Time-Tested Strategies For Your Stock Market Investments

Savvy stock market investors utilize a number of buying and selling techniques to increase the return they see on their investments. These strategies help them figure the “right” time to buy and sell stock.

There are hundreds of ways that have been proven effective in helping to increase your earnings while minimizing investment risks. Let’s consider a few below.

Hedging

You can use the “hedging” technique to protect the money you invest by purchasing a “put” option. By hedging, you sell your stock at a given price as long as you do so within a specified time period, giving you more control over the timing of your investment decisions.

Another way to hedge your investments against risks is to sell “financial futures,” while the most expensive hedging method is to purchase put options for individual stocks.

If you are an investor with a significant portfolio of stocks, you may want to look into a put option to protect you from abrupt declines in the stock market.

Buy Cheap Dow Stocks

One strategy many investors use is to purchase the best valued stocks of the Dow Jones Industrial Average (DJIA). The tops stocks are the ones holding the lowest P-to-E ratios (i.e. Price-to-Earnings) with the highest dividend yields.

These companies have a high potential for growth and an established track record to monitor its investment history.

Buy the Worst Performing Dow Stocks

Another intriguing alternative that many investors use is to pick some of the stocks with the worst performance records on the Dow index. You can tell which stocks have the worst performance by looking at their price decline from past years.

Those this strategy seems counter-intuitive, the hope with such stocks is that they have been performing so poorly that there is nowhere to go except for up in value.

Purchase Stocks from a Broker by Buying on Margin

One option for buying shares of stock involves buying them using the money of a stockbroker. Doing so provides more shares of stock for the amount you spend on your investment because you do not pay as much to buy the stocks.

If these stocks, however, lose their value, the margin loss is much higher. Thus many investors have a stop-loss order for stocks that are purchased on margin, which is typically in the neighborhood of 10% of the total.

Dollar Cost Averaging vs. Value Averaging

Dollar cost averaging involves investing a set amount of money at set intervals of time. If prices drop, the investors receive more shares given the amount of money they spend. But, alternatively, an increase in the stock price means you then get back fewer shares for your money.

Value averaging, on the other hand, is the opposite of dollar cost averaging. Here you have investments that are assigned a regular value.

When the prices of these stocks go up, the investor allocates higher amounts of money to cover the increase. The investment is the average cost of the fund.

Value averaging is considered by many savvy investors to be a much better strategy than dollar cost advertising.