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Published:
November 23, 2015

High Level Investing For Dummies

Overview

Enhance your investment portfolio and take your investments to the next level!

Do you have an investment portfolio set up, but want to take your knowledge of investing a step further? High-Level Investing For Dummies is the resource you need to achieve a more advanced understanding of investment strategies—and to maximize your portfolio's profits. Build upon your current knowledge of investment, particularly with regard to the stock market, in order to reach a higher level of understanding and ability when manipulating your assets on the market. This approachable resource pinpoints key pitfalls to avoid and explains how to time your investments in a way that maximizes your profits.

Investing can be intimidating—but it can also be fun! By building upon your basic understanding of investment strategies

you can take your portfolio to the next level, both in terms of the diversity of your investments and the profits that they bring in. Who doesn't want that?

  • Up your investment game with proven strategies that help increase profits and minimize risks
  • Avoid common pitfalls of stock speculating to make your investment strategy more impactful
  • Understand how to time the market to maximize returns and improve your portfolio's performance
  • Uncover hidden opportunities in niche markets that can bring welcome diversity to your portfolio

High-Level Investing For Dummies is the perfect follow-up to Stock Investing For Dummies, and is a wonderful resource that guides you through the process of beefing up your portfolio and bringing home a higher level of profits!

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About The Author

Paul Mladjenovic, CFP, has written four editions of Stock Investing For Dummies and has taught would-be investors about stock investing since 1983. As a certified financial planner, he personally coaches his clients on stock investing strategies.

Sample Chapters

high level investing for dummies

CHEAT SHEET

In high-level investing, investors and speculators track the major markets and critical global issues that affect stocks and other securities, both in the United States and other major markets. Check out the following sites, tools, and pointers to stay informed.Intermarket sites that are useful for high-level investingStocks can go up or down based on major movements in related markets.

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Articles from
the book

Here are ten respectable investing pros whose work you can take very seriously, no matter what your skill level. Remember, no one knows everything, and every expert or authority is an avid reader of many others who are great in their singular pursuits. Doug Casey: Casey has been a successful investor and analyst for nearly 50 years, and he's made a fortune for his readers in the resource markets.
If you watch and invest in the market, you get to see so much — what works and what doesn't work, which qualities help you and which ones don't, and more. Which ten traits keep coming up as you watch great investors do their thing? Keep reading. Measuring twice Successful investors do their homework (another cliché with endless truth to it).
Maximizing gains is every investor's goal. Who doesn't want to get the most from their stock investing pursuits? These ten strategies are meant to maximize stock (unrealized) gains you either currently have or can take advantage of. Some methods lock in profits, and others are aggressive moves that could produce mind-boggling gains — if you're correct.
Even the legendary investing and speculating pros have failures and losses. The key is that all these people learned from what they did and modified their approaches going forward. Here are ten aspects of losses, either helping you minimize them or suggesting what to do if you have them. Use stop-loss orders "Have your profits run, but limit your losses.
Before you bet real money, it's often a good idea to test your trading, investing, or speculating approach. Here are five great (free!) sites to help high-level investors learn through simulated trading: Wall Street Survivor: This site provides great courses on investing for beginners and experienced investors.
Option strategies augment any high-level investor's or speculator's overall approach. If you do option strategies of any kind, the following practices will help you get ahead: Discipline: Successful options speculators make sure they aren't susceptible to emotions such as fear or greed, and they try to avoid a bias.
A collar is an option combination that involves buying a put option and writing a covered call on a stock or ETF that you own in your portfolio and that you're concerned may decline in the near future. The zero-cost collar is another option strategy. When the market is looking dicey in the short-term, what do you do with your investment portfolio?
Most speculators understand that you can buy calls for bullish speculating and that you can do covered call writing for income. But on some occasions, calls can be a form of hedging. When would you use call options for protection? If you're doing short selling because you think that a particular stock or asset is a good bearish candidate, consider buying a call option against your short position as a form of insurance.
When you can buy put options and even long-term put options, why bother doing a short sale? A put option is a great vehicle for speculating that a stock or other security will fall in price in the near future. Finding the "worst" candidate When you're researching put options to buy, keep in mind that you're looking for a stock whose company has terrible fundamentals and whose stock price is much higher than the company's intrinsic or book value.
Many people buy puts as a way to speculate, but you can consider using put options in an entirely different way: as insurance or hedging. Suppose you're a long-term investor, but you're worried about the next few months. You've been reading reports about problems in the general economy, or maybe some worrisome issues are arising in an industry you've invested in.
Just as there are rules developed for call option buyers, option writers also have some rules for covered calls. Remember a call option is a contract that gives the buyer (holder) the right — but not the obligation — to buy 100 shares of an underlying asset at a given price (the strike price) on any business day before the option’s expiration date.
In high-level investing, investors and speculators track the major markets and critical global issues that affect stocks and other securities, both in the United States and other major markets. Check out the following sites, tools, and pointers to stay informed.Intermarket sites that are useful for high-level investingStocks can go up or down based on major movements in related markets.
Besides concentrating on gains, you should try to earn steady income in your portfolio, too. Some superb exchange-traded funds (ETFs) concentrate on dividend yield, which deserves consideration for virtually any portfolio. Dividend-growing ETFs aren't about stocks from a particular industry, sector, or region.
Sometimes you want to deploy a shorting strategy but aren't sure which vehicle is best suited to the bearish opportunity that you're eyeing. The following discussion covers the most common ways to go short in bearish situations, including inverse ETFs. Actually going short Going short is the most direct way to make a profit from the falling price of a particular stock or a regular ETF.
The best way to see an inverse exchange-traded fund (ETF) at work is through an actual example. The figure offers a chart of oil (the crude oil price as per the electronic NYMEX futures market) and how it performed in 2014. Added to the chart is an inverse ETF, the United States Short Oil Fund (DNO). The figure indicates the full year's price movement of both.
If you're looking for small-cap stocks, consider starting your search with top organizations that may already have those stocks in their portfolios. If experts chose small-cap stocks for an exchange-traded fund (ETF) portfolio or for a mutual fund that specializes in small-cap stocks, those stocks probably offer a good starting point for your research.
In going short, you aren't worried about your stock falling (odds are you're either relieved or happy). Instead, you're worried about your stock going up. After all, the more that stock goes up, the more you stand to lose. Limiting your losses is more important when you're shorting versus when you're long. Why?
Whether you're currently in an option or you're looking at getting into an option, you need to be able to read an options table like the one in shown here. Options tables are actually easier to read than the stock tables. A Sample Options Table Column 1 2 3 4 5 6 7 Option Symbol/Option Type Last Net Change Bid Ask Vol.
Out of all the vehicles and strategies an investor has, the simple call option (or the long call) has the biggest bang for the buck for bullish speculators. There are two basic considerations for success in using call options to make big gains: content (the underlying asset) and timing. The underlying asset is key The big secret to success with options actually has little to do with options; success ultimately depends on the underlying asset.
Stocks can go up or down based on major movements in related markets. These sites track other major markets that can (or will) have a major impact on today's stock market (and possibly your high-level investing pursuits): PensionTsunami: Pensions are massively underfunded across the corporate and government world; this site gives you all the news and analysis on this critical topic.
Many times, the great investors look at indicators of what's happening in the overall stock market. The Warren Buffett Indicator is one indicator, named that because most likely because no one else is looking at it. Buffett compares the GDP (gross domestic product, as calculated by the Bureau of Labor Statistics) with the total market value of stocks in the S&P 500, the major market index.
Inverse exchange-traded funds (ETFs) are a high-powered bearish tool, so you don't whip them out for just any old occasion. You need a plan, and you resort to inverse ETFs when conditions warrant their use. Following are two such occasions. Speculating Speculating is the primary rationale for using inverse ETFs.
Stock investing is meant to be a game of logic and numbers. However, you're only human, so it's hard to invest in stocks without letting your emotions get in the way. Emotions make your stock investing riskier. In the age of Facebook, LinkedIn, Twitter, and so many other social media venues, it's easy to get swept up in crowd psychology and buy something popular.
In the age of tablets and smartphones, you can stay on top of your high-level investing pursuits with popular and powerful apps to keep track of stocks, do research and analysis, follow financial news and views, and more. You can find these apps on Apple's iTunes site or via your favorite search engine: Forbes Intelligent Investing app: Forbes is a financial site, and this app has many features and tools for electronic investing.
Micro-cap and small-cap stocks are tailor-made for speculators. Whether you're doing short-term speculating (such as trading) or long-term speculating (hoping your choice eventually becomes a major investment), you're gambling. You may not be putting a fortune on the line, but it is your hard-earned money. Here are some small-cap guidelines to keep you sane — and hopefully profitable: Know your goals.
The spread is one of the most common option combinations. Spreads can be bullish or bearish. When you understand the most basic setup, in this case a bull call spread, every other spread should be a piece of cake. A bull call spread is a combination of buying a call option (a long call, also referred to as the "long leg" in the combination) and writing a second call option (a short call, also referred to as the "short leg" in the combination) that has a higher strike price.
In a bull ratio spread, you're buying two call options and one put option. If your predictions are right, your biggest gain will come from the two bullish legs, the two calls. If you're wrong, the put just might save your bacon. The table shows a typical bull ratio spread. A Sample Bull Ratio Spread The Legs Strike Price Cost/Price Expiration Long call 1 $50 Pay $100 Dec.
The call option is a powerful tool for the bullish. Here are some golden rules for call option buyers with which you should become familiar: Call options expire worthless if you aren't careful. Note that you don't have to be an expert in how options work to make money with them. The real secret is in being proficient with the underlying asset.
When you sift through the decades of stock market trading and you research what penny stocks and small-cap stocks have done, you see a definitive profile of winning small-cap stocks. Regardless of industry or sector, there are clear signs to look for in identifying the small-cap stock that could soar and earn you some phenomenal gains.
The essence of short selling is that the stock you're choosing to go short on is first borrowed by the broker, placed in your account, and sold instantly. If you're correct and the stock goes down, you can then buy back the stock at a profit and return it from whence it came. Keep in mind that "borrowing stock" is the heart of the short sale.
How bearish are you? Or rather, how much of your neck will you put on the line with your bearish expectations? The type of inverse exchange-traded fund (ETF) that you choose to employ depends on how deeply you believe that your outcome will materialize and how aggressive you want to be. Inverse ETFs aren't all or nothing.
The synthetic long is a great bullish combination. It can offer an unlimited bullish gain potential and no losses. In fact, if you time it well, the synthetic long could also give you a net credit. What's the catch? Well, you may end up buying a stock you love at a reduced price. The synthetic long is a simple combination, as you see in the table.
If you want to really turbo-charge your bullish strategies, consider using leveraged exchange-traded funds (ETFs). Leveraged ETFs (as the name clearly indicates) seek to amplify returns by using leverage. Leverage means either using margin or options combinations. These ETFs are certainly risky and more volatile than other ETFs, but if you're looking for high potential in the short term and don't mind the commensurate risk, then leveraged ETFs may be just what you're looking for.
Inverse ETFs are exchange-traded funds that structure their portfolios to take advantage of downward moves of a given index, asset class, or type of security. They generally have some combination of actual short positions, put options, and derivatives. An inverse ETF is designed to help speculators conveniently be bearish or short an investment.
"Buy low, sell high" is such an ingrained principle that it needs no explanation. But shorting is essentially the opposite, and therefore it becomes a head-scratching lesson even for some intermediate investors. Before you dig into the world of shorting stocks, here are a few essential points to keep in mind: Making money shorting stocks is not a bad thing, morally speaking.
If you're seeking to boost income from your portfolio with a relatively low-risk strategy, then covered call writing is worth considering. You won't lose money if you write covered calls in a disciplined way. However, this approach does come with one risk: You may be forced to sell your asset — at a profit. When you write a covered call, you receive income in the form of the premium (paid by the option buyer).
When you write (sell) a put option, you receive income (the premium), and in exchange you have an obligation: to purchase the underlying security at the option's strike price if the option is exercised. Given that, here's the first rule of writing put options: Write puts only on stocks or assets that you would love to own.
People who consistently do well with short selling tend to follow a plan in terms of both identifying stocks that are shortable and watching for market signals as to the timing. Fundamental analysis — looking at the company's numbers (sales, profits, and so on) and related data (industry factors, market factors, and the like) — will help you create a pool of candidates from which to choose for your shorting strategy.
Timing is everything with short selling, so technical analysis is valuable. Sellers in the market may not immediately recognize that a company has bad fundamentals (identified from fundamental analysis). Sometimes the stock of a bad company trades in a narrow range and doesn't break to the downside until some months have passed.
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