on one segment of the market,” she says, “but rather look at goals, time frame for the goals and how you can achieve those goals.”
A quick and easy way to do this? Simply draw a timeline with one-, three-, five- and 10-year intervals. Then ask yourself: what goals do I want to achieve in each period? A new car? A down payment for a house? A college education for my kids? How much money will I need for each goal? What market segment will give me the desired returns?
A hint: long-term goals deserve the most aggressive, growth-driven investing, while short-term goals require protecting your money.
DO YOUR HOMEWORK
Only a fool and his or her money are easily parted. The rest of us should put up a good fight. Therefore, rely on solid research before investing in a stock or mutual fund. Sorry, but a friend of your uncle’s neighbor doesn’t count. Neither do 500% returns.
First, check out the company’s annual report, also known as the 10K statement, either by ordering it through the company’s investor relations or shareholder services department, or by going to www.sec.gov or the company’s Website. A 10K provides an independent auditor’s report as well as the CEO’s report. Check out the company’s revenues, profits, debts and share-price highs and lows. See if management has changed. Find out plans for future growth. Verify if there are any planned acquisitions or mergers.
Second, read the business sections of the Wall Street Journal and the New York Times to understand the stock market and how it works in conjunction with your life-topics might include new technology, presidential elections and interest rate shenanigans.
Third, read what analysts have to say about your potential stock. Check out www.black enterprise.com, which provides stock commentary and quotes. At www.morningstar.com, type in the company’s name or ticker symbol and go to “Snapshot.” You’ll get growth, profitability, financial health and valuation grades. If you’re offline, go to your library and check out Value Line Investment Survey, which rates the performance of 1,700 of the most frequently traded stocks.
UNDERSTAND THAT THE INTERNET IS DIFFERENT
Of course it is, but you knew that. For example, imagine buying about $1,000 worth of Microsoft, or 48 shares, at its initial public offering in 1986 (it traded for $21 then). Fourteen years later, despite the company’s antitrust suit troubles, you’d have had 6,912 shares-thanks to eight stock splits-at about $90 a share, for a tidy $622,080.
But you have to be cautious, because buying Internet stocks means that you don’t know what will be the lasting profit-makers. Try the following to shake out the Real McCoys among Internet-related issues:
Revise your homework method. “The theories of investing haven’t changed,” Bendele says, “but the environment has.” When he invested in stocks as a 20-something, a good growth company returned an average of 10% per year. P/E ratios hovered around 20 and a ratio of less than 10 was a real bargain.
Today Internet stocks can easily yield 50% per year, even without much-or any-earnings. Amazon.com, for example,