Thursday, October 23, 2008

Buying In Today’s Market

I you buy stocks in today’s market, be prepared for volatility still. The way to invest is to make sure you have a 3 to 5 year time window on your investments. 3 years is the absolute minimum time you will need to insure you will have a good investment return. 5 year is much better.

One rule, always – never invest money you will need within the next 3 years. In any market, you will need to be able to pick an exit point. 3 years gets you enough time for that. Today’s market is relatively low. If the market goes higher than the highs of June 2008, then the market will be relatively high. The only thing you can tell about the market is where it is relatively to where it has been. You will never know anything else. If you need money from investments with 3 years, and the market is relatively high, that is probably the best time to take money out. Could it get higher? Of course, it could. But it can also go lower.

What you also need to know is the difference between investing and speculations. I am mostly an investor. I have high quality dividend paying stocks. I do some speculating. For example, when buying RIM, I was both speculating and investing. It is a mixture because, when it rose, I took out money to cover twice what I had initially paid for this stock. If the stock price rises too far again, I will probably sell some more stock. At the moment, I am holding on to it because I think the company has great potential.

You can be an investor or a speculator on any stock. A recent example is I have friends who bought BCE after the buyout was announced. Even though this is a conservative company and is the type of stock one invests in, this purchase of BCE was a speculation. It is about the only purchase of stock by these friends. BCE was trading below the buyout price when they bought. A lot of things can go wrong on buyouts. I will not believe in the buyout of BCE until the money is actually paid. A lot of things can still go wrong.

So, sometimes a purchase of even a conservative stock can be speculation. You are an investor if you carefully investigate a company and buy stock for the long term. You may not hold it for the long term, as one never knows what will happen in the future. But purchasing a good company, planning on staying with it for the long term is an investment and it makes you an investor.

This can be a very good time to be an investor. Yes, there will be volatility, but you can get some very good companies at some very good prices.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets on my web site.

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