Dont

1
Dont

• Act on tips without investigating
• Over-simplify or over-analyze
• Concentrate your money in one area
• Owning less than 5 stocks is dangerous
• Index funds are your friends
• Dont forget about Enron Worldcom

2
Red Flags to Watch For

• Only cos. With excessive debt go bankrupt
• Negative cash flow destroys value
• Chain of Acquisitions
• Provides illusion of growth
• Hides lack of organic growth
• Issuing equity dilutes shareholder value
• Financing with debt OK in moderation
• Small cash Tuck-Ins even better
• Provides bag of accounting tricks

3
Investing Strategies

• Value vs. Growth (Risk vs. Return)
• Market timing (Dont do it)
• Dogs of the Dow (at least 10)
• Dollar Cost-Averaging
• Works with stocks or funds
• Bottom Fishing (Deep Value)
• DRPs Tax Nightmare

4
Advanced Concepts

• Options
• Derive value from another security
• Strike Set execution price
• Expiration Date (Finite time period)
• Exercise Execute option
• Call Right to Execute Purchase
• Put Right to Execute Sale
• 1 Contract 100 Shares
• Advantage Sellers (Due to Time Decay)

5
Futures

• Contract Obligations
• Must be settled at expiration date
• Common with Commodities
• Oil, Wheat, Sugar, Metals, etc.
• Commodities Research Board (CRB)
• Highly Leveraged (20 to 1 potential)
• Hedgers pass risk to Speculators
• (Sellers) (Buyers)

6
Shorting Stock

• Borrow shares on Margin
• Sell shares immediately
• Buy back at a lower price
• Repay shares keep the profit
• Unlimited loss potential
• Common with Hedge Funds

7
After-Hours Trading

• Mostly large institutions
• Not an efficient market
• Prices often different from next day market open