Steve Reitmeister lives and breathes stocks. Starting in 1999 as the managing editor of the Zacks.com newsletter, he led it to the single best record in picking stocks. Since then, he's been promoted to Executive VP and become the face of the company.
He took a little time to tell us how our approach to investing could use some work, no matter how we do it.
What's the first step for new investors?
Assessing goals. What are you saving for? House? Family? Vacation? Retirement? People do fairly well in planning for the short-term goals. Unfortunately, it's the long-term ones like retirement they often keep putting off for some later date that doesn't come til it's too late. And thus, most people retire with virtually no savings. With just a little planning and dedication early in the game, they could have enjoyed a more pleasant retirement.
What common misconceptions about investing are still out there?
Really, there are two common misconceptions. Interestingly, they are at opposite ends of the spectrum.
Investing Is Easy: These folks are too easily swayed by the overzealous promises of the predators in the investment industry. I am talking about those peddling outrageous "get rich overnight" style performance. These silver bullet chasers find out the hard way that the only one getting rich overnight is the guy who sold them the system.
Certainly, there are strategies that have outperformed the market over the years from trusted organizations. Typically the performance is in the neighborhood of 15-30% per year. That is much better than average and will certainly help grow your money over time. Anything promising more than that should be viewed skeptically.
Investing Is Difficult: These people have been scared off by the two nasty bear markets over since 2000. And it's hard to blame them given how much profit they ripped from the market. However, these folks mostly fell into the trap of "buy and hold" investing, which is a long-term-only approach.
Sometimes the best way to make money is to go short the market, and that is so easily done with inverse ETFs. So just broadening their horizons one notch to consider going short would greatly improve their results.
How often should you evaluate your investing strategy?
I believe an active trading approach is the key. Now, I am not talking about being a day trader jacked up on Red Bull looking at eight computer monitors simultaneously. I am saying that a person can be successful trading on a weekly review basis to make sure their strategy and positions are sound.
However, I think they are better served with checking it at least once per day on the key metrics that matter, like earnings projections to make sure that the prime reason they bought the shares, to generate growth and higher share price, continues to be in place. Websites like Zacks.com offer a free portfolio tracker and daily email alert system, which make it easy to stay on top of this information. In about 30 seconds per day, they can scan all the pertinent information on their investments and make sure things are all good. And if not, then take action to sell the weaklings and find better positions to own.
What should we be looking at before investing in a company?
When you boil it down, all companies are valued the same way. That is based upon the projections of future earnings and what we are willing to pay for those earnings today. That is true for buying a simple company like a hot dog stand down the street or IBM with 400,000 employees. Simply stated, if earnings estimates are going up, then a company is worth more than it was before and investors will chase the price up. Conversely, if the earnings picture is headed south...so, too, is the perceived value, and the stock is likely to under-perform.
We analyze three different measures of estimate revisions along with the health of past earnings surprises to determine which stocks to buy and which to sell.
What's the future of investing? Will we all be playing the stock market?
Yes, more people should take control of their investments. The key is doing it with proven systems and having the right mindset of what it will take to be successful: active involvement, but not expecting overnight riches. Also, technology is doing a great job of lowering the cost for investing. Just look at how much information is for free on websites like Yahoo Finance, Marketwatch.com or Zacks.com. Plus, ETFs are a great example of cutting costs versus mutual funds. And in the brokerage world, you see that most trades are under $10 and many half that price. So it is easier and cheaper than ever to effectively manage one's money.