Don't buy just one stock when you buy shares. Buy at least four or five. Most of the time, even the most skilled professional can only pick seven winners out of ten. What if he had only bought the wrong three, even though he thought they were right when he bought them?
Be just as careful when you trade currencies on the Forex.
This is a good way to limit our losses and improve our chances of getting a good return on our money over time.
Cyclical stocks are the one exception to this rule. These are stocks of companies whose success depends on how business goes up and down. Cyclicals are well-known and usually have to do with the heavy industries, which make things like machine tools and sell things like cars.
They are hurt more than any other industry by a recession or depression. When the economy is bad, they fall the most, and when it gets better, they rise the most. To play cyclicals, you must keep a close eye on business trends using the New York Times Index, the Federal Reserve Index, and other measures. You should also read the business sections of the Times, the Wall Street Journal, and Business Week, among other periodicals. You can't get the turning points at the bottom or the top, but you can see the beginnings of a trend. If you look at stock price charts, it doesn't take long to see that cyclicals move with the economy as a whole. If we look back to the recessions of 1957 and 1960, we can see this. Here are a few examples of cyclical stocks.
Bethlehem Steel
U. S. Steel
General Motors
Black and Decker
Clark Equipment
Bucyrus Erie
Aluminum Company
Kennecott Copper
Now, look at the price charts for the noncyclicals. Here are a few examples:
New York State Gas and Electric
The Potomac Electric Power Company
The New Jersey company Standard Oil
Obviously, if things in the business world are getting worse, it is best to be in a noncyclical, and if things are starting to get better, it is best to get out of these and into a cyclical that fell during the recession. I didn't buy any stocks at all during the recession of 1960. In July of 1958, I bought a lot of things, and in the spring of 1961, I spent about half of my time in the market looking for things to buy. Late in the fall of 1960, I did not see the trend. I was too cautious, but when I did invest, I was sure that the recession was over and that my chances of doing well were good because of that.
The sooner you learn where stock information comes from, the better. Do not buy stocks if you are not willing to use them all the time. Most people put their money into the stock market. Everyone is in it, and everyone thinks they know everything there is to know about it. To get in and try to make a good return, you have to work and pay attention all the time.
When we invest in the Forex, we should also be careful not to put too much of our money in currencies. We may be sure we know where a currency is going, but if we have, say, $10,000 to invest in the Forex, we shouldn't put more than 5%, and some Forex experts say we shouldn't put more than 1% in any one currency at a time.
My own way of investing is simple and not based on any rule of purchase. I usually don't invest in a company unless I know a lot about it, like how much of its stock is on the market and how much is options or founders' stock. I have learned that I take a big risk if I don't find out as much as I can about a company. Inside information comes either directly from management or from someone who is close to management. Hearsay information isn't very useful, especially when it comes from brokers, unless the broker knows the management and gets his information directly from them.
