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Investing Basics
12/6/2011 12:04 PM ET | By Jonathan Hoenig, SmartMoney

3 simple rules for buying stocks

Keeping a level head is essential if you're going to succeed in the
stock market. These tips can help you avoid common mistakes.

Share 775 Share 29

TICKERS IN THIS ARTICLE Even amid high-frequency trading and politically driven markets, basic
money-management techniques should never change. No one is
NAME LAST CHNG % CHNG
right all of the time; what matters is how you invest, not what you invest
in. Disciplined investing transcends bull and bear markets alike.
AIG 54.87 +0.25 +0.46

Each investor must develop a disciplined approach to timing and

position size that suits his temperament and goals. When buying any
stock, exchange-traded fund or mutual fund, I stick to these three
simple rules:
MARKET UPDATE

Don't wait for a pullback US INTERNATIONAL

When taking a position in a stock -- long or short -- we're foolishly NAME LAST CHANGE % CHANGE
conditioned to want a bargain. So with XYZ at $19.85, for example, we
F 17.41 +0.05 +0.29 may put off buying shares until we can get them under $19.50, a drop DOW 16,979.13 +59.54 +0.35
that may never come. If you actually believe shares are headed for
C 49.80 +0.10 +0.20 $25, why quibble?

So while at first it seems counterintuitive to buy the stock at the current price, if the anticipated "dip" does come, it's
more likely a bearish, not a bullish, sign. We fool ourselves into thinking a strong stock will cease its advance only
long enough to drop to our ideal purchase price before reversing and heading to new highs.

Set stop limits, not price targets

When buying a stock, we often imagine how high it might rise while rarely considering how far it might fall.
Because we have a bullish bias, XYZ seems like $25 in waiting.
NASDAQ 4,526.48 -1.03 -0.02
Indeed, back in the summer of 2007 few might have imagined that American International Group (AIG +0.46%,
S&P 1,986.51 +4.91 +0.25
news), Ford Motor (F +0.29%, news) and Citigroup (C +0.20%, news) would all approach $1 a share in less than
two years. Yet, as I've written before, it's not uncommon that up to one-half of one's trades end up as losses, NYSE 10,949.48 +19.82 +0.18
meaning our inclination should be toward loss limits, not price targets.
DJT 8,460.97 +46.08 +0.55
Even in cases where I'm unabashedly bullish, I plan for the worst and hope to end up surprised. To that end, every
investment one makes should immediately be followed with a stop-loss limit between 13% and 20% below your Market index data delayed by 15 minutes
initial purchase price. Price targets should be skipped entirely.
[BRIEFING.COM] The stock market ended the midweek
session on a mixed note. Blue chip listings bolstered
There are no "tops" in a bull market. If a stock continues to climb and does not grow to dominate your portfolio, it the Dow Jones Industrial Average (+0.4%) and S&P
should be kept and not traded away. 500 (+0.3%), while the Russell 2000 (-0.4%) and
Nasdaq Composite (-0.02%) underperformed.
Don't create your own head games
Equity indices began the day in the red, but wasted no
We can't control the markets, only our exposure to them. And because XYZ is going to rise or fall regardless of how
time regaining their flat lines. Small-cap stocks were
much we discuss, talk, blog or opine about it, a sound rule of thumb is to keep such distractions to a minimum.
not as fortunate as the Russell 2000 spent the day in
the red.
Talk about politics, sports or the economy with others, but beyond your partner and financial adviser, stew over your
holdings alone. Simply put, it unnecessarily raises the stakes. As I've often pointed out, investing requires Upon returning into positive territory, the key indices
objectivity, not a "gut feeling." were ... More

The more you think about trades or talk about them, the more likely you are to feel committed to More Market News
hold on to them and be proved right; emotion is influencing decisions, not the price action of the
securities themselves. Stock Ticker Story Stocks
How to make
investment In Play Short Stories
Beyond the tax man, your portfolio is yours and yours alone. For a clear and level head when decisions
navigating the markets, keep it that way. Currencies

NAME LAST CHANGE % CHANGE

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One rule, Buy low, Sell high

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pocketprotector Dec 10, 2011 10:26AM

"One tip- if you can average just 1-2% per month you would have an awesome annual return. 1-2% Bing: 70 percent of adults report 'digital eye strain'
with compounding over time will provide a very nice nest egg."

.....and if was always 75 degrees, sunny, birds singing, no wars, no bad people in the world, the
lawn was always mowed, I never get fat, old or wrinkled, then that would be great too. :) Point is,
you can't "average" 1-2% a month with certainty any more than you can win a $250 M lottery with
certainty.

25 2 Replies (0)

Michael Delaney Dec 10, 2011 6:55PM

It is interesting that a Jim Cramer video clip was inserted into this article when the three rules are
exactly opposite what Jim Cramer believes.

1. "Don't wait for a pullback". What? Every stock has volatility. Even the ones that are going up
occasionally pull back. All of them do. Why not buy them a little cheaper? If a stock takes off without
you because you never got a pull back, it's not the end of the world. You can't get'em all. Catch the
next one. Or better yet, take a small initial position and buy more on any pull back. In the worst case,
you will get no pull back and you will not have as much invested as you wanted. That is a high
quality problem to have.

More

23 1 Replies (0)

Iron Mike 76 Mar 1, 2012 2:23AM

coppercuda,

Just buy one to start. I'd start with Enron. If that goes well, diversify with WorldCom and Adelphia.

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16 4 Replies (0)

Ted Atwood (tbear.5775) Dec 7, 2011 9:49PM

Watch this info on stop losses. it is wise to put one in but a 20% stop loss may not help.

A stock could close one day at $20. Bad news after hours and the next morning the stock opens at
$10. All stop losses would not be filled as the 20% drop never happened during trading hours.
I have been investing for over 25 years and have had this happen a number of times, so stop
losses don't always reduce risk.
One tip- if you can average just 1-2% per month you would have an awesome annual return. 1-2%
with compounding over time will provide a very nice nest egg.

14 2 Replies (0)

pocketprotector Dec 10, 2011 10:17AM

These are just 3 rules, they aren't ALL the rules.

13 1 Replies (0)

coppercuda Feb 10, 2012 1:56PM

I have $15,000 and would like to start buying stocks. how many different stocks should i start with?

18 9 Replies (0)

Julio1218 Jun 13, 2012 6:00PM

Now, I would like to express an opinion about World Economy and Investments such Bonds, Mutual
Funds, etc.

Which lessons can we learn from Europe and USA Financial Turmoil?
Is that OK if I can invest in Bonds or Stocks? Why?

Some TIPS

1) The best investment -as of 8 years old- is to EDUCATE FINANCIALLY and never stops even if you
are 75 yo. A good advice is to play Cash Flow Game

More

6 0 Replies (0)

Ice Cold Sangria Dec 7, 2011 7:19PM

Good point Secundus. I'll have to rethink this. Over a cocktail.

7 3 Replies (0)

camaro2012 Feb 19, 2012 4:54PM

stocks are like popping balloons at the fair you might hit some and you might not . have enough
money so when you loose you loose and move on.

5 2 Replies (0)

Danny336 Jun 6, 2012 10:28AM

This article is terrible advice for begginers. Buy during dips and sell during crests is all a beginner
needs to know All stop loss does s make you lose money on any investment you put a stop loss
order on.

4 1 Replies (0)

Julio 18 May 22, 2012 11:51PM

Which one is more profitable in this Bear Market ? Mutual Funds or Stocks? None of them.
Because Mutual Funds and Stocks are risky assets at this moment. Never is too late, even if you
are 50, or 60 or 70 years old and decide, to EDUCATE YOURSELF and LEARN how and where to
put your money, how to protect yourself and your family, how to invest, etc.

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8/21/2014 3 simple rules for buying stocks - investing strategy - MSN Money
Anybody can get started by reading books from successful people, investors or being a member of
great financial forum; and not simply follow the typical advice from financial planners, who will tell
you most of the times “Invest your money in Mutual Funds (or Stocks), for the long-term and/or
diversify your portfolio; or gamble for Capital Gains”. There are much better options than the
traditional way of "putting your money in risky assets" (stocks and mutual funds).
More

3 1 Replies (0)

starman450 Jul 9, 2012 2:56AM

The best advise about buying stock is the same for any investment. Don't spend what you are not
willing to lose. There are up and down and nobody can advise safely. a stock will have 20 adviser, 5
say buy 3 sell, 10 hold,2 strong buy, all get the same info an come out with differ outcome. Who to
listen to if all are right. pimco total is as safe invest with return as there is. Everything in stock
market is setup to cost when you buy or sell and buying and selling too much will cost you the most.
Like at a horse race you bet on the best to win but they don't always finish first. But it was suppose
to be a sure thing when you place the bet.

2 0 Replies (0)

Julio1218 Jun 6, 2012 2:10PM

This Global Recession is affecting all world economies; and unfortunately it will end up into a New
Depression that I think it will be worse than Great Depression of the 1930's. So TAKING ACTION
along with getting more FINANCIAL EDUCATION is a MUST. With this duet you can have more
criteria in how to invest, how you can place your money, what is the best Return on our Investment
(ROI), How you can control your money, How you can reduce the risk when you invest. In my
personal opinion, probably the best criteria are: HOW you can control an investment, your ROI and
reduce my investment risk.. and it is -with all my respect- a better choice than investing in stocks
markets because you cannot control nor leverage, and mainly because it will crash in the next
years. So what alternatives you might have A) "Get a Recession proof business" or B) "Investing in
vehicles that provide you ROI" as long as you have done a great research on the markets, your team

More

2 0 Replies (0)

Guns and Gold Dec 11, 2011 9:01AM

But now a days it such a short wait until the next pullback. Stop losses can get run right over. I rather
look often. I've got some buys in on quality stocks that I been waiting on for awhile and I bet I get
them and the market will swoosh right on by and I'll be moaning that I coulda got them lower, but
then, after Obozo is gone the market will come back up and I'll be happy again.

I've got different rules and I'm not telling, but they are flexible, often amended and frequently
violated..

6 5 Replies (0)

Jay Zaa Noni (Jay Zaa) Aug 15, 2012 1:10PM

Should I invest in Bonds or Stocks mow?

The Stock Market will be in trouble in the next years. I have seen a lot of dead people at hospitals
and the next group of dead people will be the baby-boomers, who are expecting that the stock
market will provide them a good profit and a safe investment for their long-term retirement.
Regrettably, many are going to live a life in poverty simply because they still investing in the stock
market, which unfortunately is D.... ying.

f you are going to be an investor, first invest in financial education. If you are going to invest in the
stock market, take “technical investment courses”. Learn how to make money regardless if the

More

1 0 Replies (0)

gjc1 Dec 8, 2011 3:24PM

Just buy diversified mutual funds. Pay the lowest fees never over .25% or buy ETF's with low fees
less than .25%. Buy the whole market or sectors. But there is absolutely no need to take on risk of
individual stocks. Of course analyst must sell you on alpha or what good are they.

Just buy diversified.

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11 11 Replies (0)

Peter Evanson (peterevanson) Feb 18, 2014 2:47AM

I’m really not sure why would msn publish this article! Has this guy ever made money trading?

0 0 Replies (0)

Jay Zaa Noni (Jay Zaa) Jul 19, 2012 5:44PM

In Norte America most workers have a Defined Contribution Plan (DC Plan) such as 401(k) in USA,
and RRSP in Canada. This pension plan system is very similar in other countries in the world. This
DC Plan means that your retirement income depends on how much you have contributed to the
pension plan. Also, these Pension Plans are managed by a third party, let’s say for example the
“Canada Pension Plan Trust”, which “invest in Stocks Markets in most of 90% - 95%”, so if the stock
markets goes down, all your contributions will be wiped out and you will receive nothing and you
can be in a big trouble. Is that what you want? For more information, visit my
website. http://theelevationg​
roupreviews.blogspot​
.com

0 0 Replies (0)

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