This lesson focused on hot topics in the investment world. Obviously, by the nature of discussing “hot” topics, conditions can change quickly, sometimes making hot topics cold and others newly hot. However, the issues in this lesson have been “hot” for some time and should continue to be important for the foreseeable future.
Further, just because an investing theme is “hot” does not mean you should shun it. There are always opportunities to make money in these situations. The first way is by acknowledging and embracing the hot trend. As the saying goes, “the trend is always your friend” and if you are able to “ride the wave” of a hot investing theme, there is lots of money to be made while the speculative bubble is growing larger. However, you MUST know when to get out before the bubble pops and prices plunge!
The other way to play a hot investing trend is to short it: bet that the trend can’t continue forever upward and that prices will soon fall. The danger in this strategy is that, as economist John Maynard Keynes has famously remarked, “markets can stay irrationally strong longer than you can stay liquid.” So, the key is getting your timing right if you want to short a hot investing trend.
The wisest choice, especially for a new investor, is to keep your money far away from anything that seems too popular, too hot or too much of a “can’t miss” investment.
Once again, knowledge is power. The reverse, lack of knowledge, can become problematic in the investment world. Having a basic understanding of the popular topics in this lesson should help you increase your successes and better control your losses. Like a successful sports team, at the end of measurable periods (day, week, month, quarter, and year), you should strive to have more wins than losses. You needn’t strive to be perfect, as you might become discouraged. Try to achieve a good knowledge base and a smart strategy to maximize your winners. Be aware of the “hot” topics and use them to help you achieve your investing goals.
Taking advantage of price differences in at least two different markets by buying the same security at the cheaper price and immediately selling it at the higher price.
Bulletin Board or OTC Stocks:
Stocks that trade on the NASD with tickers that end in an “.OB”, but have no listing requirements, very small revenues and assets, and prices that are volatile with light volume and large bid/ask spreads.
The buying and selling investments (stocks, futures, stock options, commodities, currencies, etc.) within the same trading day, so that all positions are closed before the end of each day.
Pink Sheet Stocks:
Stocks that are quoted by the National Quotation Bureau, have tickers that end in “.PK”, are smaller than the OTCBB stocks, and that don’t even have to file financial statements with the SEC.
Identifying “channels” or “tunnels” of price movements on a stock’s chart and then buying when the price gets to the bottom of the channel and selling when it gets to the top, usually over a few days.
Try your hand at one of the investing styles described in this chapter that interests you the most and make several trades in your practice account to get a feel for how the strategy works.