the hope that one day it will give you profits. Sell and move on if the loss is more than 5 %. Likewise if your position is profitable start selling in two or three lots if the market has a rising trend.

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Choosing An Investment Approach

In simple terms, investing mean putting your money into an investment vehicle for the medium to long term, with a view to growing your capital, using your investment to provide you with an income, or a combination of both. A good example of an investment plan might be a plan taken out today so that you can put your children through university in ten or fifteen years time.

There are many different forms of investment that can be used to create a plan, and which you choose will depend on both the timeframe for your plan, and your feelings about risk. A good example of this is investing in the stock market.

Stock markets can be extremely volatile, and this means that you can make money very quickly, but that you can also lose it very fast. There are many examples of people who have made their fortune by investing in the stock market,  but there are just as many examples of individuals who have lost everything they owned.

This said, history shows that the underlying trend is for the stock market to rise over time and so, as long as you stay invested for the long term, there is a good chance that you will make money. Nevertheless, this must be seen as a longer term investment vehicle, and one which carries a fairly high risk.

The risk of investing in the stock market can be reduced by sharing the risk with others, and this can be done by investing in managed funds such as investment trust and unit trusts. Many insurance products today are also linked to the stock market, and you can invest in a range of unit linked insurance policies. Investment vehicles of this nature are less risky than investing directly in the stock market, but still carry what we might term a medium amount of risk.

At the bottom end of the scale are investment vehicles that carry little or no risk at all. These include such things as government and corporate bond, money market funds, and a variety of bank and building society investment products. Individual saving account will also fall into this very low risk investment category.

For most people building a plan is a matter of matching your own feelings about risk to a portfolio which itself strikes a good balance between high risk, high return investment vehicles and low riskHealth Fitness Articles, low return products. Most people today will have a mixed portfolio featuring very largely medium and low risk forms of investment.

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