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Investing Basics

Nov 9, 2007
Many investors start with $1000 or more to play with. This is not enough to establish a good portfolio. And, it will not leave them devastated if they lose it. Welcome to the fascinating world of investing, you are now a part of an exclusive club. Investors were the foundation of the Industrial Revolution. They were the driving force that fueled the growth of the North American Markets. Investors fuel the future's discoveries and growth.

However, this isn't something a person can jump into blind and make a killing. Investing is like playing chess. It takes a few hours to learn the moves, the basics, and the theory. A few weeks later it is possible to make some educated moves and enlightened guesses. But, it takes years to become a true master.

The good news is, if you have saved some money to invest, then you have the basic skills and instincts needed to survive the shark pool. Having the discipline to clip coupons, sacrifice a cup of coffee a day, and forgo a few luxuries teach investors the same skills needed to succeed. Sacrifice is important.

The ability to sacrifice a stock that once promised so much, to walk away at a certain level, and never regret the decision, even if the stock makes a comeback, is one of the fundamental skills needed for success.

The second skill is patience. An investor who can relax while a stock is spiraling out of control, bottoms out, and wait four years until it climbs to new heights will make more than the investor who buys and sells yearly, or as some new investors do, monthly.

Patience is hard to learn. Many investors 'play' the stock market. It is a game to them. When all their money is invested and all their pieces are in place they must sit back. After a few months they become nervous or edgy. They want to start playing again. Slowly they ignore the guru's advice and turn their backs on the stock investing pundits. One by one they start to sell and go looking for the excitement felt when they first started to invest.

There is room in the stock market for the 'active investor.' They try to outsmart the other players on Wall Street. They constantly surf the markets for outstanding stocks that are ignored by other investors. Any Saturday afternoon finds them researching stocks and studying about investing. These investors will succeed.

Unfortunately, it is easy for the 'player' to pretend they are an 'active investor.' They half heartedly study, and pay more attention to gossip and whispers in their investment groups, their stock choices are based on 'a hunch' or a 'tip.' They may not lose everything, but after two decades they are far behind the rest of the pack.

Another type of investor is the 'passive investor.' These investors also succeed, but their game plan is different. The passive investor doesn't really want to learn about investing. He doesn't believe he is smarter than Wall Street, and really doesn't want to gamble. He is content to earn an average return for a given amount of risk.

The passive investor will gravitate toward mutual and index funds, or exchange-traded funds. These investors will use sites like ifa.com to use their tools to help them decide what indexes are ripe for investors, based on expectations and risk. Once this investor sinks their money into a stock they are content to walk away for a few years.

Take time to determine whether you are an active or passive investor, or if you are a player. This is the first step to creating a successful strategy.
About the Author
Mark Walters is a third generation entrepreneur and author. He offers free training and investing videos designed to speed you towards financial independence at http://www.cashflowinstitute1.com/Articles.html
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