Investment Strategies

Basically, there are two investment strategies: Long-term and Short-term strategies.

We refer to the persons behind these strategies by different names. The person who purchases an investment and hold it for a year or longer is typically referred to as an investor. Those individuals which purchase investments and usually resale them in under a year are referred to as Speculators or traders.

Long Term Investors

Many investors hold on to their stocks and investments for a number of years. By doing so their investments can increase in value three different ways.

1. They may receive dividends if the directors approve these payments to the stockholders.
2. The second manor is the stock itself may rise in value.
3. The final method which may increase the stockholder’s wealth is a stock split. It also needs to be noted that a split is no guarantee that that value of the stocks will increase.

Some Investors use a method called Dollar Cost Averaging. This is a method where the investor has made the arrangements to purchase a certain dollar amount of the same stock at equal intervals. The method is simple when the stock is low you purchase more shares than when its higher. These investors usually consider the average cost of these stock. To do so they add up the total amount they’ve spent of these stocks and then divide it by the total number of the companies’ stocks they hold.

Today many firms permit individuals to purchase stock directly allowing them to avoid the account executive or brokerage firms. This is called a Direct Investment’

 Many stock holders allow their dividends to be reinvested in the stock.

Short Term Speculators

A word to the wise is said to be sufficient. This method may pay more but the risk is higher. This is not an area for someone new to the stock market. It is strongly advised that you stay in the long-term markets until you understand the risk and have seen the market work.

Buying stock on the margin means you borrow some of the money needed to purchase a certain stock and the margins requirement is set by Federal Reserve Board. I believe this is 50%. So, you can borrow up to half the stock you hold value. Just because the Fed set the margin doesn’t mean individual brokerages do not charge different amounts. Speculator use this because they can purchase twice as much. They can also lose twice as much.  Therefore, your ability to make money depends on your ability to read the market. Will the stock increase or decrease in value. The common method for this is referred to as buying short.

To buy short this is what must be accomplished”

1. Arrange to purchase certificate for a certain number of shares from a brokerage.
2. Sell that borrowed stock betting that its value will decline.
3. Purchase that same stock back the lower rate must be lower than the price in the second step.
4. Use the cheaper stock to replace the borrowed stock to the broker.

There is another method to make money called Trading Options. These options give you the right but not an obligation to buy or sell these stocks. If you think the price will increase in a certain period time you may want to get a call option. This gives you the right to purchase 100 shares at an arranged price before the expiration date. If the person holding the call is correct and the stock does rise then they purchase the stock at the lower price and resale it at the higher price the day holds.

One may also purchase a put option. This basically is the opposant of the call option. If your right you sell your stock at a higher price than the day’s value for it is.

Be warned that this is more complicated than it seams and beginners need to heed the warning.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity), color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status. He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.