The DJIA and Stock Market Tips

Anything can happen in the stock market in the short term. Expect both increases and declines.

A market correction is a reversal of the prevailing price movement trend for a security. A “correction” is most often used to describe a decline after a period of rising prices. A market crash is commonly defined as a 20% decline in a single day or over several days. On October 19th 1987-referred to as “Black Monday”-the DJIA plummeted 22.6% in a single session. On 10/10/08, the DJIA closed at 8451.19-around a 22% cumulative loss over 7 trading days. Market crashes do not necessarily lead to bear markets. On 10/13/2008, the DJIA closed at 9387.61–the 936.42 point increase equated to an 11% single-day gain. Up to that point, it was the largest single-day gain in the history of the American stock market since the 1930′s. On 10/15/2008, the DJIA closed at 8577.91. On 10/16/2008, the DJIA closed at 8979.26. “Testing the bottom” is a term meaning the market fluctuates up and down until a low point is reached.

A bear market is a period of decline in multiple broad market indexes such as the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 Index (S&P 500) over several months-at least a two-month period.

Someone once said there are three phases to a bear market:

First phase-a few people see that things are getting worse.
Second phase-most people see that things are getting worse.
Third phase-everyone is convinced that things can only get worse.

The third phase is when consumer confidence is at its lowest.

When consumer confidence is at its lowest, it is typically a good time to purchase securities.

In good markets and bad markets, well-balanced diversified portfolios invested for the long-term are the key to financial success.

Over a long period of time, the DJIA trends upward.

The Standard & Poor’s (S&P Index) odds of increasing over any 1-year period are only 7 to 3. The S&P odds of increasing over any 5-year period are 9 to 1. Stock market investment risks diminish over any 5-year period. Money not needed within 5-years might be considered for stock market investments.

Anything can happen in the short-term; however, over time the market has always rewarded long-term investors.

Be a long-term investor!

“For everything there is a season, and a time for every matter under heaven: … a time to break down, and a time to build up…”-Ecclesiastes 3:1-3 (RSV).

Top 10 Tips For Stock Market Beginners to Succeed to Make Money in Trades

Here are the top 10 tips for stock market beginners to succeed to make money in trades:

1. Never buy or sell in the stock market based on your emotions. Making random decisions will ensure that you are on the path to failure.

2. Beginners should follow strategies to make money in trades. Famous investors such as Warren Buffett have strategies.

3. Day trading is very volatile so it has extremely high risk. You must have discipline and experience on day trading.

4. Never put all your eggs in one basket. Always diversify your portfolio to minimize the risk of losing money.

5. You need to decide when to sell. You cannot hold onto it even if it keeps rising or if it keeps falling. Many beginners fail to make money in trades because of this problem. Discipline is key to succeed.

6. Get out of a trade fast if you have no idea what is going on. Ignorance leads to failure.

7. It is very risky to trade against the trend. You need a lot of experience to make money like that. For stock market beginners, it is best to stay away from that.

8. Do not listen to people who promise you will become rich if you trade in penny stocks. They are very dangerous, and it is extremely difficult to find people to buy your trades so you might have no one to sell to.

9. Do not rush to make money quick. For beginners, focus on no more than 3 stocks at a same time. You might not be able to follow a plan that works if you have too many to worry about at once.

10. Think of it as getting an education. It takes a while to fully understand everything that has to do with the market. You will win some and you will lose some. It is all part of the process of learning.

How to Invest in a Tough Stock Market

In today’s stock market you need to know why a market can change on a dime and how you can beat the market at it’s own game. The changes in the markets are based on cyclical stocks that are influenced by economic growth commonly known as Gross Domestic Product or GDP growth. Normal economic growth is usually between -2% to 5%. When the economy is running at full speed, at or near 5%, the Federal Reserve will try to slow the economy if inflation seems to be becoming a problem. The only tool the Fed can use to slow the economy is by raising interest rates. Higher rates will slow the economy. This situation exists today. We have a roaring economy and the Fed has increased rates to a level where the economy is slowing down.

Cyclical stocks are stocks that are interest rate sensitive and rise and fall with the rates. Financials, house builders, retailers, auto manufacturing and tech companies are all cyclical in nature. These companies sell items that consumers or businesses will purchase only when the economy is improving or doing very well. Secular stocks are stocks that are not interest rate sensitive. These are the health companies, supermarkets and food companies. Secular companies sell items that people use on a daily basis and don’t need a roaring economy to be purchased.

A tough stock market will be beaten if the companies that are cyclical in nature are sold and secular companies are bought. The strength of the underlying financials are still important, but if strong companies with a long history of good management and quality earnings are purchased, you will be much more likely to earn a profit than with the cyclical stocks that will fall regardless of the strength of management. Because you know when the stock market is changing you can play the proper stocks at the proper time.

One additional tip is needed to produce the most income from your investments. These huge companies with quality management will get beaten down to a level where the growth investors can’t take the pain anymore and will sell to you, the value investor, who is purchasing stocks in companies that will bounce back at much lower prices than normal. These companies will cycle up and down with rates and you can act accordingly to maximize your investment.