Investing For Average Joes #5

Let's talk about research. Before you buy anything, it's good to research it and find out if it's even worth buying. There are many places to get research about the companies in which we would like to invest. Sharebuilder has many research tools for account holders. If you google "stock research" , I'm sure you will find many sites that can help you. The library has a multitude of sources, as well.

First, you should decide what companies that you don't want to be connected to for whatever reason. Maybe you don't want to invest in oil companies because they help to pollute the environment or some other moral issue. Once you decide which kinds of companies you don't want, all the others are fair game, so to speak.

When I get a tip on a stock from the Oxford Club, I read all of their info on the stock, which is extensive, and the I check the history of how it has done in the past. I look at 1 day, 1 week, 1 month, 3 months, 6 months, 1 year, 2 years. I like to see an upward trending graph but it's ok if the dips follow the market dips.

Next, I want to see how much it is trading for now. My general rule is less than $20 and preferably less than $10. This works for me because I don't have a large amount of cash available so my gains will be more easily realized. I like to buy in 100 share blocks so that if the stock goes up or down $.01, my share holdings go up or down $1.00 which makes it easier to keep up with how it's doing.

Sharebuilder charges a small fee of $.005 per share on orders over 1000 shares so if I buy or sell
more than 1000 shares, I do it in 1000 share blocks. I'm a small time investor so every cent counts but you may feel otherwise. When I get to the point that I'm buying or selling10K shares at a time, I may ignore the fee.

It may seem enticing to buy penny stocks because you can double your money, in theory, faster than stocks of $1 or more but you can also lose money faster. In some cases, you can lose all of your holdings in 1 day, depending on how the company is doing. Most stocks that are trading below $1 are from companies that are not doing well.

Take Sirius XM Radio, for example. One year ago, the stock was trading at $2.42 per share. In October when the market crashed, it fell to $.06 per share. You might think that at $.06 per share, you could double your money if it only went to $.12, which is true, but if you had checked out the company, they were about to go into bankruptcy which could have meant that they would have lost all value, hence all your investment would have vanished.

That's all I have for now. Next time, I'll talk about how to set up a trailing stop to keep your losses low and other helpful hints. Til then, happy investing.