I get hundreds of emails a day from members, and a common question is “I have 10k what stocks should I buy?”

This is an impossible question to answer and the people asking probably shouldn’t be investing. Let me explain why.

If you’re a new investor and you want to put money to work you need first need to answer a few questions.

What is my risk tolerance, this basically means how much are you willing to lose. More risk tolerant investors can make concentrated bets on more volatile stocks, and those conservative players will want to diversify their accounts into slow moving stocks.

What is my time horizon? This means how long do you want to be in a stock. When do you expect your investment to reach it’s objective. Long term investors will want to focus more on fundamentals while short term investors will look for momentum stocks.

What is my objective? Setting a profit target will determine the type of stocks you want to buy.

Once these questions are answered then I can give you my best opinion.

If you’re a day trader there are certain times in the day that give you the highest probabality trade as demonstrated with the two charts below. The first is 30 after the market opens, if there is a reversal in trend it will most likely happen here.

The second is at 12pm EST, this is when traders go to lunch in NY so the market will slow down, trade sideways or trend down. The 3rd reversal point is at 1:30pm and you can see from the charts below they turn exactly at this time. These patterns are not written in stone but they happen very often.

For the neophytes starting out, investing can be very intimidating. In the past, people were limited to stocks and bonds. Nowadays, there are so many options available, it can overwhelm anyone starting out. Now just about anyone can buy stocks, bonds, ETFs, CEFs, options, futures, commodities at a fraction of the price.

My advice for people too lazy to do research is to buy a target retirement fund for their retirement accounts. It is diversified worldwide and the managers will shift to safer assets such as bonds as you progress towards your retirement date. A Vanguard or Fidelity Target retirement fund will do the job. Just buy them, do an automatic contribution at regular intervals and watch your money grow slowly.

For people who want to try to beat the market, but who don’t want to research individual stocks, concentrated mutual funds are their best bet. Although concentrated funds such as Oakmark Select have higher expense ratios than index funds, their R-Squared is a lot lower than other funds because they only hold around 20 positions. I just recently invested some money into Oakmark Global Select Fund (OAKWX).

For others who would like to actually own individual stocks, I suggest you start off slow and learn how to properly value stocks using discounted cash flow and relative analysis. Learn how to read a financial statement. You also must enjoy reading because that’s the best way to learn a lot about a company. There’s a ton of resources out there such as www.investopedia.com, www.morningstar.com, and finance.yahoo.com. Classic books should be read too such as the Intelligent Investor, Common Stocks Uncommon Profits, and How to Beat the Street. The library is a good resource.

It is not that difficult to learn how to invest. All one needs to do is to learn the basics, stay disciplined, and get started. You can be involved as much or as less as you like. It’s up to you.

From our Friend Loi Tran

By Charles O’Melia

For a successful retirement investment plan to work in the stock market, some ‘reasonably sure’ assumptions would have to be made:

The retirement investment plan must take into consideration the one prevailing constant in any stock market security - risk and uncertainty. Understanding that risk and uncertainty are the key factors that propels the return on investment in the stock market far beyond the returns of Passbook Savings Accounts, CD’s or Bonds are a start. The plan’s key factor would be to use the risk and uncertainty of a stock market security to its advantage. [Read more →]

1. OMITTING APPROPRIATE ASSET CLASSES AND ASSET SUBCLASSES. Numerous landmark studies have concluded that how you allocate your portfolio, rather than which investments you select or when you buy or sell them, determines the majority of your investment performance over time. As a result, make every effort to allocate your portfolio to all appropriate asset classes and asset subclasses.

2. SELECTING INAPPROPRIATE ASSET CLASS WEIGHTINGS. By selecting inappropriate asset class weightings a portfolio may earn a lower return and experience greater risk than expected. Consequently, be careful not to over or under weight any asset class, thus enhancing your portfolio’s risk and return trade-off profile.

3. UNDERESTIMATING THE IMPACT OF INFLATION. Inflation can erode the real value of your portfolio over time, thus placing your future financial security at risk. As a general rule, the longer your investment time horizon, the more you should allocate to equity investments. For shorter investment time horizons, emphasize fixed-income and cash and equivalent investments.

4. NEGLECTING THE EFFECTS OF PORTFOLIO MANAGEMENT EXPENSES. Over time, the compounding effect of portfolio management expenses can be quite large, thus depriving you of better returns. For this reason, you should focus on minimizing portfolio management expenses, specifically trading costs, advisory fees and taxes.

5. MAKING INACCURATE RETURN FORECASTS. Forecasting is the single most difficult task with designing portfolios. Although not a perfect solution, using historical returns rather than making forecasts is generally considered more appropriate for individual investors.

6. OVERESTIMATING THE LEVEL OF PORTFOLIO DIVERSIFICATION. Diversification is one of the ten cornerstone principles of asset allocation and is key to reducing risk, namely company-specific risk. To properly diversify, you should hold sufficient quantities of not-too-similar securities with comparable risk and return trade-off profiles. Consider broad-based index funds for a quick and easy solution.

7. MISJUDGING THE IMPACT TAXES HAVE ON NET RETURN. Taxes can have a severe negative impact on your net return. As a result, balance tax and investment considerations, but remember that suitability and appropriateness of an investment take precedence over tax consequences. Never hold an inappropriate investment.

8. CONFUSING DIVERSIFICATION WITH ASSET ALLOCATION. Many investors mistakenly believe that a properly diversified portfolio is a properly allocated portfolio. This is the leading misconception of asset allocation. Properly allocate your portfolio among the different asset classes first and then diversify the investments within each asset class.