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Recognizing investment opportunities takes know-how

Recognizing good investment opportunities starts with a good understanding of the stock market and its rules. Investors who have moved beyond the basics are in much better position to invest into individual companies instead of mutual funds and other options.

“A real simple rule of thumb is to look for a large, well-established company, fairly dominant in its industry, with a long track record, that has come into a rough patch in the road, preferably due to external factors, but it can be due to internal as well, that are isolated and can be corrected,” said Ed Stern of Piper Jaffray. “Look for a stock in this kind of company, with a dropping stock that looks to be approaching bottom after a string of bad news…The key is to buy on a continued string of bad news before any good news.”

Investors with time on their hands and a desire to learn are more likely to take the risks of doing day-trading and online investing. The average busy person who doesn’t understand the stock market, should drive away at 100 miles per hour. But for anyone who likes high risk and is more of a gambler, online investing can be an interesting — and relatively easy to undertake — hobby.

Setting up an online account with firms like Ameritrade is relatively easy, but several questions have to be answered — like determining whether you want a cash or margin account and how much risk you can handle.

“It’s a dangerous world out there and the situation for every individual is different,” said Pete Crane with Salomon Smith Barney Inc. “If you want to do online investing, that’s fine, but I would do it as part of a bigger strategy.”

It’s a myth that everyone makes a killing investing online, says the Investing Online Resource Center , a noncommercial organization created to help consumers who want to invest online, and funded in part by the Washington State Department of Financial Institutions. Although online investing can be a powerful tool, it only works for disciplined investors who diversify, says IORC — and many people may not realize that day trading is not foolproof and may have additional costs not obvious immediately.

If you’re looking for investing opportunities that have low-risk, consider alternatives that have a smaller return but are more consistent in the long run.

“If it sounds complicated and you’re too nervous to invest in the stock market, there are fixed income vehicles like bonds and CDs. It makes it attractive because it’s predictable and locked in,” Stern said. “You know exactly where you stand.”.

 
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