Money Management: Stock Tips For How To Manage The Stock Market

Posted on 17 August 2011

Money Management: Stock Tips For How To Manage The Stock Market: In case you haven’t noticed, the Dow Jones has been all over the place over the course of the last few weeks, especially since the announcement of the debt ceiling being raised and what the government is doing about all of these issues. However, this is a golden opportunity for the savvy stock market investor to make money in the stock market. Check out some questions that you need to ask yourself before you go into the market by buying stocks!

Question 1: Does this stock have a reason to be dropping? In most cases, the answer is no. When the Dow Jones takes these massive hits like it did last week, falling as low as approximately 10,700, virtually every single stock bottoms out. On August 8th, when the Dow Jones took its first plunge, you could have bought shares of Starbucks (NASDAQ Stock Code: SBUX) at the relatively low price of $34.05 per share. Historically, this is a stock that peaked around $30-$32 per share in 2006 and 2007 before the bottom sort of dropped out in 2008. Still, during all of this, there were absolutely no reports that Starbucks was truly struggling, just that the economy was down. At the market’s close on Tuesday, Starbucks stock was up to $38.89, a gain of over 12% in just eight days.

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Question 2: Has this stock already been plunging before the market drop? These are some of the stocks that you definitely want to stay away from. Case in point: Take Rensola (NYSE Stock Code: SOL). This green stock has really had some ups and downs, reaching as high as $15.34 per share and as low as $2.65 per share. Obviously, this is a tremendous range. The majority of the drop has occurred in the last six months though, showing a real sign of decay before the market really dropped out. Will Rensola’s stock come back? In all likelihood, the answer is yes. However, watching this stock reach near its 52 week low well after the Dow Jones had dropped and then come back was just too much to stomach. Following Tuesday’s drop of $0.20 per share, Rensola is down to just $3.58 per share and is certainly a stock to avoid.

Question 3: Am I in this for the long run or the short term? If you’re in it for the short haul, meaning the next few weeks or months, you have to be willing to take some risks and to go with the ebbs and flows of the whole ordeal. The short run players in the stock market are the ones that you really have to feel for right now. If you don’t know what you’re doing and you’re simply looking at how a stock did on a particular day, you could really get caught making some terrible choices. Of course, if you do know what you’re doing, there is tons of money to be made, and most of it will be made on relatively cheap and volatile stocks that only dropped because of the general economy and not because of a fundamental problem with the company that you’re investing in itself. The long term stock market player will definitely have ebbs and flows as well, but the truth of the matter is as long as he or she is invested in solid, long term growth stocks, he or she will be just fine. Ten years from now, we’ll be talking about the Dow Jones Industrial Average sitting at 30,000, not the 11,405 that it closed at on Tuesday.

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