The classic image of the stock market is that of a place where fortunes are made and lost throughout the course of the day, and where those who take the biggest risks are rewarded by a hefty payout when all is said and done. Of course, this is the movie version of the market… no matter how thrilling the day-to-day dramas of investment trading become, they’ll never compete with the images of the stock market that have been created for the silver screen.
There is a small grain of truth to those images from the movies, however… those individuals who choose to deal in high-risk stocks can make a lot of money if they handle the risks correctly. If they don’t, however, then there’s a good chance that they could lose their entire investment.
Below you’ll find more information on the world of high-risk (and high-yield) investments, including ways to help insure yourself against major losses when dealing with higher levels of investment risk.
Defining High-Risk Investments
The first thing that needs to be covered when talking about investing in high-yield, high-risk stocks is exactly what is meant by the terms “high-risk” and “high-yield.” The risk of the investment is usually due to the very fickle nature of that particular stock… though it may be growing in value rather quickly, it’s obvious that the growth is going to stop soon and a very rapid and severe descent is going to begin.
The yield of the investment, on the other hand, refers to the money that could potentially be made by buying stocks early on in the increase in price, and then selling just before the value starts to plummet. Fortunes have been both made and lost (sometimes in the same day) with high-risk trading; the key is knowing exactly when to start buying or selling.
How to Trade High-Risk Stocks
When trading high-risk stocks, it’s almost essential that you have access to your brokerage account and that you’ll be able to buy or sell shares as soon as the price begins to fluctuate in one direction or the other. This can be done online, via the telephone, or in person if you don’t use an online brokerage firm.
You can also usually set up hold orders which will start buying the stock when the price reaches a certain level (up to the amount that you’ve specified) and that will begin selling shares as soon as the price drops below a certain point. Many online brokers allow these types of hold orders, and they can allow you to go about your regular day without having to watch the market ticker the entire time.
Guarding Against Loss
Of course, even with hold orders or a dedicated broker you can still end up losing money when dealing with high-risk stocks… that’s how they earned their name. In order to minimize this potential for loss it’s important to have a well-diversified stock portfolio to fall back on.
If your high-risk investments begin to fall in price too quickly and you end up losing money by the time the shares have been sold, the relatively stable value of some of your core portfolio stocks and indexes will help to even out your losses.
The fall of the higher-risk stocks might even stimulate some other portions of the market, causing an increase in other stocks in your portfolio. This will help take some of the sting out of your loss, and may end up giving you a greater long-term gain than you might have had from your short-term investment that went sour.
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About the Author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Dividend Paying Stocks
by: Charles M. O’Melia
I would like to share with the reader an article printed in the financial section of U.S.A. Today on March 7, 2003 which exemplifies the awesome power of a stock dividend.
MICROSOFT TO ISSUE FIRST DIVIDEND TODAY:
Microsoft investors will get their first payday today, when the tech giant shells out its first dividend. At 8 cents a share, the dividend will cost the company $850 million. Co-founder Bill Gates, who owns about 1.2 billion shares will receive a dividend of $96.5 million. The dividend marks a shift for Microsoft, which had long hoarded cash - to the tune of $43.4 billion for research, acquisitions and legal claims.
After reading this article I couldnt help thinking about a report, which I believe stated that there were an estimated 33 million people in America living under the official poverty level. Bill Gates, by giving away his Microsoft dividend to those living under the poverty level could begin to create 96 millionaires, year after year after year. What a boost to the economy that would be! Imagine all those new millionaires every year spending money on something other than food, Salvation Army clothing and shelter.
Bill Gates (by giving away his Microsoft dividend) could begin to eliminate all the hardships for those people currently living under the poverty level. Of course, I would probably start feeling sorry for all those people who were living right at the poverty level. I could almost hear Ma telling Pa now, If we only didnt sell those $40.00 worth of aluminum cans, we could have been millionaires right now. Then again, those newly created millionaires would probably begin buying computers filled with Microsoft software and Bill Gates would start getting his money back. And, if that wasnt enough, the newly created millionaires probably hadnt read my book! They would probably start using their computers to start day trading in the stock market and end up right back where they started. Holy moly! I better finish this book or they wont stand a chance!
(Note: Bill Gates and family have already given millions and millions to charity. It was announced on CNBC that on April 24, 2003 Bill Gates had just donated 28 million dollars to S. Africas AIDS program.)
Microsoft had just recently (10/15/03) raised their dividend from eight cents a share to sixteen cents a share, giving Bill Gates, I would imagine, a 96.5 million dollar a year raise.
As an individual investor in the stock market for almost 40 years I have found that companies that raise their dividend every year outperform those companies that stop or trim their dividends. For example, Dominion Resources had raised their dividend from 1984 to 1994 every year, and then stopped in 1994. Since then the company continues to pay a 64 cent a share dividend, with a dividend yield of around 4 percent a year. The stocks performance since 1994 has been mediocre, rising in price from the 40 dollar range in 1994 to the 60 dollar range in 2004. Now compare that stocks performance with Comerica, a company that has raised their dividend for the past 35 consecutive years. In April of 2003, Comericas stock price was around 37 dollars a share, paying a dividend yield of around 5%. Today, July 20, 2004 the stock closed at $58.28 a share, paying a dividend yield of 3.57%. A $21.00 a share move in the stock in 1 year and 3 months and in March of 2005 the company will probably raise their dividend again for the 36th consecutive year. (By the way, Comericas stock performance for the past 14 years has returned a little better than 15% a year, compounded annually.) The simple point Im trying to make is too invest in those companies that have a history of raising their dividend every year. There are hundreds of them. A company that just pays a dividend is not good enough; find those companies with a historical record of raising their dividend every year.
For more excerpts from The Stockopoly Plan please visit www.thestockopolyplan.com
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About The Author
Charles M. O’Melia - an individual investor with almost 40 years of experience and passion for the stock market. Author of ‘The Stockopoly Plan’ soon to be released buy American Book Publishing
chasmo99@yahoo.com
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