

Retirement Is a Lot More Important

Than You Might Think

(As Told By A Nonagenarian)

By

Mario V. Farina

Copyright 2019 Mario V. Farina

Smashwords Edition

Smashwords Edition, License Notes

All Rights Reserved

No part of this book may be reproduced or transmitted in any form or by any means,

Electronic or mechanical, including photocopying, recording or by any information

Storage and retrieval system, without prior written permission of the author.

Correspondence may be directed to:

Mario V. Farina

A nonagenarian is a person is in his or her 90s. I'm 95, a veteran of WW II. I retired from the business world at age 90. I'm currently a writer.

Email: mario@mariofarina.com
Introduction

Rich people invest in good stocks that grow in value over the years and pay regular dividends! You should, too! Retirement is an important event. It requires a lot of money enabling you to retire comfortably without money running out before you do! This book tries to convince you to do what rich people do. Don't say you don't have the money to do this! (You do! I can show you that you do!) Don't say you don't know anything about stocks and it's too difficult to learn! (It's not difficult to learn! This article gets you started!)

Table of Contents

Introduction

The Disappearing Pension Plans

My Work History

My Beginnings with Stock Investing

Topics in This Article

Smashwords

A Beginner's Guide to Successful Investing in the Stock Market, 1969

Disclaimer

My Early Education

Buying Stocks for the First Time

What Are Stocks

The Stock Market

How You Can Gain with Stocks

The Rule of 72

Compounding

Expectations from Stock Investing

What to Do with Dividends

Why Stocks

Early Results

Where Is the Money Coming from?

Where Is the Money Coming from Additional?

Where Is the Money Coming from? Additional Thoughts

Another Initial Criteria for Stock Selection

Achieving Greater Successes

When Should You Begin?

The American Dream

Your Best Investments in Life

A Home As an Investment

Common Stocks As an Investment

More about What Are Stocks

You Take It?

Worrier

Spendthrift

Sensible Investor

The Stock Split

Earnings per Share

The Price to Earnings Ratio (P/E)

The PEG Ratio

How Do You Make a Stock Purchase?

My Experiences with Broker Representatives

Don't Bother with These Kinds of Transactions

Selling Short

Purchasing Call Options

Purchasing Put Options

Selling Naked Call Options

Purchasing Bonds from Foreign Countries

Borrowing Money from Your _Margin Account_

More about Selling Short

Penny Stocks

The Market Lives a Life of Its Own

The Efficient Market Theory

Panic

Six Important Dates for the Payment of Dividends

The Power of Compounding

What Is the Stock Price?

The Stock Symbol

Bid and Asked Prices

What Is a Stock's Fundamental Worth?

Diversify

Dollar-Cost Averaging

You Ever Sell?

How to Select a Good Stock

Some Stock Recommendations

Educate Yourself

What Is Your Goal

This article is not for everyone. The reason I'm writing it, is because retiring is expensive. I know from my reading, and from watching television, that a lot of people want to retire but don't have enough money to do so. So, investing for retirement, I think, is an important topic. I believe this article would be of the most importance to younger people, possibly in their early 20s through the 30s. The sooner in life you start investing for retirement, the better! If you're older than the ages mentioned above, you can still start even up to age 55 or so. Peruse what I say below. This article may represent some of the most reading you've done in a long time!

I don't claim to know _everything_ about retiring. What I say here, is based on my personal experience. A lot of it may simply be my own opinion. However, I'm currently retired, successfully I think, have been retired for five years, and don't feel I'll run out of money before I die. I believe I have enough funds to carry me through 20 additional years if need be. Yes, at age 95, one doesn't know how much longer he or she will live. I live each day as it comes with one less worry each day than I could be having!

The Disappearing Pension Plans

I was born in 1923. Good, large, companies offered pension plans to new employees. That practice seems to have gone out the window. This means that employees nowadays, have to, themselves, save for their retirement more diligently than they did in the past. Yes, employers still offer assistance in some areas. Some even have retirement plans. You may be fortunate to be employed by such a company. If so, be sure to take advantage of anything that is offered whether you plan to stay with the company or not! If you're not currently employed by such a company, you've got some thinking to do! The years pass swiftly! At age 95, I know this more than most anybody!

My Work History

I began working at the American Locomotive Company in Schenectady at age 18. I don't believe they offered a pension plan, and I did not invest in one at that time. I went into the service at age 20 during World War II. I'm a veteran of World War II having served three years. After receiving my honorable discharge, I began working at General Electric. I worked there for about 38 years, then began working at Rensselaer Polytechnic Institute (RPI), then the New York State Labor Department. In the meantime I studied evenings and received a bachelor degree from the College of Saint Rose at age 50. I retired at age 90 from the Labor Department. I did join the pension plans of General Electric and the Labor Department. I should have also joined the one at RPI but, foolishly, did not.

My Beginnings With Stock Investing

When I retired, I had income from a pension at General Electric Company, a pension from the New York State Labor Department, and Social Security. However, during my entire working career, I also successfully invested in stocks. _This made a whale of a lot of difference!_

With me, retirement was not a side issue. I began planning for it in my mid-20s. At that time, all I had ever heard about the stock market was that it had crashed in 1929. So, when the salesman convinced me that he should talk to me about investing in stocks, I was dubious about listening. However, I allowed him to come to the house and talk. He did not leave until two o'clock in the morning. However, I had committed myself to purchase some of the stock that he was offering.

You have probably already guessed that I'm going stress talking to you about investing in stocks. Yes, I do plan to do this. But I also plan to talk about other things that involve obtaining sufficient funds allowing you to retire at a reasonable age without fear of running out of money. Below, I list the main topics that I'll be discussing. There will be more besides those! If the topics below sound interesting, read on. If not, thank you for having read this far.

Topics In this Article

Start early in life.

Treat retirement as an extremely important matter.

Stay healthy. Get good health insurance!

Choose your employers carefully.

Get as good an education as you can.

Consider working extra years beyond normal retirement years.

Learn as much is you can about investing in stocks.

Make your own decisions about investing and other matters. You are captain of your ship! Sail in safe waters!

Avoid mistakes you can easily make.

Stay disciplined concerning investing for retirement.

Be a computer enthusiast.

Strive for the American Dream. It's harder to get than when I was born!

The above topics and more are in no particular order and there are many more. I may jump from topic to topic. Bear with me.

Smashwords

After retiring, I decided to become a writer. If you wish, you can look me up in Google. Search for "Mario V. Farina". I have authored over forty paperback books. In www.smashwords.com, I have over 350 e-books published. Virtually, all of them are free. This is where I plan to publish this article.

A Beginner's Guide To Successful Investing in the Stock Market, 1969

After I had been investing in stocks, for over 20 years, I felt I was competent enough to write a book for beginners. This was called, " _A Beginner's Guide to Successful Investing in the Stock Market_." This was in 1969. It is out-of-print now. However, you can still find it in www.smashwords.com at a very small cost. The problem with that book is that it's old technology. In 2017, I wrote another book about investing using modern methods.

Disclaimer

I'd like to reiterate at this point that I am not a stock advisor, I'm not a broker, what I say here is my own opinion, or presentations of my own experiences. I'm not suggesting that you believe everything I say. I may be wrong in much of what I say. Before you embark on a lifelong investment program, it might be a good idea to talk it over with someone who _is_ an advisor. I never used one. I've always made my own decisions. I made many mistakes, but I learned from them. I never paid anyone for advice. The mistakes that I made, and the successes I had were all a result of decisions I, and only I, made.

My Early Education

I have been conscious of the value of money since childhood. I was brought up in the Great Depression era. An individual penny was valuable! I knew when I was growing up that my parents could not afford to send me the college. Therefore, in school, I took courses that would allow me to begin working as soon as I graduated from high school. I received a very good education from Mount Pleasant High School in Schenectady. I think that in today's terms, it was virtually a _college_ _education_. I learned such topics as bookkeeping, typing, shorthand, advertising, business law, algebra, French and German, and other topics that would help me directly when I began work. In high school, I learned about corporations and stocks. I thought the topics were interesting, but didn't know at that time how deeply involved I would become with stocks and the stock market.

Buying Stocks for the First Time

The stocks that I had purchased from the salesman were mutual funds. I define _mutual funds_ later in this article. I never bought mutual funds again because I thought that if I bought stocks outside of mutual funds, I would be able to make better investments. I had saved some money from a sideline business (photographing weddings on weekends), and wanted to buy stock. I had no idea how this was done, but I knew there was a broker's office named, Spencer Trask, on State Street in Schenectady. I visited there intending to speak to a broker and saw that there were chairs on which I could sit. I did that, along with several other gentlemen, who were doing the same thing. There was a screen at the front that was showing the names of stocks flowing across it from left to right. Actually, what was going across was without names, but there were _identification_ _symbols_. I deduced that the symbols were IDs for individual stocks. I saw such symbols as, GM, GE, LM, BS, IBM, T, and many more. I saw that the symbols, BS, and LM, seemed to be the ones that were appearing the most frequently. I thought they might be popular stocks, so I decided to buy ten shares of each.

I went to a desk where an individual was sitting, and asked whether I could buy stocks in BS, and LM. He said I could. Then I asked what the names of the stocks were, and he told me that they were _Bethlehem Steel_ and _Liggett and Myers_. I needed to open an account, the man said. I did so, and purchased 10 shares of each of the stocks that I had shown an interest in. I was told that I needed to pay for them within four days. Purchasing stocks in those days was not as easy as it is today. First, the man had to make a call to the _New York Stock Exchange_ , find out what the prices were for the stocks that I wanted. He told me what the approximate cost would be for my purchase it. The prices for the stocks were acceptable, so I told him to go ahead. These had been my first purchases of stock.

Today, one can purchase stock without visiting a broker. He or she can simply contact a broker via their computer, and placed an order online. It is possible to purchase stock within a few moments of placing your order. I had made a mistake in choosing stocks without researching them. The stocks I purchased did OK, but I didn't gain much from them. I will be discussing research later in this article.

I had learned that I could find out how my stock was doing by calling the individual from whom I had purchased the stock. He would place a call to the stock market to see how those stocks were doing, and he would relay the information to me. Today, stock market prices are available on your computer almost instantly. As I look back, I sense that I was calling too often. Yes, I had become a new customer with Spencer Trask, but they were, perhaps, providing too much service for what I was asking.

What Are Stocks

In order to invest in stocks, you need to have a clear idea of what stocks are. If you already know, you can skip this section.

First, you need to know what a corporation or a company is. (In this article I'll use the terms _corporation_ and _company_ interchangeably.) A _corporation_ is an organization devoted to the purpose of making money. When a corporation is formed, it is required that it have owners. A corporation could be owned by only one person or it could be owned by millions.

Those who start a new corporation or company may decide to allow persons and organizations to purchase part ownership in the company. The smallest part of a company that can be owned is a unit called a _share_ , or a share of stock. Individuals and organizations can purchase more than one share if they wish. They can purchase fifty, one hundred, five hundred, one thousand shares, or more. After the shares have been issued and purchased, those who own shares are known as shareholders or stockholders of the company. The larger the number of shares that any one owner has, the larger that individual's ownership of the company.

It goes without saying, that the larger your ownership of your company, the larger will be your rewards if the company is successful. It's also obvious that if the company is not successful, there will be no rewards! When you purchase stocks, it is, therefore important, that you select companies that _you believe will be successful_!

Stocks, therefore, represent ownership in a corporation or company. By law, a corporation is defined as an _artificial person_. The corporation must have a name and owners. Its major objective is to make money for its owners. There are millions of corporations in this country. You know some of their names very well: General Motors, IBM, Intel, Microsoft, Kodak, General Electric, Ford, Kellogg's, and many more. These companies, and others, are owned by many thousands or even millions of persons and/or organizations.

Many corporations are called _public companies_. This means that those companies can be owned by the general public. Not all corporations are public companies. What this means is that many corporations are owned by only a few people; members of a family, for example. These companies are said to be _privately owned._ The shares of privately owned companies are not available to the public. In this book, we'll discuss the purchasing of stocks of public companies only. The stocks I'll discussing are called, _common stocks_.

As I've already said, the primary purpose of a corporation is to make money. It is intended that the money a company makes will be shared by its owners in the same proportion that they own the shares. At the end of a business year, the officers of corporations make determinations as to whether or not the companies were successful in making money. If _yes_ , the money they made is called its _profit_ or its _earnings_. The officials elected to run companies may, or may not, decide to share some of these earnings with their stockholders on a regular basis. When I'll give you advice on how to select stock to invest in, I'll always suggest that you purchase stocks that pay dividends on a regular basis. Companies that pay dividends on a regular basis, usually do so four times a year. This practice is known _as paying a quarterly dividend._

Sometimes, a company will not have profits to report. It may have been unsuccessful in its endeavor to make a profit. It will, therefore, report a _loss_. Losses are not unusual. Not all companies report profits at the end of the year all the time. In this article, we will be primarily concerned with companies that report profits at year ends. We are not interested in corporations that report losses.

I do have to admit that even a good company may report a loss for the year once in a while. We hope that this will never happen with any of the companies that you choose to invest in. My advice would be, that if it does happen in a company that you have invested in, consider the circumstances. If there seems to be a good reason why this happened, give the company a chance to do better next year. If you don't see a good reason, this may be a good time to consider selling your shares in this stock. It may be a bitter pill to take, but when something needs to be done, the only thing there is to do is _do it_!

Never get the feeling that you are married to a stock! Doing so, could lead you on a downward path for a long time, even to the bankruptcy of the company. When General Motors went on its bankruptcy path some years ago, it seemed greatly unlikely to me that this company, that had once been the largest company in the world, could ever declare bankruptcy. I bought stock in this company even when bankruptcy loomed. I lost everything I had invested.

Yes the company reorganized, and today is a going concern. However, the stock that people held before it declared bankruptcy, all became worthless.

You, as an individual, can own stock in corporations. When you own stock in a corporation, you are part owner of the company. It may be a very small part; nevertheless, _you are a part owner_. You'll be entitled to a portion of the good fortunes of the company if it does well. If it doesn't do well, you stand to lose a portion of the money you invested in the company. (When a company reports a loss, the price of the stock that the company issued, usually goes down.)

Let's say that when a company was first formed, it issued 1,000 shares of stock, each share representing 1/1000 ownership of the company. Let's assume, also, that all the shares were sold to twenty persons. Now, the more the shares that any one person owns, the greater is his or her ownership of the company. In real life, corporations issue a great many more than one thousand shares. They may issue several million or even several hundred million. Also, there would be far more than twenty owners. The number of owners could range into the millions. A new stock offering to the public is called an IPO, ( _Initial Public O_ ffering). IPO's are very exciting with the investment public (not always for a good reason). I've ignored IPOs.

Stock can be owned by individuals, banks, other companies, mutual funds, pension managers, etc. The ownership of stock can be transferred from one person or organization to another. When individuals or organizations want to purchase or sell stock, they do not deal directly with companies. They purchase or sell at a place called the _stock market_. At the stock market, the transfer of ownership of stock can be accomplished within seconds. Each transfer of ownership is called a _trade_.

The companies that issued the stock will still be involved, however. The role they play after issuing the stock is in record keeping, paying dividends, conducting elections of officers, etc.

Companies issue various types of stock. The differences are technical and need not concern us at this time. The best known of the types is called _common stocks_. This is the only type of stock I discuss in this article. This is the type that everyone assumes is meant when the word, _stocks_ , is used.

In the vernacular of the stock market, the safest stocks are called _blue-chip stocks_ ; the worst are called _dogs_. In this book, I encourage investing in blue-chips only.

How can you tell the difference between _blue-chip_ stocks and _dogs_. I hope I give you enough information in this series of sections that will enable you to learn, at least, a little of how to do this. Blue-chips stock; there are a thousands upon thousands of them. In this article I give you rules for how to find them!

The Stock Market

The Stock Market is a place where people can buy and sell stocks. There are many stock markets in this country and throughout the world. The best known stock market in the world is the _New York Stock Exchange_ on Wall Street in New York City.

The stock market provides a place where automated auctions are conducted concerning the sales and purchases of stocks. During the hours that the stock market is open, the prices of stocks change moment by moment. When someone offers shares for sale, individuals and organizations bid for them. When the prices at which owners are willing to sell match the prices at which others are willing to buy, the ownerships of stocks change hands; that is, _stock_ _trades_ take place. At one time, stock trading was done manually. Today, virtually all stock trading is done by computers. You, yourself, can easily buy and sell stocks using your home computer! You don't have to do any of the bidding. This is done automatically when you purchase stock and say what you are willing to pay, or sell stock and tell what you are willing to receive.

I began investing in stocks when only the manual method was available. I dealt as an individual with another individuals at either a brokerage house or bank. I discussed with the individuals, what I wanted to do, and if that person did not see any reason why he or she should not handle the details for me, he or should would begin doing so. The person would called the stock market to find out how the particular stock, the approximate prices at which it was selling, and the volume of sales for that stock. This would be reported to him or her and that individual would discuss the matter with me, and if agreeable, place the order. The order might not be executed for several hours, or possibly, not at all. After it had been accomplished, I would be given the details of what the final price of the stock had been, and what I would have to pay within four days. The commission, unlike today's commissions, was stiff! I would eventually receive a nicely embroidered certificate that I could use as proof that I owned the stock I had purchased.

Today, computers are used. All the operations mentioned above are computerized or even eliminated. You can do them yourself at home with your own computer. Commissions are extremely low. You may even have a supply of free trades you can make.

When a company first issued stock, many people purchased the stock that was offered. Here are some of the reasons that various persons might have purchased the stock.

1. One individual hoped that the company's stock price would rise quickly in the stock market. He or she hoped to sell the stock within a few days at a higher price. Buying stock with the hope or expectation of selling at a profit is called speculation. Unfortunately, what a speculator hopes and/or expects will happen, doesn't always take place. Many times speculators lose money when they purchase stock with the hope of making a quick profit. My advice is _never speculate_. Half the time you'll be right; the other half you'll be wrong. Over time, you'll lose because of the commissions you pay when you buy and sell stock.

2. Another individual wanted to purchase the stock for the long term. He or she felt that this company had a brilliant future, that it would prosper over the years, share its good fortune with its stockholders, have its stock increase in value over time, and become a source of substantial wealth for the shareholder during the long term. This method. of investing has indeed been the source of great wealth for millions of persons.

There are other reasons that people buy stocks. The two listed above are among the most common. The plan that the second individual followed is the plan I suggest you use. In this article, I'll suggest you purchase stock's of the best known and most respected companies that are listed on the New York Stock Exchange. I recommend that these stocks be purchased for the long term. I feel this is the plan that gives you the greatest opportunity for being successful with your investment plan.

As you already know, many stocks sold in the stock market are _Blue-Chip stocks_. _Blue-Chip stocks_ are the ones that most people feel are the safest stocks in which to invest. They are the stocks of highly successful companies. These companies have probably been successful for a long time. They pay satisfactory dividends and have shown impressive growth over the years. Their stock prices go up year after year and the dividends they pay are increased frequently.

_Blue-Chip stocks_ don't come with labels identifying them as such. If they did, they would not be difficult to identify. It's also a fact that many stocks which, at first, seem to be _blue-chips_ turn out not to be. Some stocks may be _blue-chips_ at some points in their history, but lose this status later on. Identifying these excellent stocks is not easy. Your biggest problem in investing for retirement will be in identifying them. In subsequent sections in this series, I give you guidelines that will help you find the stocks in which to invest. I also give you guidelines that will help you determine when you should make changes.

You may have heard about the _bulls and the bears_. _Bulls_ are people who hope prices in the stock market will rise. _Bears_ hope they will fall. When prices in the stock market have been rising for a long time, the market is referred to as a _Bull Market_ ; when prices have been falling, it is referred to as a _Bear Market_.

How You Can Gain With Stocks

When you own stock in a good company, you usually receive a periodic check called _a dividend_. The amount may be small compared to what you paid for the stock. It may represent only one or two percent of the cost of the stock. If the company continued paying this amount indefinitely, the value of your investment in its stock would not grow very fast. Fortunately, the amounts that good companies pay out in dividends _tend to increase_. You may have paid a relatively high price for a good stock, and the dividend may, at first, have been very small. However, with increases in them over the years, you may find that the initial price you paid for the stock was a bargain.

One way you gain by investing in the stock of a good company, is that, over the years, its dividend grows. There may actually be a future time when you'll be receiving your original investment back _in full_ with _each dividend payment_!

There is another aspect to owning stock that can be even more profitable for you. This is through _appreciation_. Appreciation means that the price of the stock increases over the long term. It is normal for the price of a good stock to increase in value over the years. With increases in its earnings, with increases in its dividend, the stock attracts investors. When this happens, its price goes up. When the price of the stock goes up, the value of your investment increases. This is the second way you gain with stock.

In summary, by investing in good stocks, you gain in two ways. First, the dividends that the company pays tend to increase over the years. While the amounts may be small at first based on what you paid for the stock, they tend to increase significantly with the passage of time. Second, the prices of good stocks tend to increase over the years. A stock that doubles in value, then redoubles, every few years increases its value dramatically over a period of time.

The Rule of 72

if you ask an old-time banker how long it will take to double an investment at a given rate, he or she will be able to give you an approximate answer within seconds. It is important to note here that the rate is a _Compound Rate_ where income received is added to the original investment. _Compounding_ will be discussed in the next section. That person is using the _Rule of 72_ and give you the answer. Using this rule, he or she divides the interest rate into 72. The result will be the number of years required. As an example, suppose you want to know how long it will take to double an investment at a compound rate of 6%. The answer is about 12 years. (When you divide 72 by 6, the answer is 12.) The reason I said _about_ , is because the answer is an approximation. The actual mathematically accurate answer indicates it would be a little less than 12 years for the doubling to take place. The Rule of 72 gives approximate answers, but the answers are good enough when quick results are needed

Another example: how long will it take to double an investment at a compound rate of 18%? Dividing 72 by 18 gives a result of four. Thus, four years is the approximate number of years it will require to double an investment at 18%. As before, the result to this is an approximation. The actual mathematically accurate answer indicates it would take a little more than four years for the doubling to take place.

The answer you receive when you divide a number into 72 will not always come out even. It doesn't have to! It's OK to get a whole number and a fraction as the answer. When you divide 72 by 10, as an example, the result is 7.2. This means that an amount invested at 10% compounded rate will double in a little over seven years.

The Rule of 72 allows you to make quick approximations about investing. The rule provides only approximations; however they are very good approximations!

Compounding

The following, is important because it tells you something that is not fully understood by many people. This has to do with the _power of compounding!_

Compounding means that when you invest, you add any income from an investment to the amount you originally started with. By doing this, the value of your investment will grow faster because, not only will the original investment grow, but also the amounts you add. It may not sound like a big thing. It may not seem that compounding could make that much difference, but it does! When you compound an investment for a long period of time, the results can be astonishing!

Ben Franklin wisely said: money makes money, and the money that money makes, makes more money. This is what compounding is all about!

Let's consider an example. Let's assume you have $1000.00. That you'd like to invest. Perhaps, you can find a safe place to put the money where you receive a 6% return. From this investment, you'll receive a check for $60.00 at the end of the year. What do you do with the money? Do you spend it, or do you invest it? If you spend the money, it will stop benefiting you, but if you add it to your original investment, that money will begin working for you, so now, you'll have _two amounts_ working for you; the original investment and the additional $60.00. That is, your second year's return will be $1060.00. Your income at the end of the year will be more than it was at the end of the first year. If you keep doing this with all the additional amounts you receive, your total investment will grow significantly faster than if you had merely let the original investment run.

You can see that when you invest for retirement, your best strategy is to invest your yearly earnings. This means that you will be compounding your investment

How effective is compounding? With compounding at a rate of 8%, your investment will double in about nine years. It would take about 12 years without compounding. At a rate of 12%, your investment will double in about six years. It would take about eight years without compounding. At a rate of 15%, your investment will double in about four years it would take about seven years without compounding. These are impressive numbers. With a redoubling of your investment, and a redoubling after that, the figures are even more impressive when you invest in stocks, compounding works the same way as cash does. Add any dividends you receive to your investment. Also, try to add additional amounts from other sources at regular intervals.

The three most important components of your investment plan for retirement are (1) invest only in the very best stocks that grow in value at a good rate, (2) hold on to those stocks for the long term allowing the power of compounding to work for you. And (3) add to your investments regularly.

1

Expectations from Stock Investing

The practice of investing in stocks is not a _Get–Rich–Quick Scheme_! The values of stock that you buy go up a little or go down a little or remain unchanged during each day that the stocks are being bought and sold at the stock market. Patience is required. One has to understand that. If the stock that you have purchased is favorably viewed by many other people besides yourself, the stock will tend to go up in price. This means that, on paper, you can show that you either made money. The daily gains (or losses) do not turn into reality until you actually sell the stock that you have purchased. Sometimes, you buy a stock that you will never sell during your life, or may sell at a much date than when you purchased it. With some stocks, you may quickly find that you made a mistake and wish to sell immediately. Discovering this is not pleasant. This is why research is important. When you purchase a stock, you should be sure in your mind that it is a good stock. Stocks do not declare themselves as being good or not so good. This is a determination you must make yourself.

When you are purchasing stock for the purpose of retiring, you expect that the stock you buy will go up in price over a long period of time. That time could be a few years, or for many years. If you have made good purchases, your stocks will go up perhaps only a little, but perhaps a great deal! A stock that you purchase for $10 a share today could be worth 100 times that value at the time you retire. Along the way, if you find that the stocks you have purchased are not behaving as you had expected, you can sell some, or even all, and make purchases that you feel will behave better.

When stocks go up, it is said that the stocks have appreciated in value. This is your objective, of course, to purchase stocks that appreciate in value. There is another way that stocks can add to the value of your retirement fund. Good stocks pay dividends periodically, typically, four times a year. Companies are able to provide dividends from the profits they make during the year. There is no set percentage that companies follow. The dividends that companies pay, are whatever the companies _decide_ to pay from time to time. If the company pays the same amount four times a year, that dividend is called, _its quarterly dividend_. A quarterly dividend is normally paid regularly, but can be changed whenever the company wants to do so. A company can increase its dividend if it feels that he can afford to do this, or can lower it if it finds that it must. The company can even omitted entirely. Companies are not forced to pay dividends. They only do so if they feel they can afford them.

What to do With Dividends

You can do whatever you please with the dividends you receive. You can reinvest them in more stock of your choice, or you can use them to purchase anything you wish. My practice has always been _reinvest_ the money from dividends into additional stocks.

Why Stocks?

Why do I feel that stocks are among the best investments that you can make? When you invest in a good company like Procter & Gamble, you become a _part owner_ of the company. You know that the company is attempting to make profits during the year. In a sense, that company is working for you as well its management. If you own stock in several companies, you have several companies working for you in the same way. Normally, a good company has many thousands of shares of stock that it has issued to the public, even billions! If you own only one share of the company, you don't own a large portion of the company. You may however, own many hundreds or even many thousands of the shares. Dividends are paid, at so much per share. The more shares you have, the larger your dividend. When you begin investing for retirement you may start out with only 50 shares of a particular company. At retirement time, you may find that you own many more shares than you purchased, and the price of the stock has gone up from year-to-year, doubling in price, and redoubling several times.

Purchasing stock can be compared to starting your own company. However, you do not have to worry about employing anyone, purchasing material for inventory, advertising products, salaries, and all the other expenses that owners of companies must attend to. You are making money without doing a great deal of work. You have done your part; that is, providing money that the company can use in earning money. You deserve a reward for this.

There is, however, much more to your responsibilities when you own stock . I'll get to these responsibilities later in this article.

Early Results

The stocks that I had bought with my initial purchase, did not do too well. They did not lose any money; however. They just lay there! Over time, I found I was not satisfied with their performance. I finally determined I had made a mistake in purchasing them by not doing any research before making the purchases. I sold the stocks. I decided that I should be more intelligent with my next purchases.

I came to the conclusion that guessing whether a company would do well or not, was not the way to do research. I decided that in order for a stock to be a candidate for purchase, it had to meet certain tests. I wrote these tests down and followed them when I wanted to make another purchase. The tests were these:

1. Did the company have a long history of earnings gains?

2. Did it pay a quarterly dividend?

3. Was its P/E about 15, maybe a little less, maybe a little more?

4. Had the company increased its dividends from time to time?

5. Had there been stock splits from time to time?

If the answers to these questions were affirmative, I would show an interest; otherwise not. My final decision would be based on more subtle, but not critical, reasons.

This formula, though better than guessing, but not quarantined. Nevertheless, I began making better selections. At time went by, the basic selection criteria remained constant, but I kept improving it. Later in this article, I'll discuss the criteria I use nowadays.

Where is the Money Coming From?

The title of this section is _Where is the Money Coming From_. Persons who might desire to take my advice and invest in stocks for the long term might think it's a good idea to do so, _but they have no money for this purpose._ Obviously the topic of _where is the money coming from_ needs to be addressed.

Both discussion are reproduced below. (See the bold headings.) What I said in both books is still valid. As you read both discussions, you'll note the quaint differences in the language used. Though times have change over fifty years, the advice is still pertinent. Incidentally, you can get an e-book version copy of the original book from _Smashwords_.

Where is the Money Coming From Additional?

You're reading this book because you want to make money. Since it takes money to make money, we hope you already have some-say $2,000. We'll discuss what to do with that money soon.

But suppose you don't have any money. What do you do? Obviously, you must get some.

Begin a savings program. When payday comes, take something from your pay and save it. Aim high, but if the best you can do is one dollar per pay-period, then save that. Take this money from your pay before you use it for anything else. Treat this savings obligation as a debt to yourself. Every payday pay yourself first!

Some companies and banks make it relatively easy for you to save. If your company provides the service, have it deposit your entire pay in your checking account at the

bank.

If your bank provides the service, have it deduct a fixed amount monthly from your checking account and have that amount deposited into your savings account.

You will soon get used to the decrease in your earnings, and your savings account will begin to grow. As soon as you're able — say when you get a raise, increase the amount that is automatically deposited to your checking and savings accounts.

If you don't have a checking account, by all means open one at your most convenient commercial bank. The service charges are low, and the amount you save by increasing your control of income pays for the service.

Let's face it, while a savings of fifty-two dollars a year is better than no savings at all, your minimum savings goal per year should be five hundred dollars (about ten dollars a week). Five hundred dollars constitutes an economical stock-purchasing amount. (The commission would be about ten dollars.) (As I write this in 2019, commissions are even lower!)

The investment plan described in this book calls for regular investments. Therefore, don't stop saving when you've saved for one year. Persist in your plan, and whenever possible increase the amount that is automatically deposited into your savings account.

Should you keep some money in reserve when you save? In general, the answer is _yes_ , but there are no definite rules here. Some people feel they can function with zero dollars in savings, while others don't feel comfortable unless they have a three-month supply. Only you can decide how much of your funds you can commit to stocks.

One fact that you may not be aware of is that in emergencies you can borrow money using stocks as security. A commercial bank will lend fifty percent, sixty percent, even seventy percent of the value of the stocks you own. The interest you pay would be about half the interest you'd have to pay if you took out a personal loan. (As I write this is 2019, you can cautiously borrow from your margin account at the brokerage where you have an account.)

Talk over the making of loans using stock as security with a bank officer. You'll find that, at times, it's beneficial to do this. The dividends you get on your stocks can help pay the interest charges. Yes, when you put up stocks as security for a loan, you still own the stocks, and you still get dividends.

When you need to borrow, you can use, not only stocks as security, but also life insurance, real-estate, bank accounts, etc. Be careful, though, don't go overboard. Borrowing needlessly can get you into severe financial difficulty.

If at the time you read this book, you already have money-say $2,000, decide whether you want to hold this amount in reserve or invest part of it. Whatever you decide, do not fail to begin a regular savings program. The success of your investment plan depends upon, not only making an original investment, but also adding to that investment on a regular basis.

In summary, if you don't have a checking account, open one. Deposit all your earnings into it. Watch your disbursements closely. Live within your means and save. Use your bank's automatic savings plan if your bank offers it.

Save only one dollar a week if this is all you can save, but aim for, at least, five hundred dollars per year. Do not resist the necessity to save by claiming every cent you earn is spent before you get it. Have you checked how much money you _throw away_ each week; for example, on smokes, raffles, treating the boys, etc.

Where is the Money Coming From? Additional Thoughts

You may agree that starting a long-term investment program for your retirement is desirable. But you may object by saying that you don't have any money right now! You may contend that your investment program will have to wait for another time. I reject this objection! Waiting is not an option. You can find money to invest and you can start at once! There is only one exception to starting at once. Before anything else, you need to get rid of any credit card debts you may have. When you pay off credit card debts, you'll really be investing at relatively high rates since credit card companies charge a great deal for the money they loan you.

Do you have unpaid balances in your charge accounts? If so, this has to be remedied at once. One of the worst ways to _throw away money_ is to pay interest on credit card debts. You may have charge account debts amounting to thousands of dollars. You may be maxed out in one or more accounts. Do whatever it takes to improve your credit card situation! This will give you extra money that you can invest.

To get rid of your charge account balances, pay more than the minimum amounts each month. When you pay only the minimum, you greatly extend the time that is required to pay for the purchases you make. You have seen the power of compounding. If you're paying eighteen percent interest or more on your charge accounts, you are contributing to the wealth of credit card companies at remarkable rates.

Stop charging for things you don't need or only minimally need. Charge only for purchases you can pay for in full by the due date when you receive your statements. Shop around for lower interest rates. Many companies will accept your balance at a lower interest rate, even a zero interest rate for a limited time. Your own company will probably say _yes_ to a lower rate if you request it. It doesn't hurt to ask. Go with a company that _pays you back_ a certain percentage of your charges. The cash-back (rewards) amounts may be only one percent, but that's better than nothing. Many companies pay rewards of two percent. Go with them!

Keep this ever in mind : Credit cards are a convenience. But, they can also be _financial_ _quicksand_. If you are currently a victim of the _credit-card quagmire_ ; do whatever it takes to free yourself.

With your investment or retirement plan, the main thing is to start. Even if you begin with a small amount of money, you'll probably be able to increase this amount with the passage of time. I recommend that you begin with an initial investment of $2,000.00.

Yes, but where is the money coming from? To begin with, examine your purchases carefully. You can avoid the expenditures of large amounts of money by forgoing purchases that can be postponed. Are you thinking of purchasing a new car? Will your present car run well for another year without problems? If yes, why would you want to purchase another now? Are you willing to expend twenty thousand dollars or more for a new car when you understand that the same amount of money invested at eight percent will be worth twice that amount in nine years and eight times that amount in twenty-seven years?

Do you really need a big-screen TV? Can the worn furniture be refurbished? Is your computer serving your needs? Yes, it's nice to have new things ; there is such a thing as enjoying life, but you also have to consider the longer term. You need to look at the relative enjoyment levels of what nice things will give you _now_ versus what they will give you at _retirement time_. Think carefully before making major expenditures.

Are you spending too much for dinners out? Wouldn't you enjoy them just as much at home? Don't movies and popcorn at a theater cost too much these days? Movies can be enjoyed at home and popcorn can be made in the microwave. Have you made it a ritual of paying a couple of dollars every morning for a gourmet cup of coffee? Is it really possible for a cup of coffee to taste _that good_? Think! Every time you spend a dollar for something you don't really need, you may be throwing away eight dollars, or more, of retirement funds.

Are you a good shopper? You can save with groceries by clipping coupons and studying the sales brochures of the supermarkets near you. Some super stores will honor the advertisements of competitors. Any amounts you save is like finding money. And those amounts invested for the long term can be worth many times their original values. Be careful, though! Don't spend more money in the process of saving than what you actually save. It's expensive to travel to different stores. Plan your shopping trips to minimize travel.

In summary, your first objective is to get rid of any credit card balances you may have. Any amounts you pay off will be like making investments at the same rate of the interest you're being charged. Next, scrape enough money together to make an initial investment. Not all persons will find money for this purpose in the same ways. Find the ways that works best for you. Once the ice is broken, and you've made your first investment, you'll discover that money for additional investments will come more easily.

You've already seen that, with the power of compounding, money invested at eight percent doubles in value every nine years. If you deny yourself something that costs a dollar and invest the money instead, that dollar could be worth eight dollars in twenty-seven years. Agreed. a dollar isn't very much. But what about a new car? Do you really need a BMW at eighty thousand when a less expensive car costing twenty thousand will serve just as well? Invest the difference. Over the years, the money you save could be worth millions!

Do you think a time span of many years is too far into the future to worry about? It is a long time, but keep in mind that the years will pass anyhow! Years from now, it will make a great deal of difference whether or not you started an investment plan.

I'm not suggesting you become a miser! I am suggesting that you begin looking at the items you regularly purchase with a magnifying glass. When you purchase items that you will not enjoy or will not use, it's like throwing money into a Dumpster.

A question might arise whether investing in a home is a good idea. Yes, I believe that purchasing a home is probably one of the best investments you can make in your life. You are the one who must decide whether to go all out with retirement or with a home. If, at all possible, you should do both!

Another Initial Criteria For Stock Selection

The stocks needed to sell between $10 and $20 a share.

The Price to Earnings Ratio had to be between $15 and $25 a share. I'll define what is meant by price to earnings ratio in this article later.

The stock needed to show earnings growth year for at least three years in the past.

The stock needed to show that its dividend had been raised at least once or twice during the last several years.

The stock needed to show that it paid a quarterly dividend.

The stock needed to show that its yield was at least 3% per year of the money that I had invested. I'll define what yield means later in this article.

These tests were not easy to meet by most companies. However, once in a while I was able to find a candidate that had been easier to find.

Achieving Greater Successes

The next early purchases I made were much better than the first two. One was Simplicity Pattern. I purchased 100 shares. I paid $10 a share. The value of my investment _doubled_ in one year. However, I had not known what the company did it. I had thought that it made patterns for machinery and was surprised to learn that it made patterns for sewing. I decided that the next time I purchased stock, he should be for a company where I knew what his product was.

The criteria for selecting stocks during the rest of the time that I bought them, was similar to the tests that I have just detailed. They changed over time to some degree. I will outline the criteria that I use at the present time later in this article.

When Should You Begin?

When should an individual begin investing for retirement. I began when I was in my 30s; however, now, I believe it should begin when an individual gets his or her first job. The investment may be very small, maybe only a couple of shares of a good company but it will be a start. Following the advice that I have given in this article, few shares in a portfolio, may turn out be thousands with the passage of 30 or 40 years. These will probably not be from the first shares, but from additional purchases, made at periodic intervals during that length of time. It may seem that 30 or 40 years may seem to be a long time to look into the future, but from the viewpoint of a nonagenarian, that time will surely come to pass with most people. At that time, it will make a huge difference whether the person had decided to invest for a long period of time or not. Later in this article, I will discuss, a technique called, "dollar cost averaging," which has to do with periodic investment.

The American Dream

The United States is famous for its American Dream. Everyone in this country can achieve the American Dream! However, it is easier to achieve for _some_ than others. It is my opinion that the American Dream is most achievable to the _most educated_ in our country and to the _richest_! Not all of us can be members of the richest group in the United States, therefore, we should try to be among the most educated! Make this a goal in your life, to be one of the most educated among us.

It's my opinion, that the most educated people in this country are not necessarily the ones that were born this way. It's my opinion, that among the healthy babies that are born, there is not a great deal of difference between their intelligence levels, perhaps a mere ten percent. I don't believe IQ has a great deal to do with intelligence. Some individuals may be good at taking tests, and therefore, achieving high IQ scores. Achieving high IQ score does not automatically qualify a person as being highly intelligent or highly educated folk. I believe highly educated people are those who are born with ordinary intelligence and have the quality of _being willing to learn_! It's my opinion that education individuals are those who _know_ a great deal, who have a _huge curiosity_ , who keep asking, " _why_?". Do you have the kind of curiosity that I am talking about? If so, I believe you have the qualities to be one of the highly educated group. I recommend that you get the best education you can from school. Not all schools in this country are capable of providing the education of which I speak. Do the best with what's available, then, if you feel you must, seek more education from other places.

Nowadays, a college education is a must! It would be great if you could get that education from a prestigious college, but not all of us can afford this. Do the best you can with your selection of a college. If you are interested in technology, choose technology for your emphasis. But regardless of where your interests lie, get a degree in _something_! It's my opinion, that you cannot go far in the business world without a college education. Yes, I admit there are exceptions, but it takes a lot of effort to be an exception. It's easier to be successful with a college education, then not.

A college education, however, may not be enough to put you into the class of the most highly educated. Take additional courses on the side of you can. _Concentrate on scientific topics if you can and have the interest!_ I believe this is the most desired quality with the highest levels of positions at the present time in this country. I believe it's the also the best way to serve your country to be leader of the world!

Early on, I did not have a college education. My parents did not have enough money allowing me to get one. I don't believe there were education loans at that time. I was working as a clerk when I got my first job with computers. I made progress with my employer at that time because computers were new. I wrote my first book about Fortran programming at a time when I did not have a college education. I had been lucky in getting into computers at this time, but I realized that I needed a college education desperately in order to make progress in the business world; the best jobs were going to the most educated. I began taking courses at night that would lead to a degree. I did earn a degree from college of Saint Rose at age 50. I would not have gotten my job at RPI and with the New York State Labor Department if I had not had a degree. Deciding to work toward a college education was a crucial decision in my life. I believe I was able to achieve the American Dream, but I had to use effort in getting it!

You may have been born lucky within a wealthy family. You may have been able to get a college education from a prestigious college. Wonderful! My advice to you at this time would be, "don't blow it!". You are almost there! Choose wisely where you wish to be employed. If possible, seek an employer that still offers a pension at retirement time, and provides _excellent health_ care, and seeks to make you a partner in the business instead of just a name.

Summarizing, do what it takes to received a good basic education. Get a college degree. Anything is better than nothing, but get your degrees in technology if you possible can! Enhance your education to the greatest extent possible! Add to your education! Learn everything you can about everything you have time for! Seek the best employers you can! Make efforts to climb the ladder of success with other employers if your current employer is not providing the kind of future that you are seeking. You can achieve the American dream. It is available easily to the most educated among us. If you are not in this group, with some effort, you can be a member of this group! Is all this extra effort worth it? Without qualification, I say, _yes_!

Your Best Investments In Life

it is my opinion that there are two best investments that you can make in your life. I don't know which is the best of the two. However, I do advise that you get into both. One is a stock investment; the other, is the purchase of a home as soon as you can.

A Home As An Investment

I think, at first in your life, renting a residence, is acceptable. Most of us can't do any more than this. However, you should be saving for purchasing a home all the while that you are renting. It's my opinion, that even if you begin with a _starter home_ , it will be a good investment. It may be difficult at first making the payments, but as your earnings increase, making payments will become easier. Further, the value of homes tend to increase with time. There may be times in the future when you will be able to afford a home with more luxuries. At that time, your _starter home_ will assist you in purchasing a more expensive one.

I've already mentioned I started with a very simple home. I was married in 1949. My wife and I had decided that we would pool our money and purchase a home instead of renting. (We planned to go on a honeymoon as soon as we could afford it.) We found that we had saved $1000. This was enough to make a down payment on a very simple home that has just been built that cost $10,000. We had taken out a 30 year mortgage. At first, payments were difficult to make, but with careful planning with our income, we were able to do it.

I was employed at General Electric at the time. As my income with the company grew, my wife and I were able to take a honeymoon the following year, and we were able to move into larger and larger homes as we began the family and the family grew. My wife died many years ago. I now live with a life partner. When I got my job at RPI, I purchased a comfortable duplex in Troy New York. The purchase price was a little over ninety thousand. We live comfortably in it. My partner and I have no plans to move to another home.

Common Stocks As An Investment

The second investment that I mentioned above is a stock portfolio (the stock that you own) of excellent stocks. A great many people invest in mutual funds. I will discuss mutual funds with a greater degree later in this article. All I'll say now is I don't believe mutual funds are as good investments as common stocks. I believe that ordinary common stocks are better because they grow in value more easily, and good stocks are easier to find than good mutual funds.

Let's first, have a good idea of what stocks are. If you already know, it's OK to skip this portion of this article.

More About What Are Stocks?

In order to invest in stocks, you need to have a clear idea of what stocks are. If you already know, you can skip this chapter.

First, you need to know what a corporation or a company is. (In this book I'll use the terms _corporation_ and _company_ interchangeably.) A corporation is an organization devoted to the purpose of making money. When a corporation is formed, it is required that it have _owners_. A corporation could be owned by only one person or it could be owned by billions of individuals.

Those who start a new corporation or company may decide to allow persons and organizations to purchase part ownership in the company. The smallest part of a company that can be owned is a unit called a _share_ , or a _share of stock_. Individuals and organizations can purchase _more_ than one share if they wish. They can purchase fifty, one hundred, five hundred, one thousand shares, or more. After the shares have been issued and purchased, those who own shares are known as _shareholders_ or _stockholders_ of the company. The larger the number of shares that any one owner has, the larger that individual's ownership of the company.

Stocks, therefore, represent ownership in a corporation or company. By law, a corporation is defined as an _artificial person_. The corporation must have a name and owners. Its major objective is to make money for its owners. There are millions of corporations in this country. You know some of their names very well: General Motors, IBM, Intel, Microsoft, Kodak, General Electric, Ford, Kellogg's, and many more. These companies, and others, are owned by many millions of persons and/or organizations.

Many corporations are called _public companies_. This means that those companies can be owned by the general public. Not all corporations are public companies. What this means is that many corporations are owned by only a few people; members of a family, for example. These companies are said to be _privately_ _owned_. The shares of privately owned companies are not available to the public. In this book, we'll discuss only the purchasing of publically traded companies.

Not a lot of people invest in common stocks. Perhaps they feel they can't afford it. They can! Perhaps they feel that they don't know about stocks to begin purchasing them. It is not difficult to learn the basics of buying common stocks. Perhaps people feel that only rich people should buy stocks. This is absolutely not true. Everyone should buy stocks! Perhaps you feel it should not be your only investment. You may be right. Invest in something else if you must, but make a few investments in stocks anyway! Yes, rich people buy stocks. They don't hesitate in doing this. Why should you hesitate? Do as the rich people do! Buy stocks. At the back of my book there is a section that suggests several stocks that might be excellent for a beginner. I feel that, over time, the stocks will grow in value. All of them paid a quarterly dividend! I own shares in all of them

I strongly recommend stocks that pay a dividend. When you are in the stock market, you will find that the value of your portfolio will go up on some days and down on some days. Stocks go up and down. This is what stocks do! You need to accept this. There are some people that can't. If you are one of them, you should not invest in stocks. You'll worry too much.

Despite the fact that stocks go up and down, dividends paid by the companies that created them, tend to remain unchanged. For example, if a stock has been paid $.70 a share four times a year as dividends to their stockholders, the fact that stocks go up and down does not have any effect on the amount of the dividend. A company will resist not paying the usual amount because they know that doing this will be bad for their reputation as a good investment player. Not only that, but some companies realize that many individuals rely on evidence in order to make a living. When a company decides to increase its dividend, it does so only after careful thought of what the future looks like. If they feel that they can easily afford the dividends they pay, they will increase them; otherwise not. Companies know that cutting the amount of a dividend, or omitting it, is an extremely bad step for them to take.

Can you take it?

When you read the title of this heading, you might think I'm getting ready to warn you that there will be some rough days ahead. This is true and you have to be able to take it when everything seems to be going wrong.

This is only half the story. You have to be able to take it when things are going extremely well. There will be strong urges to become exuberant, to want to tell the world how well you're doing.

Here, I wish to point out that severe drops in stock market prices and huge rises are to be expected. At first your stock portfolio will go up and down no more than a few dollars per day, perhaps $50 or $100 to your heart will fall when you stocks do this. You may be downhearted all evening after the market has closed. When your stocks go up, you may was so instead. Later, say 10 or 15 years later, your stocks may fluctuate as much as $5000 _in a single day_. You'll still feel bad when the day has been down, still feel jubilant when the day has been up.

There is really little or no justification for letting these movements up or down affect your mood. What goes up, goes down, and vice versa. You really don't make a cent when your stocks go up. What went up is only on paper. You don't lose anything when your stocks go down for the same reason. It is only when you sell that a positive loss or day is realized.

Keep constantly in mind that-day-to-day fluctuations are temporary. It's the long range trend which should interest you most. I confidently expect that when you invest in stocks the long-term trend will be up. However, I cannot guarantee this. I say that the long-term trend may be up because that is the way stock investment has always been since it was started. However stockbrokers will award you that what has happened in the past, cannot be guaranteed to occur in the future. However, if your stocks pay dividends, there will be no danger that you will lose these. I do believe that the long-term trend is up. I would not continue to invest myself if I thought the opposite. I have no plans at the present time to do anything except continue to invest as I have been doing for over 60 years.

Investing is not a game in which everyone can play. Some people just can't stand the idea of having the value of their investments go down; however temporary. They brood. They berate themselves for having taken money from a nice safe bank and for having invested in stocks. Are you one of those persons? Don't do it. Don't invest in stocks. You'll worry too much about the

Other people are prone to spend money they don't have! They'll see their stock investments leaping up words day after day and will begin to feel wealthy and they forgot that what goes up can also come down. They begin to live beyond their means, even borrowing money to do this.

Are you the kind of person who spends money he or she really doesn't have? If so, don't invest in stocks. They won't make you rich. They'll make you poor!

You may not know whether you're the worrying kind or the spendthrift you'll soon find out if you can take it. Look for the signs:

Worrier

1. Snaps at wife when stocks go down. Tells her the time has come to begin economizing.

2. Thinks about stocks at the office instead of doing work. Frowns are good deal.

3. Fears a repetition of 1929 and 2008.

4. Calls his brokerage at lot, (for example, Schwab) to find out what is going on.

Spendthrift

1. Goes around telling his friends how wealthy he or she is. Feels compelled to prove it.

2. Thinks about stock investing at the office instead of doing work. It hums a good deal.

3. Begins to think stocks will go up forever.

4. Calls his brokerage a lot to find out which had stocks he or she can purchase.

Sensible Investor

1. Does not let the action of the stock market affect his or her normal living habits.

2. Thinks about stock at work only at noontimes, or during breaks, or at home in his or her home office.

3. Realizes that stocks go up and down is what stocks normally do.

4. Calls his stockbroker only once in a while. Doesn't want the stockbroker to forget his or her voice.

The Stock Split

Once in a while, you'll find that the managers of one of the stocks that you own will _split the stock_! This means that if you have a share of stock, say in a stock from the fictitious name, Moonshine Beer, the company will give you another share of stock free with the same company to match every share you already own. This operation is called a two-for-one split. It will make you happy. That is, until you realize that the value of the stock that you already have will automatically cut in half by the stock market at the same time. The end result for you, is that the value of your portfolio has not increased; what has increased is the number of shares that you have of that particular stock. Nevertheless, a stock split feels like a pleasant experience and, indeed, for several reasons, it is!

Companies will sometimes split their stocks two-for-one for business reasons. One of the reasons may be that the price of their stock has gone up considerably and people are reluctant to purchase it because "it costs too much!" If the price of the stock were half as much, they would not hesitate to purchase it.

There are other reasons why a company might split a stock two-for-one. Sometimes, a company will feel so a ebullient about its future, it will split its stock _three-for- one_! This is the good side of the story. Sometimes the company will do a reverse split. That is, the company may take back the stock you have and give you one brand-new share of stock for every ten you had! The reason for this may be that the price of your stock had gone down so low that is no longer attractive to investors. The new stock price will be worth 10 times as much per share as the original. Your portfolio has not lost anything except reputation. A reverse split is a bad step for a company to take. It indicates that the company is having grave financial difficulties.

Despite the fact that stock splits don't change the value of your portfolio at the time the split occurs, the good news that goes with the split, or the bad news will take place soon afterwards. A normal split indicates the company is doing well; a reverse split warrants that the company is having trouble financially. This affects the price of the stock accordingly.

Earning Per Share

Companies issue an important statistic quarterly concerning the profits or losses the are experiencing. Here, I will consider _Earnings Per Share_ as referring only to profits. You need to know what this term means. Here is a definition:

You already know that the main reason a company exists is to make money. When a company makes money, their stockholders are happy because they become wealthier.

If you have stock in a company, you are part owner of it. If you own stocks in several companies, then you are part owner of those companies. If your companies are making money, you're happy because you share in their good fortunes. You don't receive everything that the companies earn, of course, but you do receive portions of the earnings, as dividends, in proportion to the number of shares of stock that you own.

You'll often see or hear in the news that a company has _reported_ _its earnings_. This means that a company has issued an official report telling how much money it made during the last three months or during the past year. If you have stock in this company, or if you are thinking of purchasing its stock, you should pay close attention to this news.

The earnings that a company reports is announced in terms of its _Earnings Per Share_ or _EPS_. To report this figure, the company divides the total profit that it made by the number of shares of stock that the company has outstanding; i.e., in the hands of its stockholders. For example, if the company made a profit of one million dollars and there are one million shares of stock outstanding, then the Earnings Per Share will be reported as $1.00. The company divides one million dollars (earnings) by one million (shares). The result is $1.00. The company reports that its EPS was $1.00.

If, instead of the above figures, the number of shares were 2,000,000, then the _Earnings Per Share_ would be $0.50. The company divides one million dollars (earnings) by two million (shares). And, if instead of the above figures, the number of shares were 500,000, then the EPS would be $2.00. The company divides one millions dollars (earnings) by 500,000 (shares).

The _Earnings Per Share_ of different stocks are closely watched by investors because they want to see if they are increasing or decreasing. Increasing _Earnings per Share_ are good because it means the company is earning more and more money with the passage of time. Decreasing _Earnings per Share_ is not good for the opposite reason.

When you invest for the long term, you need to be concerned with your company's profitability. The performance of your stock is influenced by the company's earnings more than any other factor. The reason your company exists is to make money. At all times, you need to know whether your company's Earnings per Share are increasing or decreasing. Under normal circumstances, if your company's Earnings per Share are increasing, the price of its stock will tend to go up. If the reverse is true, the price of your company's stock will tend to go down.

Be aware of when your company reports earnings. For example, earnings may be reported during the third week in January, April, July, and October; or during the second week in February, May, August, November, etc. Reporting dates are not the same for all companies. Make it a point to know when your company reports earnings and look for them. Examine the reports. If earnings are acceptable, fine; if not, begin thinking of making a switch.

You'll always have easy access to Earns Per Share. The Wall Street Journal, for example, reports them. Also, the information is easy to find via the Internet.

The Price to Earnings Ratio (P/E)

When you are considering the purchase of stock, you will probably be concerned with which stock it should be. Let's say that you have made that decision. Now, you'll want to know what is the price of the stock. At this point, you might reject a good stock for the wrong reason. You may find that the price per share is too high! Don't reject the stock immediately! The price of a stock is not its most important measurement. _The most important measurement is its Price To Earnings Ratio, or more simply, its P/E._ The following is a definition of this important statistic:

The Price to Earnings Ratio, also referred to as the _P/E_ , is the current price of a stock divided by the Earnings per Share. For example, if the price of ABC Stock is $40.00 today and the company reported Earnings per Share were $2.00 the last time the company reported earnings, then the Price to Earnings Ratio of this stock is 20. That is, $40.00 divided by $2.00 gives 20. The P/Es of stocks are published daily in the Wall Street Journal and in the financial pages of your daily newspaper. It's also easily accessible via the Internet.

The _Price to Earnings Ratio_ is only a number, but it's an extremely important number. _It tells how much you would have to pay for a dollar's worth of this company's earnings_. In other words, it tells whether the price of your stock is _cheap_ or _expensive_. The P/E of a good stock should be a number within a reasonable range, somewhere between 15 and 25. If it's _very_ low; for example 5, the P/E could be telling you that the stock is very cheap and perhaps a good buy. But it could also be telling you that there _might be trouble_ on the horizon for this stock that has been recognized by investors. _You should be suspicious of a P/E that is too low._ The low number may mean that the company may be about to omit or cut its dividend. Or, it might be signaling that the company is about to announce poor earnings. _If a P/E is very_ _low, be cautious._

A P/E may be very high; for example 50. This could mean that the company is a highly respected _growth_ company that demands a high price for its stock. A high P/E could also mean that the company has become a _hot stock_ in the minds of many persons and is being purchased for this reason alone. It may take a long time for a stock to justify a very high P/E. The price to earnings ratio of a stock could be too high. _If a P/E is very high, be_ _cautious._

A reasonable P/E; for example, between 15 and 25, could mean that the stock is reasonably priced. The price of a stock is important, yes, but the _Price to Earnings Ratio_ of the stock is far more important in your determination of whether the stock is worth its price.

Use a stock's P/E as an important step with your evaluation of good stocks, but don't rely on it alone to tell you the whole story. You need to evaluate a stock with other factors. I'll get to those other factors soon. For now, reject the purchase of stocks where P/Es are too low or too high. In a _Bull Market_ , (a condition where the prices of stocks are generally going up), P/E ratios tend to be higher than in a _Bear_ _Market_ , (a condition where the prices of stock are generally going down). Do consider this when doing your research. A P/E ratio of 10 in a Bear Market might be explainable, while it would raise a warning flag in a Bull Market. Similarly, a P/E ratio of 30 in a Bull Market could be justified, while it would be difficult to justify it in a Bear Market.

Here are some rough guidelines: In a Bear Market, I'd expect a P/E of about 15 to be reasonable for a Blue-Chip company (a company generally believed by investors as being of extremely high quality). I'd deem a P/E of 25 might be OK in a Bull Market.

The PEG Ratio

The author of this book created a measuring tool for stocks that is currently in use by many, if not most, stock brokerages in this country. I mention it here simply for your information. I deem it not to be an important measuring tool for beginners. Therefore, if you are a beginner, please ignore the PEG measuring tool when you are evaluating a particular stock you are considering purchasing. If you are an experienced stock investor, you might be interested to learn what I say here if you don't already know it.

I created the PEG measuring tool announcing it for the first time in a book I wrote, which I have already mentioned, in 1969, and which was published I authored, _A Beginner's Guide To Successful Investing_ , published by _Investors Press_. On Pages 31-33 of this book, I wrote this:

Suppose you have a list of about twenty stocks which have passed your screening tests. Chances are you can now select any one of them at random and do pretty well. All you have to do is select the one which has the lowest price, whose name is the most euphonious, or whose product sounds the most exciting. Any selection would probably be fine, but we're interested in selecting the very best stock to purchase! You can apply another measuring device – the "PEG." This is a new term for you since I invented the term.

PEG means "price–earnings ratio divided by average gain." You know what price-earnings ratio is. Now let's define average gain.

Check the gain in earnings that a stock has experienced in four years —say 1964 through 1968. Measure that gain as a percentage then divide the percentage gain by 4. (1964 through 1968 shows 4 earnings changes-not 5.)

Suppose PDQ Express has gone from $2.10 in earnings to $4.20. In four years the percent gain is 100% yet dividing by 4, you get an average gain of .25 per year.

Let's say PDQ express is selling for a price-earnings ratio of 20 to 1. You can now calculate the PEG. Divide 20 (price-earnings ratio) by .25 (average gain). The result is 80.

A PEG is a measurement of value because it shows how much prospects for growth are worth. If a stock which sells for a high price–earnings ratio is usually one for which people are willing to pay a premium because it has an impressive growth record. PEGs permit you to compare one stock against another so far as paying for growth prospects are concerned. The lower the peg the better!

Pegs below 100 are seriously was considering. A low price earnings ratio is not, in itself, a sufficient measure of worth. The ratio may be very low, but perhaps its earning increases year after year have been low too. The stock is no bargain. On the other hand, a relatively high price–earnings ratio may be matched by a high average gain in earnings. The stock could be a bargain. PEGs make it possible to compare one good stock against another!

On the back cover of this book, appears a paragraph which reads as follows:

Did we say this book was not "sophisticated?" Perhaps we did, but Mr. Farina presents the reader with a new measuring device. It provides a measure of value that even the most esteemed professional traders will find is definitely an asset in stock evaluation. He calls this device: PEG. While a simple concept, it took Farina to codify it. PEG, alone or is easily worth the price of this book.

One final comment about the PEG Ratio. In Wikipedia, there is a comprehensive introduction and discussion about this ratio it. One small part of this discussion is the following:

The PEG ratio is considered to be a convenient approximation. It was originally developed by Mario Farina who wrote about it in his 1969 book, a "Beginner's Guide to Successful Investing in the Stock Market. It was later popularized by Peter Lynch, who wrote in his 1969 book "One Up On Wall Street" the PEG ratio of any company that's fairly priced will equal its growth rate", i.e., a fairly valued company will have a PEG equal to 1.

How Do You Make A Stock Purchase?

There is still much to be said about investing for retirement. But it's about time that I explained how to make an actual stock purchase. When I began purchasing stock in 1955, it was much more complex, and much more time-consuming. And much more expensive!

In 1955, when someone wanted to purchase stock, they either needed to visit their representative at a brokerage or call that individual on the phone. At that time, it was normal for an individual to have a relationship with a brokerage. He or she was the client of a representative. (Today, a representative is not needed when purchasing stock.) The customer would tell the representative that he or she wanted to purchase a particular stock. At that time, the representative was familiar with what were the customer's objectives in purchasing securities, and he or she was responsible for advising the customer if what the customer wanted to do was not in accordance with his or her best interests.

After a brief discussion, if there was one, the representative would ask the customer what he or she was willing to pay for the stock. The representative would tell the customer that he or she would do the best that could be done in this endeavor. The representative would phone the Stock Market to determine what was the going price for the stock that the customer had in mind. The customer would receive a call from the representative telling the customer approximately what was the cost for the stock and for the number of shares that the customer wanted to purchase. If there was an agreement the representative would called the stock market again and place a call with the specialist responsible for that stock at the market. If the customer wanted to pay less, the representative would say that he or she would do the best that could be done in that respectI purchased the stock for $10 a share. The entire process that I have just described could take several hours. An actual purchase might not be made for a long time. If the customer's requirements were too rigid, there might never be a purchase.

There would be a fee for what the representative had done for the customer. At that time, fees for this kind of service were stiff, perhaps as much as 10% of the value of the purchase. The customer was required to pay for the stock within four days.

Eventually, the customer would receive a magnificently engraved certificate for the stock that the customer had purchased. The customer was required to take good care of the certificate because it was his proof that he or she owned the stock. Yes, the company from which the stock has been issued, was also aware that he or she was now a stockholder. However, the customer might have to display the certificate before he or she could sell it. Today, certificates are not normally provided unless they are specifically requested. If requested, there may be a fee from the brokerage to provide it.

Today, stock is normally purchased from a brokerage, such as Schwab. Individuals who wish to purchase stock, normally open an account with the brokerage. It is normal procedure for the brokerage to hold and protect securities belonging to the customer. Certificates are not normally issued. In opening an account with a brokerage, the customer gives information concerning what his or her objectives are in making investments. The customer is not assigned a particular representative. If the customer phones the brokerage intending to make a purchase, any available representative would be able to do it. If the customer wants information about the stock that he or she wishes to purchase, any representative at the institution could be used.

In creating his or her account, the investor will be asked whether or not a _margin account_ is wanted. A margin account allows the investor to borrow money with which to purchase stock. If the account is not a _margin account_ , any purchases the investor makes must be paid in cash, check, or in some other legal way. I recommend that readers select a margin account when they open an account at a brokerage. However, borrowing, if needed, should be done only under emergency conditions!

When a person wishes to purchase stock, if he or she prefers to make a phone call to the brokerage that handles his or her account, the customer may do that. A more convenient way, is for the customer to connect _online_ to the brokerage that is managing that person's account. After the investor has connected to the brokerage, the individual can indicate his or her intention to purchase stock with typewritten instructions. The individual indicates which stock is wanted referring to it by its ticker symbol. (I'll discuss ticker symbols later in this article), the number of shares desired, the price the maximum the investor is willing to pay, and possibly one or two more pertinent pieces of information.

There is a great deal of activity happening at the stock market every moment that it is open. It is possible that the investors request will be handled in less than a second. If the price requirement cannot be immediately granted, it may take longer to fill the order. If the investors order is too stringent, it may not be executed at all on that particular day.

When an order has been executed, the details of the transaction are immediately recorded in the brokerage's records. At home, the purchaser is responsible for keeping his or her own records. The brokerage normally sends a statement to the customer monthly, or does so online. It is the customer's responsibility to make sure that the records at home match those of the brokerage house. If there are differences, they must be rectified immediately.

If a customer wishes to make a sale instead of a purchase, it would be normal for the customer to do it online in the same way that purchases are made. This time however, the customer tells the minimum price at which the sale is to be made. The procedure for selling a stock is very much like that of purchasing, but obviously in the opposite direction.

The fees for making transactions these days is exceedingly low. In most cases, they are as little as $10 per transaction or less. Customers may even have a number of free transactions that can be made.

My Experiences With Broker Representatives

Even though I was a computer pioneer starting with computers in 1959, I stayed with broker representatives too long. Much of the reason was plainly inertia. I should have minded paying large fees whenever I made a stock purchase or sale. I didn't do many trades, so the expense didn't bother me a great deal. I thought talking to representatives was worth whatever the cost since I got much stock market education from them.

If I ever had a question about how to handle a special transaction, my representatives were always happy to help. Over a period of time since I started investing until I stopped using a representative, I must have had a dozen representatives. The usual reasons I left representatives was that they were retiring or going out to do something else. There was only one time that I voluntarily quit one of my representatives. He was my second one.

The first representative that served me from Spencer Trask was superb. He never minded when I called asking how my stocks were doing or what the answer to a particular question was. In addition, he would phone me if something was happening that he thought I should know. He retired, and another representative from the same company took over. I was not consulted about the change, so did not have a chance to either accept or reject the person. However, we had a conversation and he assured me that he would serve me well, and that if anything happened that I should know about he, would tell me quickly. Early on, one of my stocks suffered a precipitous drop of one third of its value because it had reported poor earnings. My new representatives did not inform me as I had expected. I didn't find out what has happened until after the market has closed. It wouldn't have made any difference if he had, since the damage had already been done. Nevertheless, I was disappointed that he had not had enough interest in my account to, at least, tell me what had happened. At that time I left Spencer Trask and went to Merrill Lynch.

In 2008, the market suffered a huge drop. I was not diversified in my stock holdings as I should have been. The one stock that I owned was going down day after day. I knew I should not panic, but I did!. I knew that brokers online did not charge anywhere is near as my representative did. I asked him if he would take it easy with the charges he would be making if I sold a great deal of my stock. He said he would, but when I received the charges for the sales that I had made, I didn't see that he had given me any discounts at all. Even though I had been with him for many years, I changed to another brokerage. At that time, I decided to do my stock transactions myself using my computer at home. I did not have a representative at that time, however, whenever I had a question, I would call the brokerage, and the person who responded was always glad to help. The fees that the brokerage charge me were a small fraction of what I had been paying my personal representative.

Doing transactions online is not difficult. However, one must realize that making a mistake can be costly. The computer will ask you how much you intend to pay for the stock that you are purchasing. If you are selling, it will ask you how much you want to receive per share from the stock that you are selling. One of the ways that you can answer that question is with what is called, a l _imit order_. If you are purchasing, you may tell the computer that you wish to pay only a certain amount or less. If you are selling, you can tell the computer that you wish to receive a certain amount or more. The computer will not make a transaction unless your requirements are met. In answer to these questions, if you make a mistake, the computer will not know that you have done this and will execute your order. The computer will make an effort to guard against mistakes by asking you to verify your order. This is your chance to make a correction if you have made a mistake.

There is a type of order called, _at the market._ If you are buying, this means that you don't care what the going price of the stock is; that you are willing to pay, whatever price is being used. If you are selling, you don't care what is the current selling price of the stock. For a stock that trading actively at the time you place your order, a market order is not very important; but for a stock that is infrequently trading, you might be very and happy with the price that you find the transaction has occurred at. I would recommend that when you place an order for a stock either buying or selling, that you always use a _limit order_!

Don't Bother With These Kinds Of Transactions

As a beginner, there are certain kinds of transactions that you should never try unless you have been trained in that method. Following, had some of the things I did, that you should Not do at the beginning of your stock investing.

Selling Short

To sell short means that you are selling stock that you don't own with the purpose of buying it back at a later time at a lower price. This will yield for you a profit. In order to do this you need to borrow the stock from the brokerage. It requires that your account be a margin account. There will be a cost for performing this transaction, and the transaction may be a failure because, when you give the stock back to the brokerage, you may have to purchase it at an unpleasant price when you do so. If things go against you, you may even have trouble being able to pay the stock back, because there are no sellers in the market for selling the stock! This kind of bad luck could ruin you! Never sell stock short!

Purchasing Call Options

A _Call Option_ is an option you buy from the brokerage house that allows you to purchase a particular stock, on or before a certain date, at a given price. You need to pay for the option, and you need a margin account in order to do this. You would do this if you felt the stock would be going up in the near future, and you wanted an opportunity to purchase it at a lower price than what the current price happens to be at that time. If you are right, you make a profit. If you don't exercise your option on or before the due date, it will expire worthless! The chances of being right, and thus making a profit, are not excellent. As a beginner, I don't recommend you try doing this

Purchasing _Put Options_

A _Put Option_ is an option you by from the brokerage house that allows you to compel another person to purchase the stock at a particular price, on or before a certain date, at a certain price. You would do this if you felt that a particular stock was going down, and you wanted to sell the stock that you have had a greater price than what it is at some time in the near future. If you are right you make a profit. If you don't exercise the option, it will become worthless at expiration time. I don't recommend you try doing this.

Selling _Naked Call Options_

You already know what a call option is. Through your brokerage, you have to write to _create_ a _call option._ You would sell the option to an investor without actually owning the stock in question. If the investor found it advisable to exercise the option and have you deliver the stock that the option promises, you would have to purchase it! You might have to purchase it at too high a price, and thus take a loss with your transaction. If the option expires worthless, you make a profit. This kind of transaction is very dangerous, and you could lose a great deal of money. I sold naked option for a couple of years. I never got into trouble with them, but I didn't make any money! I was lucky to break even! I don't recommend you ever try this one.

Purchasing _Bonds_ from Foreign Countries

A _Bond_ is a debt. When you purchase a bond, you are making a loan of a sum of money to a borrower. That borrower pays back the loan on or before the due date along with interest. The interest may be a sizable amount, and you are happy to make the loan because of this. Bonds are issued by companies who need money by governments who borrow money, my communities working on projects where funds are needed, and from many other uses. There is nothing wrong with investing in bonds. You may feel that bonds are safer than stocks, and therefore prefer to invest in bonds rather than stocks.

Buying bonds issued by foreign countries is not a good idea! I thought it might be a good idea to borrow a certain sum of money from my brokerage so that I could purchase certain bonds from Australia and New Zealand where they were paying huge rates of interest. I felt that the difference in cost for what I paid for my loan compared with the money to be received from the two countries would give me a profit. Even though the interest I paid on my loan with the brokerage was much less than the interest the two countries were paying was in my favor, I did not make a great deal of money when the loan came due, was that in my favor. I was lucky to break even!

Borrowing Money From Your _Margin Account_

When you have a _Margin Account_ , you can borrow up to 50% of your investments value. There are no forms to fill out, and you don't have to have a good reason to do the borrowing. The money you borrow becomes a debt to the brokerage company, and you must pay interest on the amount that you have borrowed. When you see how much you can borrow, borrowing may seem very tempting. However, pay back the money is not always easy. Fortunately, when you borrow, there is no due date for repayment. Nevertheless, there is danger in borrowing, and it should only be done when there is a good purpose.

The greatest danger for making loans at margin is that your 50% margin must be maintained. So long as your portfolio is not losing money or gaining, there is not much danger that your 50% margin will not be maintained. However, should the market suddenly turn and the stocks go down dramatically, you may get a call from your brokerage house you that you need to either pay some money on your loan or provide more stock to maintain your margin. You may not be able to accomplish either one of those tasks, in which case, your brokerage house has the right to sell some of your stock to maintain the 50% margin. I would recommend that you never borrow money from your margin account unless you are faced with an extreme emergency. If that happens, make sure you pay back the loan as quickly as you can!

When I first started investing, my stocks were going up so fast, that I was decided to purchase a car by lowering the full amount from my margin account. Since there was no due date for paying back the loan, I didn't worry about the loan. I needed to pay interest on the loan, but the address below, as I made no attempt to pay anything back on the loan. At a later time I decided that I would like to do the same thing with another car. There was plenty of margin for me to use, and I purchased. New cars were not expensive in those days. A new car could be purchased for only a few thousand dollars. I felt that the technique of borrowing from my margin, and not pay back the loan was safe enough. I continued using this technique for purchasing cars for several more years. The loan that I was maintaining had reached 20 or $30,000. I was still not worried. I was able to pay the interest without any trouble; therefore, carrying such a large loan without painful. And I was enjoying my fleet of new cars. I was an ardent car fan at the time. The cars in my collection consisted of small vehicles like Fiat, Saab, Volvo, and similar. There came a time when the stock market took a sudden drop. The value of my stocks went down considerably. I came here to getting a _margin call_ from my brokerage. I was lucky in that the call never happened, but the narrow escape made me aware that my practice of purchasing cars and not paying for them was not wise. When the market rebounded, I sold a sufficient amount of stock shares to pay off all my loans. I resolved never to borrow money again from my margin, and I never again did!

More About Selling Short

To sell stock short means that you sell stock you do not own. I've never done this, and I recommend that you do not do so either.

You may believe that a certain stock will be going down in price at some point. Believing this so strongly, that you are wishing to take drastic action, _you sell the stock short_. You receive some money and you put it into your checking account. It may look to you like this is a good way to get free money! It is not thus! It has become a debt! You need to replace the stock that you sold at some point in the future. The stock that you had sold, you had _borrowed_ from your brokerage.

In order to do this, you need to have opened a margin account when you set up your account with the brokerage. I do recommend that when you first create the account, that it be a margin account. As you already know, margin accounts allow you to borrow money on your stock. Borrowing from your stock should be done only under the most of extreme conditions. For the beginner, borrowing from your margin account could result in disaster.

So could borrowing stock from your margin account! At some point in your investment career, you will have to replace that stock. In the meantime, if the stock pays a dividend, you cannot keep it. It belongs to the original owner of the stock, and you have to yield it to the owner of the stock. When it comes time to replace the stock, you may find that the price has _gone up, not down!_ This represents a loss to you. If the price of the stock has gone up a great deal, the loss could ruin you!

In addition to the costs I've just mentioned, there might be additional items like commissions, fees, interest!

Never sell stock short!

Penny Stocks

penny stocks are stocks that sell for very low prices, perhaps as low as a penny, or even fractions of a penny. Penny stocks are defined as stocks that sell for less than five dollars a share. In my opinion, they are a pure gamble! I don't believe, it is possible to ever invest in a penny stock that is worth anything. I've never purchased any.

Some brokerages will try to convince penny stock customers that purchasing penny stocks is not a good idea. However, I also advise that is not a good idea.

The Market Lives A Life Of Its Own

The stock market almost seems to live a life of its own ignoring everything else except its own existence. There many times you will wonder what are some of the ways that it functions. In periods of downturn of the economy, it may go for a long time. The reverse is also true.

It may drop suddenly with huge losses without any warning, or go up to the same way. Unusual events on the good side of the bed side may be ignored. In my investing career, the only time I've seen the stock market lot acting logically, is that the death of a president.

The message I like to leave here is, don't try to guess what the market will do on any particular day. It's my opinion that half of the time you'll be right, and half of the time you'll be wrong. This remark also applies to stocks. I do believe it is possible for a long-time investor to develop a _feel_ for the market, to gain an intuitive feeling for when the market is in for a long-term drop, or vice versa. Even though I've been investing for a long time, and may possibly have that feeling, I've never relied on it.

One action that I take from time to time, seems to work out pretty much the same every time. At various times when I look at my stocks, and see that they have been going out for a long time, I tend to make predictions of how my wealth will increase and to what point. _Invariably, the stock market will take a sharp drop at that time!_ Never count your chickens before they hatch!

The Efficient Market Theory

There is a theory that is not important for the long-term investor; however, you may hear about it at some time in the future and wonder how it affects what you're doing. I don't think this theory should have any effect on your long-term investment.

The theory states that when you are researching a stock you may wish to buy, there is no benefit in trying to figure out whether the stock that you have in mind will be going up or going down. What he claims is that the price at which a stock is selling today is the most accurate price that that stock _could_ have. It is needed to high nor too low. It is simply the most accurate because the stock market is efficient! In other words, the stock market knows from all the information that it has about the stock, that the price is fair! The theory claims that every good fact about the stock and every bad factor is built into the price. Even though, not everyone knows everything about a stock, the market does because all the knowledge about the stock has been boiled down to a single point, and that is the price of the stock. The theory also indicates that the price of the stock will not change unless new information is learned about it. At the instant that new information is known, the price of the stock would change accordingly.

I've been investing for a long time, over 60 years, and I would say that the end result has been successful. I'm not a millionaire, but have sufficient resources to live my life in retirement without worrying about whether the money I've saved will outlive me. The efficient market theory never interfered with my planning. I simply paid no attention to it!

I don't know whether the theory is absolutely accurate or not.| I'm skeptical. When I attempt to purchase stock, I find that there are two competing factors; the asked price, and the bid price. The owner of the stock is asking for a certain amount be paid for each share of the stock; the purchaser is willing to pay a certain amount. There is usually, at least, a small difference. There could also be a large difference in the two prices. The stock market is an auction. The transaction, also called a trade, will not occur until there is a meeting of the minds. At that time the stock will sell. That price is known as the _selling price_ of the stock. However, it is not the _official price._ The next buyer cannot expect that he or she will be able to obtain the stock at the same price as the last one.

The prices of some stocks change slowly; some rapidly. With some stocks trades are made in such volume, that the prices are changing many times a second. The theory says that the only thing that changes the prices is new information about the stock. Is it possible that all of the factors in those changes are reflected instantly? I suppose it's possible. We live in a technological world where the seemingly impossible, is actually happening. My skepticism may be invalid. However, I tend to believe it may have some validity.

Believing in this theory, does that mean that when you place an order for a stock, it should be at whatever is being asked? If trading is occurring voluminously, and rapidly, buying at the asked price might be feasible. However, if there are not many buyers and/or sellers, the bid price and the asked price could be far apart and result in an unfair selling price. This means that if the buyer or the seller were not careful, the trade price would be a surprise to the investor and hurt him or her.

I advise that when you purchase stock, you do so according to the criteria that you have set for a purchase. The same care should be taken in selling. Later in this article, I'll give you details of my suggested criteria. Then, when you place your order, you'll always make it a _limit order_! This means that when you place an order, you will make clear what is the maximum price you are willing to pay when purchasing, and what is the least you will except when selling.

Panic

I think _panic_ occurs at some time to everyone who invests in the stock market! I defined _panic_ as unreasoned action. At some time in the future, you may find that the stock market drops a huge amount unexpectedly. On paper, you may see that the wealth represented by your portfolio has dropped several percent. (I've seen drops in my portfolio as severe as $6000 in one day!) This is a breathtaking event. You may feel that it is only a one-day occurrence and not be too concerned. But a similar thing may occur on the following day! You may not have expected this. The prices may continue to drop even more on several of the following days, being interrupted only a few times by up days. Now, you may be very confused!

"What's going to happen, now?" you may ask yourself. What should you do? How long is this going to continue? Should you sell a portion of your stock? You berate yourself for not having sold after the first day of the drop. You may even begin to wonder if your decision to invest in stock was a wise one! You begin to fear total ruin! This is all the more important because you may be desiring to retire soon!

There comes a day when the stock market suddenly rises. "Ah," you think. The worst is over! Now my stocks will go back up. They may seem, actually, to be doing so. Then there is another sudden drop, and this one continues even further than the first one did. Now you really start to worry! Day after day, the market seems to be going down only, with few up days. You don't believe the up days anymore. You begin thinking of selling before your account really goes to zero. You may actually sell! If you sell, you have succumbed to panic!

I succumbed to panic several times in my investing career. Every time I did so, I had made a mistake. Eventually the market recovered everything it has lost an went up from there. It may have taken a long time, perhaps even years, but it always happened.

It's my belief that rich people understand sudden drops and don't get bothered by them! This may be opportunities for them to purchase more stock at bargain prices. They buy the stock that _you_ foolishly sold!

My stocks all pay dividends. It seems that companies that pay dividends are able to continue paying them quarterly without interruption. Because of this, sudden drops don't bother me the way they did! I feel the dividends are safe! At this time in my investment career, I don't consider _purchasing_ stocks when there are drops, but I don't think about selling anymore unless I sense a very good reason for doing so.

My advice is, try not to panic when there are sudden drops. If you are diversified in your stocks, and have purchased only stocks that pay dividends, you can safely ignore sudden drops even if they continue for a long time. It may not be easy. But if your dividends continue to be safe, I see no reason why sudden drops should cause you any great concern.

At the beginning of your investment career, you may feel that purchasing _growth stocks_ is advisable. I see no problem with this. _Growth Stocks_ are stocks that show promise of growing greatly in the future. The problem with growth stocks is that they are hard to identify. Also, they don't dividends. Further, they may cease being growth stocks sometime in the future. I recommend that you purchase, what are supposed to be _growth stocks,_ with care. Growth stocks demand a high P/E ratio be paid. It may take a long time for that P/E to be justified. I heard an long-tune investor once state, "it may even take an eternity!"

My message about panic is, try to avoid it! Don't take questionable actions! You'll usually regret it. Try to establish a portfolio that is panic-proof, one that consists of only the best stocks you are able to find, and which pay reasonable dividends!

Stock investing is risky! All investing is risky! In my opinion, when you are investing in stocks for the long term, you are undertaking the lowest possible rate of risk that I know of. Nevertheless, it is not 100% foolproof!

Six Important Dates For The Payment of Dividends

There are six important dates, the meanings of which, you need to know when you purchase a stock that you don't already have, for the first time These are the _Stock Purchase_ _Date_ , The _Settlement Date_ , the latest _Dividend Declaration Date_ , the _Ex-Dividend date_ , the _Stock_ _Of_ - _Record Date_ , and the _Dividend Pay Date_.

The _Stock Purchase Date_ is the date you actually make the purchase of the stock. The _Settlement Date_ , three days later, is the date by which you must actually pay for the stock. The _Dividend Declaration Date_ is the date that the Board of Directors of the corresponding company declares a dividend will be paid to stockholders. The _Ex_ - _Dividend Date_ is the date that determines whether you are entitled to that dividend, the _Of-Record Date_ , three days after you purchased the stock, is the date that your name is actually inscribed into the books of the company as being an owner of the company's stock. (The _Settlement Date_ and the _Of-Record Date_ are the same date.) The _Pay-Date_ is the date you actually receive the dividend in your account.

Here, all the dates are easy to understand except the _Ex-Dividend Date._ The company decrees that you must own _the stock on the day before the Ex-Dividend Date_ in order to be entitled to getting the dividend that was last declared. The following example will help clarify what is meant by _Ex-Dividend Date._

Suppose you purchase 100 shares of the stock of _fictitious company_ , PDQ on June 1. June 1 is obviously the _Purchase Date_. Suppose a dividend is declared by the Board of Directors of the company on June 10. This is the _Dividend Declaration Date_. Suppose the Of Record Date is June 4. The fact that you are the owner of the stock was recorded in the company's books as of that date. Now suppose that an announcement is made by PDQ that stockholders of record June 4 will receive a dividend of $1.00 per share, with an Ex-Dividend date of June 2. You wonder if you'll receive the stock.

Yes, you will. The Ex-Dividend Date, June 2, means that in order for you to be eligible for the stock, you must have purchased it on _June_ _1_ or before. You purchased the stock on June 1; therefore, you will receive the dividend. If you had purchased it after June 1 you would not. Briefly, the _Ex-Dividend Date_ tells what was the last date by which you must have purchased the stock in order to be eligible for the dividend.

The Power of Compounding

This section is important because it tells you something that is not understood by many people. it has to do with the _power_ _of compounding_. Compounding means that when you invest, you add any income from the investment to the amount you originally started with. By doing this, the value of your investment will grow faster because not only will the original investment grow, but also the amounts you add. It may not sound like a big thing! It may not seem that compounding could make much difference. But it does! When you compound an investment for a long period of time, the results can be astonishing.

Ben Franklin wisely said: _"Money makes money, and the money_ _that money makes, makes more money!"_ This is what compounding is all about!

Let's consider an example. Let's assume you have $1,000.00 that you'd like to invest. Perhaps you can find a safe place to put the money where you'll receive a 6% return. From this investment, you'll receive a check for $60.00 at the end of the year. But what do you do with the money? Do you spend it, or do you invest it? If you spend the money, _it will stop benefiting you_ , but if you _add it to your original investment_ , that money will _begin working for you_. Now, you'll have two amounts working for you; the original investment and the additional $60.00. That is, your investment for the second year will be $1060.00, not $1000.00. Your check at the end of the year will be more than it was at the end of the first year. If you keep doing this with _all_ the additional checks you receive, your total investment will grow _significantly faster_ than if you merely let the _original_ _investment_ run. You can see that when you invest for retirement, your best strategy is to _reinvest_ your earnings; that is, _to compound_ your investment.

How effective is compounding? With compounding at a rate of 8%, your investment will double in about 9 years. It would take about 12 years without compounding. At a rate of 12%, your investment will double in about 6 years. It would take about 8 years without compounding. At a rate of 15%, your investment will double in about 4 years. It would take about 7 years without compounding. These are impressive numbers. With a redoubling of your investment, and a redoubling after that, the figures are even more impressive. When you invest in stocks, compounding works the same way as cash does. Select stocks that grow in value each year and let them ride for the long term. Add any dividends you receive to your investment. Even better would be to add additional amounts at regular intervals.

Let's consider retirement. The three most important components of your retirement investment plan are (1) invest only in the very best stocks that grow in value at a good rate, (2) hold on to those stocks for the long term allowing the power of compounding to work for you. And (3) add to your investment regularly.

In your life, you may need to invest also for the purchase of a home, paying the cost of your children's education, starting a new business. There may be others. It's my opinion that stock investing is the fastest way to reach the amounts you need. But, you can't achieve success by simply throwing money randomly at the needs. For each, you need a plan, and you need to adhere to it.

When I first started investing in 1955, my primary interest was to invest in _growth_ stocks, stocks that would grow greatly in value over long periods of time. I _did_ want them to also pay a dividend; however, the dividends were secondary. Some of the selections I made were good, some not. I think it's important that when you recognize you've made a mistake, you face it immediately, and sell the stock, purchasing another that you believe will do better.

In later life, I began to concentrate less on growth and more on income. Dividends became more important. Companies that pay high dividends are not hard to find; however, you need to stay with _blue-chip_ stocks. Blue-chip stocks are the best of the best! Unfortunately, there is no uniform opinion of which companies are the best of the best. You must make your own decisions about this. Later in this article, when I talk about selecting good stocks, I'll give you the criteria that I have used. I can't guarantee that the way I have select a stock is the best way. All I can say, is that it has worked for me, and may do the same for you.

Try not to use your stock account for day-to-day expenses. If you do this, your account may not grow very fast. Add your dividends to your investment, and left the power of compounding work for you!

What is the Stock Price?

When you invest in stocks, you'll be concerned with _stock prices_. Consider General Mills, for example. If you wish to purchase a number of shares of General Mills stock, you'll need to know what each share costs. This is the _price_ of the stock. If you wish to purchase twenty shares, you need to multiply the price by twenty.

Strictly speaking, there is no such thing as the _price of a stock_. There is, however, the price at which the stock was _last traded_. This is what people mean when they use the term _the price of_ _a stock._ When you purchase or sell stock, you can't depend that the price you pay will be the price at which it was last traded. If the company you're interested in, is large, it will probably be exactly the same or very close. As a general principle, I suggest that most, if not all, of the companies you invest in, the large companies. The stock of large companies sell readily in the stock market. The opposite may be, at times, true for small companies.

The price at which a stock trades varies from day to day, even from minute to minute and even moment to moment. It might be $42.10 per share at ten a.m., then $42.11 a moment later. The price is determined by what people are willing to buy and sell for. For every purchase there _has to be_ a seller. And for every sale, there _has to be_ a purchaser. The price of a stock could vary only a little from one second to the next, or it could vary a great deal. Much depends upon how sellers and buyers feel about their stocks at any given time. Keep always in mind that the changes in prices could be far more for small companies than for large.

You may learn what the current prices of stocks are in various ways. One way is to connect online to your brokerage account and type a request for a _quote_ for the stock in which you are interested. The price you receive is the price at which the stock was _last traded_ (bought and sold) in the stock market. This price will usually not change a great deal if you place your order for the stock right away. Under rare, and/or unusual situations, the price of a share might change drastically between the time you obtain a quote and the time you purchase it. There are various ways you can protect yourself against such large swings. When you place an order by typing your request, the computer will ask you wanted to be a _market order_ or a _limit_ _order_. You already know that a _limit order_ is safer. It helps you avoid a surprise when you find out what you paid, or for what you sold a stock. If timing your trade is truly an issue, it is all right to use a _market order_ if the company associated with the stock is large, and the trading is heavy for the day. But always stay with limit orders as a general rule!

The Stock Symbol

Stocks sold on the major stock exchanges are associated with _stock symbols_ , also called _ticker symbols_. You need to know the symbols of the stocks you wish to purchase. For example, if you wish to purchase stock in General Mills, you need to know that its stock symbol is _GIS_. Similarly, the stock symbol for General Motors is _GM_ ; and for IBM Corporation, it's _IBM_. Stock symbols may consist of as few as one letter to as many as five.

Stock symbols are often suggestive of the names of the corresponding companies. Here are some stock symbols with which you should have no difficulty in identifying the companies they represent:

Stock Symbol Company Name

GE General Electric

GM General Motors

IBM IBM Corporation

Some symbols are more difficult to interpret; however, there are still relationships with the company names. Consider these:

Stock Symbol Company Name

CAT Caterpillar

HON Honeywell

JNJ Johnson & Johnson

MMM 3M

DIS Walt Disney

MRK Merck

MSFT Microsoft

PG Proctor & Gamble

PEP Pepsi-cola

Other symbols bear little resemblance to their company names.

Some examples are:

Stock Symbol Company Name

AXP American Express

KO Coca Cola

UTX United Technologies

PM Philip Morris

BA Boeing

There are several symbols that consist of only of letter. Among them are:

Stock Symbol Company Name

T AT&T

F Ford

K Kellogg

L Loews

H Hyatt Hotels

X U.S. Steel

If you don't know the stock symbol for a stock that you are researching, you may obtain it on the Internet at many sites that offer "Symbol Lookup." Use a Search Engine; for example, Google, to look for those words within quotes. Simply type a question like, "what is the stock symbol for General Mills?" You'll readily learn that it's GIS.

In this section, I have mentioned the names of several stocks. There are some excellent stocks here that I may recommend later. Please understand I am not recommending all of them. I have listed them as examples of stock symbols. Near the end of this article, not only will I give advice on how to select excellent stocks, but I'll also give the symbols and company names for stocks that I feel are very good for beginners.

Bid and Asked Prices

You may already know that the stock market is an auction market. There are persons and organizations who wish to sell stock. They offer quantities of their stock at definite prices. There are also persons and organizations who wish to purchase stock. They indicate at which prices they are willing to purchase. Where there are agreements, a sale and/or a purchase of stock is made. Such a transaction is called a _trade_.

When a prospective purchaser and a prospective seller of a stock are attempting to come to a meeting of the minds concerning a trade, one party may offer the stock for sale at a certain price. This amount is called the _Asked Price_. The other party may be willing to purchase at another price. This is called the _Bid price_. When there is a difference in the _asked_ and _bid_ prices, no trade is made. If the _bid_ price matches the _offer_ price, there will be _a meeting of the minds_ , and the stock will change owners. Bid and asked prices can be quickly changed by the participating parties.

The information in the paragraphs that follows is what happens in theory. It used to be true in actuality at one time, but is now automated.

At the _New York Stock Exchange_ , there is an individual who deals in the stock you are planning to sell or purchase. This person is called the _Specialist_ for your stock. The Specialist knows who are making bids and what those prices are. The specialist also knows who are making offers and at what prices. The specialist matches bid and asked prices and allows trades to be made when those prices match. Sometimes, when the bid and asked prices are too far apart, the Specialist uses his or her own stock to allow trades to take place. It is said that in using his or her own account, the Specialist is helping maintain an _orderly_ _market_.

Some years back, the Specialist worked with a booklet in which he or she had placed bid and asked prices, and who were the persons or organizations making those offers. With the advent of much higher volumes of trades, computers began to be used by Specialists for assistance in keeping everything straight. _Most of what Specialists used to do is now automated._

You already know the following. It is repeated her for emphasis.

When a purchaser wishes to purchase or sell stock, he or she can specify an order, _at the market_. What the person is saying is that he or she doesn't care what the bid and asked prices are; he or she is willing to pay _whatever_ is the going price. On the other hand, the purchaser can stipulate that the stock must be traded at some stated price. This type of order is called a _limit order_.

I recommend that if you have decided to sell or purchase stock, you should always use _limit orders_. This will keep your purchase or sale within a _safe_ and _predictable_ range. A _market order_ may sometimes be executed at a much different price than what you had expected and/or were willing to accept. If you wish to purchase or sell a given stock badly, you can make your offer close to the price of the last sale. With a _limit order_ , the price at which you are willing to purchase or sell may not happen. In that case, if you wish, you can change your _limit order_. When you use _limit orders_ , you may need to change them a few times or even several times before a trade actually takes place. If changing the _limit order_ is not working, you may decide to abandon the effort to make a trade for the time being.

If you place your order online; that is, using a computer, and your order involves a large company, your order should be executed within seconds and at a _limit price_ close to what you had specified.

What is A Stock's Fundamental Worth?

What is a _Stock's Fundamental Worth?_ One answer, easy to understand, is: A stock is worth whatever people are willing to pay for it.

While the stock market is open, the price of a stock constantly moves up and down. There are many reasons for this. The reasons are easier to understand when one realizes that, at any given moment, there are many individuals and organizations buying and selling the stock for various reasons. Many hope that the price will go down so that they can buy at a lower price ; others hope that the price will go up so that they can sell stock they own at a higher price.. Speculators purchase stock hoping they will be able to sell it later at a higher price. Others borrow stock and sell it hoping that they will be able to buy it back at a lower price. They will then return the stock they borrowed. Many individuals, who are not speculators, desire to purchase stock as a long-term investment. Many need to sell stock they own to finance personal endeavors. These activities, and others, happen at random times. Each transaction affects the price of the stock, even if only in a small way. There are many factors involved in the moment-to-moment variations of stock prices. Some cause momentary rises in the price of a stock ; some momentary drops. There are emotional reasons also that cause the prices of stocks to rise and fall. It's been said that fear and greed have a great effect on the prices of stock.

The stock market often seems to live a life of its own! One should not try to predict its action. Half the time he or she will be right; half of the time, wrong!

Some events that cause stock price movements are easier to detect. The stock market reacts to surprises. If a company suddenly reports that it has lost an important order, the price of its stock should drop. The opposite is true. If a company unexpectedly reports the receipt of an important order, its stock should rise. If it is discovered that a company has been illegally exaggerating its earnings, the price of its stock should fall. If a company should report a loss for the year when everyone had been expecting a profit, the price of its stock should go down. The reverse should, of course, be true. Unexpected news, good or bad, usually causes a definite reaction in the price of a company's stock. The rule just given _cannot_ be relied on! Surprises will occur when you least expect them!

Yes, the stock market seems to leads life of its own! At times, clearly, the stock should react in certain ways to certain stimuli. It doesn't always!

You should know that _logic has little bearing on what the stock market does_. What should happen and what actually _does_ happen under various scenarios is not always the same. If you act on what you believe should happen when an announcement is made, you might be disappointed to observe that the _opposite_ actually occurs. Some people make it a technique to always do the _opposite_ of what they believe everyone else is going to do!

Sometimes this _contrarian_ behavior is beneficial, sometimes not!

There is no mathematical formula that tells you what a company's stock is worth. You can consider historical data, the state of the economy, the political situation, the effect of the company's competition, etc., but find that the prices of _stocks lead a life of their own._ Two companies, seemingly alike in many characteristics, may have different price reactions to various events. One may react strongly ; the other not be affected at all.

On certain days when the market is strongly up, your stocks may sink! Sometimes, the opposite will happen!

What does all this mean to you? Don't try to figure out the market. Many people have tried to do this and have failed. Is it possible for some investors to have so much experience with the stock market that they being to develop instinctive feelings about what might happen under certain conditions? Yes, I think so; but I think the feelings are so minor, they don't amount to much!

Over the years, you'll hear a great deal of prognosticating about how the prices of certain stocks will behave. Or, about how the stock market, in general, will do. Take these comments with a degree of skepticism. These people will be right half the time and wrong half the time. And being right half the time is not good enough when you invest in the stock market for your retirement. You have to be right far more than half the time. Stick to your plan. You are investing in the very best stocks for the long term because you believe this gives you the best chances for success. Despite the fact, that the stock market leads a life of its own, _I believe that over the long term, the prices of good stocks will rise!_

Here is a bit of advice that may serve you well: when the stock market has been going in the right direction for you and has been doing this for a long time, and you may begin making charts showing how wealthy you will be at various times in the future, beware! This may be the exact time when the stock market will begin going the other way. And on the reverse side, If the stock market has been sinking like a rock and this has been happening day after day for a long time, and you're feeling ultra-pessimistic, even wondering if stock investing was a good thing after all;, this is the time when things may be ready to turn around. What does all this mean to you? Understand that these emotions are normal. _Resist the urge of taking hasty actions during times of ebullience and during times of pessimism. Stick to your long-term plan._

Diversify

To diversify means you invest your money in more than one stock, and in more than one industry. In this way, if one of your stocks suffers a serious setback; the others will help absorb the shock. Since you'll be watching all the stocks in your investment closely, it is unlikely that the bad fortunes of a particular stock will catch you by surprise. However, it can happen! History shows that there have been many unexpected company failures in the past. You'll be investing for a long time. It would be unreasonable to suppose that nothing bad will ever happen over the years to the stocks that you own!

The diversification of your stock portfolio does not have to be extensive. It would be all right if you could find stocks in only a few different industries; for example: technology, medical care, finance, food, and energy. It's OK to diversify with _more_ stocks. You can't over-diversify! However, it is possible to purchase stock in so many companies, that you don't have time devoted to studies that you should be making concerning how the stocks are doing. It's not difficult to discover whether your stocks are behaving as you hope and expect. Your computer can give you instant information on any stock that you are interested in. Further, the stock brokerage that you are using has a research department that gives you information on how the sales are going for your stocks, what are the dividends being paid, what are the price/earnings ratios of the stock you own, what are their yields in percentages, and tons of other facts; also graphs. I would recommend that you spend at least an hour with each stock you own each month checking out how each is doing so that you can detect symptoms of unpleasant occurrences before they happen.

In order for you to achieve the maximum benefit from a long-term investment plan, you need to keep making additional purchases throughout the period of your plan. Additional purchases can be made monthly, if you wish, quarterly, or once a year. When the time arrives for you to add to your investment, you can purchase more of the same stocks you already own, or you can select from others that you feel will perform as well or better. Use the same criteria as you have in the past when making new selections. The dividends you receive from the stocks you own can be a significant source of money for new investments.

As you can afford it, keep increasing the amount of money you invest. The more you can afford to invest, the larger will be the funds that you can draw from when the time comes to begin using your savings.

Dollar-Cost Averaging

If you suddenly receive a large amount of money to invest, you could make a serious mistake in the way you do it. If you put the entire amount into the stock market at _any one time_ , you might be doing so at the very worst time; for example, when the market is about to take a precipitous drop. You could lose a large percentage of your investment in a very short time. While disasters of this kind don't happen often, you need to take steps to avoid having them happen to you!

There is a technique for investing large amounts of money wisely. This is called _Dollar-Cost-Averaging_. The technique calls for you to break up a large amount into several smaller pieces, then invest those pieces at regular planned times. For example, you may have been fortunate enough to receive a windfall of twenty-five thousand dollars. If you break up this amount into five pieces of $5,000 each, you can invest these amounts at regular planned intervals; for example, May 1, July 1, September 1, November 1, and January 1 at 10:30 a.m. The above schedule of dates and times is only an example. You would decide what is the schedule that makes the most sense for the amounts you are investing. When you have decided on the dates and times for your investment, write them down, then make the investments at _exactly_ the dates and times planned! Be disciplined! Don't make changes to your plan at the last moment. Adhering strictly to your plan is important!

It may take a certain large of discipline for you to follow your own plan. On May 1, the market may seem to be dropping like a rock! You may reason that it would be foolish to follow through with the plan when you would surely be making a mistake. This is when you _must adhere_ _strictly_ to your plan. Simply because the market is dropping precipitously does not necessarily mean that it will continue to do so for the rest of the day. You must follow your plan despite what your intuition tells you.

Similarly, on July 1, the market may be shooting skyward. You may reason that it would be better to wait until the market comes back down. The risk is that the market may not do what you hope. Just because the market is rising does not mean that it would be unwise for you to stick to your plan.

Don't expect wonders from Dollar-Cost-Averaging. The result will _not always_ be better than if you had acted at once. Half the time it will be, half the time, it won't. But keep in mind that Dollar-Cost-Averaging could, at times, save you from making huge mistakes.

The benefit of Dollar-Cost-Averaging is that you are being conservative. You are reducing the risk of investing at the wrong time. On days when the market is down, you will receive more stock for your investment amount; on days when it is up, you'll receive less. One of the characteristics of the stock market is that it goes up and down. Nobody knows when these events will occur and/or to what extent. By using this technique, you are averaging out the effect of the up and down movements!

Dollar-Cost-Averaging can be used for the long term also. Decide ahead of time what is an amount that you feel you can afford to invest at regular times. Decide on what dates you will make those investments. As examples, you might decide to invest $2,000 on January 2 of every year; or, you might decide to invest $500 a month on the last day of the month. To make Dollar-Cost-Averaging work effectively, you must follow through on the designated days. _Resist the temptation to let your emotions control your actions._ You will be trying to outguess the stock market, and no one has ever done this consistently.

Dollar-Cost-Averaging also works when you are selling a great deal of stock. Make your decision ahead of time as to how you will handle the sales. Decide on amounts, dates, and time of day, as you do when buying. Then adhere strictly to your selling plan.

Do You Ever Sell?

So far, all I've mostly addressed in connection with investing is the purchase of good stocks. My advice, often repeated, has been, _Buy_ _blue-chip stocks for the long term._ Does this mean that you never sell? No, that wouldn't make sense. Even companies that are 100% solid can become shaky with time. Some even go broke. You wouldn't want to ride down the bankruptcy slope with any of your stocks.

_You need to watch the stocks in your portfolio_. Study the companies in which you have invested. Learn all you can about them. Examine their earnings when they are reported. Are they increasing on a regular basis, even if not a great deal? If the earnings are OK, don't worry about the stock. Does the company increase its dividend from time to time? If yes, that's a good sign. Does the company split its stock now and then? If yes, that's a good sign. Where there are good signs on a regular basis, you don't have to worry about the stock.

But, what about the other side? Are the company's earnings leveling off? If yes, do you understand the reasons? If the reasons are such that you believe the problem is temporary, it's OK to hold on to the stock. However, you might plan on selecting a different one next time you make a purchase. Have earnings begun dropping? Has the company warned that there are even worse reports to come? This stock should be sold. Do this even if you have owned it for many years and it has become a good friend. There is no room for friendship when you are investing for your retirement. _Never marry a stock!_ Your stock may surprise its stockholders with an especially bad earnings report. If it is not clear that the reason was temporary and unavoidable, sell the stock at once. It may already be dropping on the same news. Sell anyhow. Cut your losses! This stock has ceased to be one that is suited to your type of investing.

Sometimes common sense will tell you which way a business is headed. Is one of your companies in a dying industry? As an example, consider the advent of digital cameras. In an era where almost everyone has turned to digital, could film cameras hold on to any sort of market? Another example has to do with energy. With energy sources costing more and more, are other sources of power likely to replace coal, gasoline, and natural gas? Are auto manufacturers offering autos equipped with hybrid engines, electrical, fuel cell, or hydrogen power? In entertainment, is your company concentrating on the right audiences? Will the nature of radio broadcasting change over the years? Will most autos be powered by electricity in the future? These and other questions should be uppermost in your mind as you review your stocks. Don't hesitate to sell a stock if you are _convinced_ that its day is over. Don't sell when you see good reasons for temporary reversals. If a stock is down but you're convinced that the reason is temporary, or is down because of a general business condition, stay with your plan. While the stock is down, you could be getting splendid bargains with your Dollar-Cost-Averaging technique.

_One of the most important fundamental measurements for a stock is its earnings record._ Know when your companies will announce their quarterly or yearly earnings. Read the reports carefully. If the reports seem good, ask yourself if they are really good or whether the information is deceptive? If the reports are bad, are they worse than what is being stated? Read the opinions of others in the Wall Street Journal. Keep in mind that when earnings go up, your stock should be held; when earnings level off or begin to go down, you may need to make some changes. Yes, you do need to sell from time to time. You sell when you believe a stock you own is no longer conforming to your long-term expectations for it. Sell all you own and put the proceeds into stocks that will perform better for you. Don't hold on to the idea that, " _it will come back_." Stocks that fall a great deal, don't come back very often.

How to Select a Good Stock

You've done a lot of reading; it's time for you to make your first purchase. If you have decided to go with a full service broker, make an appointment with the broker representative and visit him or her at the appointed time. Discuss with that person what you wish to do. Tell the individual that you wish to be a serious long-term investor and want to invest in quality stocks. Also mention the stock or stocks that you have in mind. See if the representative has anything to say that may change your mind about what you're doing. If not, go ahead with the purchase.

If you're making the purchase online, begin taking the proper steps yourself. In either case, read the remainder of this section. Make your selection for a stock using the guidelines I show below.

1. If at all possible, select a stock that is listed on the New York Stock Exchange.

2. If at all possible, is in the Dow Jones industrial average.

3. Has a P/E ratio between 15 and 25. It is all right to stray a little from these numbers, but not a great deal.

4. Select a stock that pays a regular, quarterly dividend. The yield is secondary in importance, but it should be at least 2%. Higher percentages are desirable, but be wary of stocks that may be paying as much as 6% or more. Something may be going on that you need to know about.

5. Select a stock that has a long history of paying dividends.

6. Select a stock that has a good history of periodically increasing its dividends.

7. Select a stock that has a good history of earnings growth over the years. Don't be too rigid. The dip now and then would not be a reason for rejecting it.

8. Select a stock that has periodically split its stock.

9. Select a stock where the name of the company is familiar to you, and is a name that you respect.

Finding a stock with all of these characteristics may be difficult. Don't be adamant; yield on one or two of the characteristics mentioned above if you deem the stock is acceptable otherwise; for example, a good stock with most of these characteristics, or that may not be listed as one of the 30 industrials in the Dow Jones industrial average. Deviating from this requirement would be OK if the company is a large, well-known company that does business globally.

You may find that a stock of your choice has a price to earnings ratio that is a little more than 25. This could be all right if everything else is OK. Don't let your broker representative, if you are using one, talk you out of your major requirements for investing. He or she may be trying to convince you to purchase something he or she prefers. This may be fine, but be sure you are not being talked into something you don't feel comfortable with.

Make the purchase, or have a representative make it for you. In a few minutes, you'll know how much you paid for the stock and what is the cost of the commission. Commission costs are very low these days.

Congratulations, you have made your first purchase! Good luck!

Some Stock Recommendations

Following are nine stocks that the author believes are good stocks to select for a long-term investment when you are planning for retirement. These were selected in August, 2017 by the author for his own personal investments. This article is being written in March, 2019. The author still recommends the same stocks. The author is not an investment advisor, not a stockbroker, not an expert in stocks. This article reflects how he invested for retirement during his life. The information is for background knowledge only. He does not guarantee that any of the below choices will do well over the years. Before you begin the long term investment for retirement, it would be a good plan for you to discuss what you wish to do with your representative at a broker's office.

Discuss with him or her the stocks that are mentioned below, and which, if any, you are planning to purchase as your first investment. Throughout your investment career, you will be primarily responsible for the choices you make. Try to make the best choices you can, and if you make a mistake, cut your losses, and learn from them.

CLX (Clorox) Approximate price per share on this date, $158. P/E Ratio, 26. Quarterly Dividend, $.96. Yield, about 2.44%

PG (Procter and Gamble) Approximate price per share on this date, $100. P/E Ratio, 24. Quarterly Dividend, $.7171. Yield, about 2.88%.

PEP (PepsiCola) Approximate price per share on this date, $116. P/E Ratio, 13. Quarterly Dividend, $.9275. Yield, about 3.2%.

PM (Philip Morris) Approximate price per share on this date, $86.65. P/E Ratio, 17. Dividend, $1.14. Approximate yield, 5.27%.

PFE (Pfizer) Approximate price per share on this date, $43.10. P/E Ratio, 16. Quarterly Dividend, $.36, Approximate yield, 3.34%.

JNJ (Johnson & Johnson) Approximate price per share on this date, $136. P/E Ratio, 24. Quarterly Dividend, $.90. Approximate yield, 2.64%.

GIS (General Mills) Approximate price on this date, $47. P/E Ratio, 13.47. Dividend, $.49. Approximate yield, 4.24%.

KO (CocaCola) Approximate price per share on this date, $45. P/E Ratio 29. Quarterly Dividend, $.40. Approximate yield, 3.56%.

Educate Yourself

This article can only get you started. It can't keep you on track. You are responsible for this. It's like the person who has set out to build a house. This individual follows the adage that _well begun is half done_. First, there needs to be a plan, and the plan must make sense. It's the same with stocks. The advice in this article is to purchase only quality stocks that are listed on the New York Stock Exchange, our members of the 30 stocks in the Dow Jones industrial list, have good earnings records, etc. then, hold those stocks for the long term. That's the well begun part of the advice.

But there is more to an investment plan that purchasing stocks and holding up for the long term. You need to understand what you're doing, behind your stocks. Learning these things will require effort on your part. You'll need to read a good financial publication regularly. The one I recommend is the Wall Street Journal. Have it delivered to your home every day, more to your office where you can read from it during the lunch breaks. You need to read the quarterly reports from the companies you've invested in. You should keep up with the innovations that business and in investing. Doing these things, will help you keep abreast of the market and in tune with what is happening in the world. It is through this serious study that you will begin to gain the insight that will help you make wise decisions concerning whether to buy or sell certain stocks. Large investors do this kind of studying every day. You may not be a large investors now, but you can aspire to be. You need to do your part in achieving this goal _by educating yourself_!

What Is Your Goal

Being successful in stocks requires a logical, cautious, conservative approach. It also requires patience. I you to believe that you can be successful by using the techniques described in this article. Success is in your future. But you must have a mindset about how you're going to accomplish this.

First, you need to define a goal; how much wealth do you wish to accumulate for your retirement? You can achieve a modest goal of $100,000, or more difficult to reach goal of $1,000,000. You need to decide which of these goals you wish to achieve, or something in between.

Let us say your goal is $100,000, how can you achieve this objective in twenty years? The following plan is only one way. There are others.

1. At the rate of 8% each year. We have already discussed how to do this.

2. Make an initial investment of $2000 in this stock. That is, buy as many shares of the stock as you can with this amount of money.

3. At the end of the year, add $2000 to your investment. Purchase shares in the same company, or in another company that you believe will do just as well as the first, or even better.

4. Repeat step three at the end of each year that follows. Ordinary arithmetic will show that your investment will be worth over 100,000 at the end of the 20th year.

To review, 20 year plan with a goal of $100,000.

Initial investment: $2000.

Additional amount each year: $2000.

Rate of growth: 8%

Let's consider a 20 year plan with a goal of $250,000.

Initial investment: $5000.

Additional amount each year: $5000.

Rate of growth: 8%.

Let's consider a 39 year plan with a goal of $500,000.

Initial investment: $2000.

Additional amount each year: $2000.

Rate of growth. 8%.

You can see where this is going. Do you wish to achieve a goal of $1,000,000? The idea is the same. See if you can calculate your own 39 year plan with this goal!

I must emphasize that the above are only plans! Not all plans work as expected. These plans may work as designed, or they may work better than designed, or they may fail. Based on my experience with stocks, I offer these as reasonable plans that have a _good chance_ of succeeding!

Yes, I agree that finding stocks that grow at the rate of 8% a year, or more, is not easy to do. I cannot guarantee that you will be able to do this. However, I can provide advice that will give you the greatest chance of having these things happen. That is what this article has been all about.

Perhaps you feel you would have a greater success with a plan that works better at 3%. Well, then use that plan! How about 5%? Then use that plan! There is nothing wrong with making plans! I believe if you follow your plan strictly as you design it, it may not work as you expect, _but it will work to some degree_! _Any_ degree is better than _no_ degree!

We've already talked about believing that you have no money with which to invest. Do not accept this as a reason. In this article, I showed you that you really do have money, only, you did not fully realize it yet!

Suppose you can't stand having your investment go up and down on a daily basis. Then, investing in stocks is probably not for you! But you must do _some_ saving! Otherwise, when retirement time comes, you may find that you do not have enough money with which to do it!

Save something with each paycheck! At first, you may find this difficult to do! But you'll soon get used to _paying yourself first with each paycheck_! As soon as you are able – say, when you get a raise, increase the amount that is automatically deposited to your savings account.

The investment plan that is described in this article calls for steady investing. Therefore, don't stop saving when you've saved for one year! Persist with your plan, then whenever possible, increase the amount that is automatically deposited in your investment.

Should you keep some money in reserve when you save? In general, the answer is _yes_ , but there are no definite rules here. Some people feel they can function with zero dollars in savings, while others don't feel comfortable unless they have a three-month supply. Only you can decide how much of your funds you can commit to stocks. If a sudden emergency comes up and you need money quickly, don't forget, you can borrow from your _Margin Account_! But you need sufficient discipline enabling you to repay your loan as quickly as possible!

You can also keep in mind that if you are purchasing a home, you are building equity that you can borrow from. You need to have a _Line of Credit_ with your bank. When you feel you are ready to apply for such a line of credit, talk it over with someone at the bank where you already have a checking account and the savings account! I have a line of credit with my bank that I never use! But I know it's there in case I need it, and that is a comfort!

Yes you can also borrow from your life insurance. I don't believe in _Full Life Insurance_ from which you can borrow. You can get more insurance for the same amount of money with _Term insurance_! Think carefully, what kind of insurance you should get when you invest some of your money in protection for your family!

A final word: retirement is expensive! When you begin, it may seem so far away that you don't have to worry about it. Yes, that may be true! It was true for me when I was 25. I am 95 now. I am retired. When I retired, I had no doubt that I would not be able to pay my bills for the rest of my life! But I began an investment plan when I was in my 20s. _You should also!_
