Buy and Hold

A few days a go I talked about "penny stock" investing; now I am going to talk about my main strategy: Buy and Hold. First I would like to explain the difference between "Day Trading" and "Buy and Hold" is because this is really important to understand. Most people out there will invest without strategy and they will be out of the game as fast as they got in. So they have to understand these terms in order to be a saavy investor.

Day Trading is when you watch the market and try to trade daily. You will want to wake up early, turn on the computer and begin trading and exit at a certain point. The ones that make the most money are the people that have the means to buy in bulk and have a entry aand exit strategy. Take penny stock ABC at 50 cents. You decide to buy 2000 shares for $1000 want to exit at either 55 cents ($100 profit) or 60 cents ($200 profit) they way you would accomplish this is to set up the computer to buy at point A and sell at point B to maintain profit.

Buy and Hold however is geared more towards long term/value investing. You can actually use buy and hold for day trading as well, but it will usually be when a stock isn't performing as planned, but you might anticipate the stock to go back up. That is when buy and hold becomes useful. Another way is to buy at point A and sell when stock exceeds an anticipated growth point, but it will usually be over the course of years. Buy and Hold should also be the main strategy for dividend investors. If an investor is anticipating a dividend, they willl usually buy a few months a ahead of time when the stock is "soft" and hold on to it for the dividends. Blue chip stocks are great ways to make money from being able to sale it and re-buy it because most usually operate in a channel econommy and then slowly rise. When a blue chip becomes too costly to just buy and sale, you can change your strategy and just hold the stock indefinately for lifetime dividends. Also you can take your profits and turn around and get another stock and hold on to it. In the long run, you will want certain dividend stocks that will pay out to hold on to and just have them as your war machine stocks. Verizon is a good one in this instance because it is paying out good dividends and it is below half the price of the WMT (which is at $52ish). And when people stop using cell phones, it might take a it, but I highly doubt that will happen in my lifetime.

Verizon is also partnered up with the makers of Droid and Wal-Mart anyways and will continue to put the hurt on ATandT in dividend payouts. Right now ATandT is one of the highest, but VZ is definately a rising star. If they can get Apple to make the Iphone more readily available to the consumer then they might continue to hold that place in the market, but VZ is also getting into internet infrastructure as well so I see fierce competition between the two.

Another strategy to buy and hold is to buy and simply hold a stock. Andrew Yanyi and Warren Buffett were excellent value investors, but the difference between the two is that Yanyi was able to obtain the "next blue chip" through his heavy research. Buffett, buys not just on research, but on overall needs that are not going away. For example, Buffett has been known to buy tobacco stock, Coca Cola, Wal-Mart stock, and energy stocks. He mainly buys those stocks, because they usually pay good dividends and they have the ability to constantly perform well due to their intrinsic needs. (i.e. people are addicted to cigarettes and soda, people need cheap clothes and food, people have to have electricity) The overall strategy is to hold on to the stock so as long as it upholds its value. If there is publicity against a certain stock (which isn't really going anywhere) the goal is to aquire more stock. As Buffett puts it "Be fearful when others are greedy and greedy when others are fearful". When the stock is considered "overvalued", only then, do you sell the stock. That is why Buffett is one of the masters of the trading game. He only sales a stock when he feels it is overvalued. Although there are times when he has done this while it is undervalued, it is rare and is probably a miscaluation on his part (hey no one is perfect).

Remember, Buy and Hold strategy is far superior when implied in the long run. Only patient penny traders will be able to implement a successful buy and hold, so please keep that in mind.

Investing in "Penny Stocks"

There is a lot of people making money in dismal times. I am definately making money and a lot of my friends are. Now there is something that comes to my attention when dealing with trading techniqually that will not produce as much profit with just buy and hold. But if you apply buy and hold, you will make money too, just not as much.

"Penny Stocks" are usually low on cost, but have a high amount of volitility, meaning there is also a high amount of risk that accompanies those stocks. To hedge against the risk, a little bit of reasearch is needed. The profits from successful "penny stock" trading is immense. I would not try this strategy until you have about about 15 thousand dollars in savings due to the risk involved with it. Overall I would say that amount would be safe to hedge against failure.

Okay, suppose you buy 1000 shares of Citibank at $4.37 (Friday's going rate) and decided to "play the market" so to speak. The stock happens to jump up fifty cents the next day. Congrats, you just made $500! If you do buy and hold and wait for it to go back up to $10, you would make $6,000, but it would be more profitable to play upon the fluctuations of the market by analyzing the pips and the points at which the stock could go up. Keep in mind, this is techniqually day trading, but you would be able to take that amount build upon it. Let's say the penny stock kept going up and down between $4 and $6: that could seriously be some mega cash flow! You go from 0-$2000 net profit per trade! And the beauty is when the stock is "down" you can simply revert to a buy and hold strategy and buffer the time of money loss. Penny stocks are not usually dividend stocks and should not be treated as such. For Dividend bearing stocks, you need a buy and hold strategy. For growth stocks, you need to have a hybrid strategy depending on the stock, but for "penny stocks" you have to know when to enter and exit and it takes a little bit of market watching.

Due to the multiplier effect, you can come out of this investment strategy as a raging bull in a bear economy so keep this in mind when you deal with penny trading. I know at least three stock brokers that are penny trader, but I personally like buy and holding some of my assets although penny trading is something I will probably do more heavily (for certain stocks) in the future. If you like taking a little more risk than me, then this is probably the beginning investment strategy I reccommend, but definately have money saved up to weather potential losses.