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| Stock Portfolios | | Published by: smith 2008-11-21 |
| What is a stock portfolio and what are some of the various methods and
associated specific steps one could follow in order to build and
manage one? What are the precise steps required and recommended to
begin buying stocks and what specific strategies might one employ to
help decide what stocks to buy?
Hi beleagured,
Thank you for your interesting question.
A stock portfolio is a group of investments held by an investor,
investment company, or financial institution... (a group of stocks,
mutual funds, or other securities.)
At the bottom of my answer you'll find 4 links which might be helpful
to you regarding Stock Market terms and definitions of words used in
the Stock Market.
=================================================
Investing strategies 101
http://www.bankrate.com/brm/news/advice/20000609a.asp
Think about it. If putting together a profitable portfolio was all
that easy, why wasn't everybody rich already?
Still, despite occasional carnage on Wall Street, people do build
fortunes in the stock market. Over the long haul, investors with a
sound strategy make money during the good times and hold onto their
cash through the hard times.
The question, of course, is: Which sound strategy?
There are several, it turns out, and experts disagree over which is
best. But most of the experts do agree that what's most important is
to have a strategy and stick with it through markets both bull and
bear.
To help you make a choice, we've defined the five most-popular
investment strategies, so you can see how they compare.
1. Buy and hold: This is the most conservative and most boring way to
trade stocks. But it may also be the most efficient. Investors simply
choose quality stable or blue chip stocks and hold them for many
years.
Long-term investors don't worry about market fluctuations because they
figure that their stocks will have time to recover from a down market.
No more looking at the stock ticker every 15 minutes. Just sit back,
relax and wait for your rewards. You also save a bundle on broker
commissions because you're not paying for frequent transactions.
The catch is that choosing the right time to sell your investments can
be tricky. You can counter this problem somewhat by knowing in advance
when you'll need the money.
2. Short-term trading: This method was a favorite for people looking
to make a quick buck, but lately they've taken their lumps. Basically,
it involves buying and then rapidly selling stocks to capitalize on
volatile markets. Day traders can win or lose a fortune in a single
day.
The problem with short-term trading is that you're bound to lose money
in the long run. Want proof? Let's say your portfolio matched the S&P
500 Index. Look what would have happened if you, in an attempt to time
the market, had missed some of the best days on Wall Street over 10
years.
S&P 500 Annualized total return
(see image)
"The primary reason why it doesn't work is that mathematically if
you're buying and selling on an ongoing basis, it's what's called a
zero sum game," says Stephan Cassaday, a certified financial planner
in McLean, Va. "At some point you will certainly have some winners,
but you'll also have losers."
3. Asset allocation: The way this strategy works is by diversifying
your portfolio into various asset classes (stocks, bonds, cash) rather
than focusing on individual stocks.
For example, you could create a global equity portfolio made up of 80
percent U.S. companies and 20 percent international stocks. Then you'd
further subdivide that portfolio between small and large companies
both here and abroad.
This method minimizes your risk, but it also lessens the chance that
you'll strike it rich because you're not heavily invested in one area.
In other words, you won't strike out, but you're also not likely to
hit a home run either. Still, many financial planners prefer the
safety of having steady, though unspectacular, returns.
"The most secure way to making money in stocks is to have a broadly
diversified portfolio and to hold it for long periods of time,"
Cassaday says. "Depending on the array of stocks that you choose, the
results will be different. But they'll almost always be positive over
five-year periods and certainly over 10 and 20 year periods."
"Asset allocation is going to give someone the most consistent rate of
return over the longest period," adds Jim Maher, a certified financial
planner in Deerfield Beach, Fla. "It takes the guesswork out of
choosing individual investments. It eliminates market timing. That's
what it's supposed to do."
4. Investment systems: There are dozens of systems that promote
themselves as a guaranteed way to beat the market. Most of these are
just marketing gimmicks designed to sell books and attract financial
seminar goers. However, some systems have performed well for certain
periods.
One of the most popular systems was called the Dogs of the Dow, which
is updated annually. Here's how it works: You invest in the 10 highest
yielding Dow Jones Industrial Average stocks. If your stock falls out
of the top 10, then it's time to buy the new dog stock to replace the
other one. The Dow measures the overall change in the stock value of
30 of the largest firms in the United States. The highest yielding
stocks are those that are paying the highest dividends.
For several years, betting on the Dogs of the Dow proved more
profitable than investing in all the stocks that comprise the Dow. But
when tech stocks took over the market for a few years, the strategy
lost favor.
Some experts say that was inevitable.
"Nothing like this will work consistently over a 20 to 30 year span,"
Maher says. "Think about it. If I found a surefire way to make a lot
of money in the market, why would I tell anybody? Either to sell a
book or because I can't make enough money doing what I'm telling
everyone to do."
5. Dollar-cost averaging: This is one of the most reliable investment
plans. If you have a 401(k) plan that automatically withdraws from
your paycheck, you're dollar-cost averaging. To do it on your own, put
a set amount into a mutual fund every month.
The neat thing about this system is you are buying more shares of
stock (or funds) when the prices are low, like now, and you bought
fewer shares when prices were high and the market was overvalued.
You can dollar-cost average by having money automatically withdrawn
from a bank account, avoiding the need for a minimum deposit. Some
mutual fund companies will waive the required minimum deposit if you
agree to make automatic deposits each month.
=================================================
An easy to understand tutorial which will provide a basic information
can be found at: Investompedia.com
http://www.investopedia.com/university/stocks/stocks5.asp
Stock Basics: Buying Stocks
You've now learned what a stock is and a little bit about the
principles behind the stock market, but how do you actually go about
buying stocks? Thankfully you don't have to go down into the trading
pit yelling and screaming your order. There are two main ways to
purchase stock:
1. Using a Brokerage
The most common method to buy stocks is to use a brokerage. Brokerages
come in two different flavors. Full-service brokerages offer you
(supposedly) expert advice and can manage your account but also charge
a lot. Discount brokerages offer little in the way of personal
attention but are much cheaper.
At one time, only the wealthy could afford a broker since only the
expensive, full-service brokers were available. With the Internet came
the explosion of online discount brokers. Because of them nearly
anybody can now afford to invest in the market.
We've actually got a whole separate tutorial on brokers and online
trading, and you can check it out here.
2. DRIPs & DIPs
Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs)
are plans by which individual companies, for a minimal cost, allow
shareholders to purchase stock directly from the company. Drips are a
great way to invest small amounts of money at regular intervals.
1) Introduction
http://www.investopedia.com/university/stocks/
2) What Are Stocks?
http://www.investopedia.com/university/stocks/stocks1.asp
3) Different Types of Stock
http://www.investopedia.com/university/stocks/stocks2.asp
4) How Stocks Trade
http://www.investopedia.com/university/stocks/stocks3.asp
5) What Causes Prices To Change?
http://www.investopedia.com/university/stocks/stocks4.asp
6) Buying Stocks
http://www.investopedia.com/university/stocks/stocks5.asp
You've now learned what a stock is and a little bit about the
principles behind the stock market, but how do you actually go about
buying stocks? Thankfully you don't have to go down into the trading
pit yelling and screaming your order. There are two main ways to
purchase stock:
1. Using a Brokerage
The most common method to buy stocks is to use a brokerage. Brokerages
come in two different flavors. Full-service brokerages offer you
(supposedly) expert advice and can manage your account but also charge
a lot. Discount brokerages offer little in the way of personal
attention but are much cheaper.
At one time, only the wealthy could afford a broker since only the
expensive, full-service brokers were available. With the Internet came
the explosion of online discount brokers. Because of them nearly
anybody can now afford to invest in the market.
[edit]
2. DRIPs & DIPs
Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs)
are plans by which individual companies, for a minimal cost, allow
shareholders to purchase stock directly from the company. Drips are a
great way to invest small amounts of money at regular intervals.
7) How to Read a Stock Table/Quote - Any financial paper has stock
quotes that will look something like the image below:
http://www.investopedia.com/university/stocks/stocks6.asp
(see image with description of all colums)
8) The Bulls, the Bears, and the Farm
http://www.investopedia.com/university/stocks/stocks7.asp
9) Conclusion and Resources
http://www.investopedia.com/university/stocks/stocks8.asp
10)Test Your Stock Knowledge
http://www.investopedia.com/university/stocks/quiz.asp
=================================================
Investing 101
http://www.atg.wa.gov/teenconsumer/finances/investing101.htm
=================================================
Building A Portfolio - Charles B. Carlson, CFA - Contributing Editor,
Dow Theory Forecasts
http://www.buyandhold.com/bh/en/education/carlson/2000/building_portfolio.html
How many stocks should you own when starting an investment program?
And how many shares should you have in each company before adding
another?
These are two of the most commonly asked investment questions by novice investors.
Actually, I don't think there is any right or wrong answer to these
questions. But there are a couple of key points to remember:
* Eventually, you'll probably want a stock portfolio that has 10-15
stocks. You can have a reasonably diversified portfolio with that many
stocks, especially if you have other investments, such as mutual
funds, bonds, etc. However, don't worry about getting to 10-15 stocks
in a few weeks or months. I think investors become so concerned about
getting to that "diversified" portfolio quickly that they fail to
start the process. Trust me - if you maintain an investment program,
you will get to 10-15 stocks rather quickly. In fact, your biggest
problem will not be having too few stocks, but too many. So don't feel
you need to own 15 stocks overnight. Just start the process. Buy a
couple of stocks to get the ball rolling. Fortunately, via BUYandHOLD,
it is very easy and inexpensive to take positions in a few stocks to
get an investment program up and running.
* How many shares should you own before adding a new stock? Ask 10
people and you'll get 10 answers. I generally build a position to
25-50 shares before adding another stock in a portfolio. If you want
to do it at 20 shares, that's fine. If you want to wait until you have
100 shares in each company, that's OK, too. What you don't want to do
is own one share in 25 different companies. Spreading your share
ownership so thin complicates your record keeping and does not
leverage your best investment ideas.
In summary, a good approach for new investors is to take positions in
three or four companies, build your positions to around 25-50 shares
in each of the stocks, and then add new companies. This approach will
help you start the process and allow you to build a portfolio in a
simple, methodical way.
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http://money.cnn.com/pf/101/lessons/5/page5.html
"When you're looking for a broker, you have three distinct choices.
From the most to the least expensive, they are: full-service brokers,
discount brokers, and online brokers. What differentiates them is the
advice they provide and cost.
Full-service brokers will call with stock ideas, and back this advice
with reports from their firm's research department. They'll keep an
eye on your picks and let you know when they think changes are
necessary.
Discounters do less of this. While there's typically plenty of
research available on the best online brokerage sites, it's up to you
to dig for it.
You may want to choose different kinds of brokers for different
purposes. I believe that full-service brokers should get paid for
their stock ideas. That seems only fair. But if you've done your
research yourself, I don't see any reason to pay a hefty commission --
discounters probably are fine.
The nice thing about the way the brokerage world is shaping up is that
you may be able to have both of those things in one account at one
firm."
[edit]
"If you decide to sign on with a full-service broker, you should make
sure that person has nothing to hide. To get a report on any broker,
call the National Association of Securities Dealers at 800-289-9999,
or visit the broker's website."
[edit]
When trying to place a buy or sell order, you'll be faced with all
sorts of questions: Market or limit order? "Day only" or "Good 'till
cancelled." Here's the vocabulary you need to know to place a trade.
If you place a market order with your broker, then you are saying that
you're willing to buy at whatever happens to be the prevailing price
for the stock. If you have a specific price in mind, you can set a
limit order specifying the price you're willing to pay. If the stock
dips down to that level, your order will be automatically filled.
Limit orders can be left open for a single day (a day order) or
indefinitely (good until canceled).
After you've bought a stock, you can instruct your broker to sell it
if the price drops to a level you specify (a stop loss order). That's
a kind of insurance; it means that no matter what happens to a stock's
price you'll never lose more than a specified amount.
In a volatile market, however, setting a stop-loss order at 10 or 20
percent below the purchase price will sometimes cause you to cash out
of the stock on a momentary dip -- thus locking in a loss even though
the shares may immediately head back upward.
=================================================
Staying Focused by Joe Chapin
http://stretcher.com/stories/99/991018i.cfm
Some people believe that creating a winning stock portfolio is a
matter of luck. Don't believe that for a moment. Successful investors
don't rely on chance for results. They know how to build a strong
portfolio and how to prepare for varying market conditions. For
example, a successful investor will seek out leading companies from a
variety of industries with a history of providing solid returns over
the long term. If you don't care to invest in individual stocks, this
is best achieved by investing in a broad-based mutual fund with proven
management ability. Good mutual fund managers prepare for market
downturns and to a certain degree, protect shareholders. Always see
how a fund has performed in bad times when considering a fund.
=================================================
An excellent article regarding online trading can be found at Bankrate.com
Are you ready to do your stock trades online?
http://www.bankrate.com/brm/green/ob/ob20.asp
=================================================
Investment Clubs and the SEC
http://www.sec.gov/investor/pubs/invclub.htm
Investment clubs and questions about them have grown tremendously.
This document answers some of the most common questions and directs
you to sources of more information.
What is an investment club?
An investment club is a group of people who pool their money to make
investments. Usually, investment clubs are organized as partnerships
and, after the members study different investments, the group decides
to buy or sell based on a majority vote of the members. Club meetings
may be educational and each member may actively participate in
investment decisions.
=================================================
Do You Need a Stock Broker?
http://www.stretcher.com/stories/990510c.cfm
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The MotleyFool.com - Do I need a lot of money to invest online
http://www.fool.com/dbc/qa/qa05.htm
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MONEYWISE INVESTMENT CLUBS - Do You Need a Broker?
http://www.blackenterprise.com/InvestingClubOpen.asp?source=/archive1997/01/0197-14.htm
=================================================
http://www.bankrate.com/brm/green/ob/ob20.asp
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Buying Stocks Tips:
http://clarkhoward.com/library/tips/stockbrokers.html
* If you're considering a broker, try its customer service number in
the middle of a busy trading day.
* Talk to other investors and ask with whom they have had good and
bad experiences
* If you choose to do business with a financial planner, or with a
broker who provides advice, make certain to state your investment
objectives very clearly on the brokerage agreement you will be asked
to sign.
* If you ever notice transactions you didn't authorize, write a
letter to the financial planner or stockbroker stating that the
activity in your account is unauthorized and all trading activity
should stop immediately.
* Don't invest in businesses you don't know anything about.
* Don't buy individual stocks unless you just think it's fun to do or
you widely diversify your holdings. It's too risky to place your money
in just a few companies.
* If you're going to take a major stake in a business, don't do so
without having some voice in how that business is operated.
=================================================
Another very long excellent article can be found at: How the Stock Market Works
http://www.ameritrade.com/educationv2/fhtml/headers/stockmarket/html/chap2_frame.html
(Click on links at top of page and also at bottom of pages)
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http://www.ivillage.com/money/life_stage/startingout/articles/0,10509,188832_98585,00.html
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http://www.greekshares.com/basics.asp
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Stocks, Investing and Investments: The 10 + 4 Golden Commandments!
http://www.greekshares.com/allbasic.asp
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Glossary
http://www.investmenthouse.com/1glossary.htm
*****
4 pages of Stock Market Dictionary, Glossary and Terms directory.
http://www.glossarist.com/glossaries/economy-finance/stock-market.asp
*****
5 pages of Investing Terms
http://www.greekshares.com/termin.asp
*****
CNN Money 101 Glossary
http://money.cnn.com/services/glossary/a.html
=================================================
Best regards,
tlspiegel AAII: Unbiased Stock Investing & Personal Finance Education from a ::
Portfolio Management. Intro to Portfolios. Mutual Fund Portfolio. Shadow Stock Portfolio. ETF Portfolio. AAII Stock Screens
http://www.aaii.com/HOME |
Equity Portfolio Management Mechanics::
Generally, portfolio managers will assign a percentage weighting to every stock in the portfolio model and then individual portfolios are modified to match
http://www.investopedia.com/articles/financialcareers/07/portfolio_management.aspHOME |
Standard & Poor's - Investment Advisory Services Stock Based ::
Stock-Based Portfolios:These portfolios are primarily rules-based and composition can be driven by quantitative models, fundamental research,
http://www2.standardandpoors.com/portal/site/sp/en/us/page.family/investmentadvisoryservices_ps/2,7,2,0,0,0,0,0,0,0,0,0,0,0,0,0.htmlHOME |
TradeTrakker tracks investment portfolios for securities, stocks ::
Portfolios and stock/fund positions may be edited at any time. Save stock portfolio database to multiple locations such as on a LAN or laptop computer.
http://www.rosecitysoftware.com/TradeTrakker/HOME |
American stock portfolios.xls::
File Format: PDF/Adobe Acrobat - View as HTMLIf you own $5000 of stock you are more likely to be a Republican. Stated Democratic or Republican Affiliation: Owners and Non-owners of Portfolios of $5000
http://www.atr.org/content/pdf/2007/june/060407ot-american_stock_portfolios.pdfHOME |
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