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Frequently Asked Questions
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| Courtesy of Bet, Pkdancer, Ybn & Zoid |
| 1.) What are the initial steps
taken to begin a stock portfolio? |
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| First and foremost, you need an account.
This is your passport to the world of investing and a photo ID is not even necessary. Find
an online discount broker or a broker you call into or both. You see obnoxious ads for
both on TV, radio and magazines. With so many online brokers to chose from, you will find
yourself overwhelmed. My suggestion is to find one which gives you fast execution. Waiting
on the phone listening to taped Yanni music while you are trying to place an order on a
fast moving stock is as close to an outer body experience as you will get. |
| 2.) Where can I go to learn
about buying and trading stocks? |
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| Of course, we will say to log on to RatChat and
lurk, listen and learn. True knowledge though comes the old fashion way. Read! Read! Read!
Go to the library or Border s books and find some books or magazines on investing in
stocks. Books by David Lynch, the Motley Fools, etc give you a feeling about the world of
investing as well as its terms. Think of it as studying for a final exam and Professor Rat
is your instructor. What? you did not do well in college, you say? That s OK, we run a
Pass/ Fail system. When you see too much red on your screen, you will know failure
intimately. You and you alone will know when you are ready for your first virgin trade. |
| 3.) How do I determine what
stocks to buy? |
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| Many of us use different methods such as darts
against a stock wall, crystal balls or, my personal favorite, the incantation of spirits.
Stock determination, though, comes from just hard work on your due diligence. Tips may
come from all sources but one must investigate the company as much as possible. After
analyzing all the information, bring it to the Rat Crew for an open forum discussion. Just
like Roman times, the crew will give a stock their thumbs up or down. |
| 4.) What are the most
important factors to examine before buying a stock? |
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| The answer to this question depends upon whether
you are a fundamentalist or a technician. A fundamentalist is not a member of some weird
religious cult but someone who believes in analyzing all the basic fundamentals of a
company such as price ratio, book value, etc. A technical trader relies mostly on reading
charts and sets buy and sell orders based upon this analysis. In truth, one must depend
upon both. |
| 5.) What are important
reasons for not buying a stock? |
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You should under no circumstance buy a stock
just because its has gone up for the last five days straight (i.e. chasing the stock) or
your friend Harry swears it s a sure thing or because the company s press releases look
great. Be somewhat cynical, suspicious and most of all careful. Assume the worst in a
company and you will be pleasantly surprised when it does not occur. Of course, I
understand that this view of life is somewhat pessimistic but , hey, I did not write the
rules. The truth of the matter is that there are financial landmines out there and a
healthy skepticism helps avoid them. You will then marvel at how much you appreciate what
a good company is by seeing all the bad ones.
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| 6.) Any important differences
in the various stock markets? |
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| Remember when you were young and you went to buy
a car and your parents wanted the usual Buick or Chevy built like a tank and you and your
brother wanted some slick new import. The same is true with the markets. The NYSE contains
all the conservative companies and the NASDAQ has all the high flyers. Trades are made
through a man called a specialist in the NYSE and the NASDAQ has many market makers which
cover a stock. Which market you chose to trade in depends upon your risk tolerance and
investing personality. Greater risks mean greater returns. The NASDAQ has been the Rat
Crew s preferred choice and with the advent of the Level II screen, one can make instant
executions. |
| 7.) Should I limit my stocks
purchases to certain companies? Or should I buy from different type manufactures? |
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| How many times have you sat down and tried to
remember what you did last week and then draw a complete blank. It s tough to invest in
many companies because we physically and mentally have a limit. Ten (10) seems like a good
number but you can determine that yourself. These ten can be in any field which interests
you. Then this is where the RatCrew comes in to fill the void. On any given night 100
persons log on to RatChat. If each person knows 10 stocks very well, this provides access
to at least 1,000 stocks. So give those brains cells a break. Tap this resource and spend
that extra time with your family. |
| 8.) Should I invest in stocks
under fifty dollars? |
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| This answer is too easy. You should invest in
any stock which you feel has strong potential for growth and income provided you have done
your due diligence (DD s). Whether it is $50, $500 or 50 cents does not matter. Microsoft
started as a penny stock. Be careful with those penny "merde" though, your are
swimming in shark infested waters on those. |
| 9.) Should I limit the number
of stock purchases? |
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| Face it everyone. Imelda Marcos might have owned
5,000 pairs of shoes but she could only wear 7 different ones a week. Go for quality not
quantity!!! Not much bragging rights telling people you have 50 positions. By limiting the
number of purchases, you actually increase your profitability because you are more focused
on what you do own. Chose a number you are most comfortable with and only change when your
comfort level expands.
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| 10.) Should I invest all my
money? |
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| Are you nuts?? You better not be investing any
money that you do not need for at least 6 months, 12 months is better. If the market
tanks, you will learn the true meaning of financial purgatory by having to sell stocks at
a deep loss. My test is the sleep test. Invest only that amount which gives you a good
night sleep. If your sleep is restless because of your investment, you have to much in the
market. |
| 11.) I have five thousand
dollars-how do I determine what stocks to invest in? |
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| After your DD s have given you which stocks you
are comfortable with buying, a good way to start out is 100 share lots of those stocks
just to get your feet wet. Remember those swimming lessons when you were a kid. Small
steps come first. Buy 100 shares of a $20 stock or two and watch them closely. Live with
them. Watch their every movement like their were your offspring. Learn the fear element
when they drop and the greed element when they rise. Fear and Greed. These are the two
most prominent emotions in investing. One needs to conquer both. As you comfort level
increases, increase your lot size and number each time. |
| 12.) What is the difference
between investing and trading? |
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| In theory there is no difference but in
practicality they are as different as day and night. Investing is a long term commitment
and trading is a "one night stand." Those companies that you believe strongly
in, receive you full commitment while the others are just a passing fancy. Traders
(i.e.stocks played for a short ride) come out technical chart analysis indicating a
breakout from a cup and handle formation. These are done for a quick profit. Mind you
there is not seedy about traders and in fact most investors do both long term investing
and trading. The real money though is in long term holds. Trading is recommended only for
those with strong dispositions who have mastered the elements of fear and greed. |
| 13.) How do I know when to
hold long or when to sell? |
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| Blind Faith was not just a super rock group with
Stevie Winwood and Eric Clapton in the early 70 s, it is also the basis of most religions
today. In a way, stocks require the same devotion. If the fundamentals of a stock have not
changed and the price has dropped, then one must have faith in the stock price s rebound
and hold long. If however, as my sleep theory holds, your gut is not comfortable or your
are not sleeping worrying about it, sell!! Your gut instinct is usually right. |
| 15.) If you were going to
give me the best advice possible about buying stocks what would that be? |
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| WATCH AND LEARN BEFORE YOU LEAP!!! The stock
market has been around for a long time. It s not going to disappear if you spend a little
time getting comfortable with how it works, the lingo, etc. The market as well as life
does not revolve around you. You are at the mercy of it s wild and crazy ways if you do
not take the time to learn a few things first. There will always be good things to
invest in so there is no rush. Better to keep your money in your pocket and lose out on
some potential on the front-end than lose you ass on the back-end. YOU ARE PLAYING WITH
REAL $$$$$$ so don t be stupid. |
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