John Randall Shores, CPA, PA
Certified Public Accountant
Pensacola, Florida
850-444-9979

RULES FOR INVESTING

The recent history of the market has shown that even a sophisticated investor can lose money very quickly in the stock markets.  Historically, the stock markets have outperformed most other investment vehicles. The following are some basic rules even a sophisticated investor should consider when investing in equities. No investment decisions should be made solely on the basis of the following information. This information is of a general nature and does not take into consideration the specific goals and objectives of all investors.

1.) DO YOUR RESEARCH! It is surprising how many investors make investments based on "hot tips" from everyone from their bartender,
     barber, taxi driver, manicurists, etc. These "hot tips" are often followed, without any research or verification of the logic of the investment.
     Please remember most talking heads on T.V. have hidden agendas or "conflicts of interest" they do not tell to their listeners.

2.) ALWAYS DIVERSIFY YOUR RISK! The 2008 and early 2009 drops in the markets caught many long time savers by surprise. One of the
     most common mistakes was the lack of diversification. Employees who had put 20 years of 401k savings in their employer's stock
     without any consideration of the risk they were assuming by investing 100% of their financial future in one company.  Understand, an
     employee of Microsoft that invested for 30 years in Microsoft stock may have done very well.  However, it is the rare company
     that will performed as well as Microsoft did in its first 20 years.

     Even a small investor can achieve some measure of diversification through mutual funds and other methods. Recently, we have
     seen major banks go down because they consentrated primarily in high yielding sub-prime mortgages. Obviously, the Bernie Maddoff 
     investors forgot to diversify.

3.) CONSIDER STOP LOSSES FOR YOUR INVESTMENTS! After researching a stock and the stock's price fluctuations, you should consider
     entering a stop loss particularly when entering into a new stock position. "Stop losses" are points at which your broker will automatically
     sell your stock if it should go below the pre-designated stop loss price. 

     Most investors buy stocks to make a profit, but if soon after you purchase a stock, the price drops more than 10 to 15%, you should
     reconsider your analysis of the stock. Even the most sophisicated investor does not always pick winners. Stop losses are a method
     of  limiting your losses. If you are still interested in the stock you can repurchase it at a lower price. 

     Once you are showing a profit in a stock you can consider whether to continue raising your stop losses to protect your profits or letting it
     expire. 

     Stop losses work better with stocks whose price is at least $15 to $20 per share or higher. For stocks below $10 per share,
     frequently normal percentage fluctuations are larger, as a percentage of the stock price. Also, the recent "flash crash" is an example of 
     risks associated with stop losses.  Sharp market movements can close a  position only because the market makers are manipulating the
     market. Which they do ALL THE TIME.
         
4.) DO NOT FIGHT THE TAPE! - This is probably one of the oldest sayings in the market. But also one of the most important. This means do
    not invest contrary to the market momentum, unless you are very brave or very rich. Do not try to pick the bottom or the top. After they have
    passed you will still have time to jump in. One of the greatest dangers for investors in the markets is when an investor's emotions cloud their 
    judgement about the market. Rational investing requires a rational mind set.

5.) SELL YOUR LOSSES AND LET YOUR GAINS RUN! - Another market saying that many investors violate. Stated another way "deal with
     your mistakes" (SELL) and "revel in your gains" (HOLD). One of the most common mistakes made by an inexperienced investor is to sell
     after a 15 to 20 % run up in his or her stock, just before the stock doubles.Stop losses are another way to protect your profits and not
     loose the potential benefits of further price appreciation.

6.) PERSONAL FINANCIAL ADVISORS - When a personal financial advisor also sells the investments that satisfy the financial plan he
     recommends, it is a clear conflict of interest. Virtually every salesman of stocks, financial instruments, or insurance products now calls
     themselves "personal financial planners". Commission salesmen are first and foremost out to earn commissions. You should not expect
     that they will place your financial interest above their commissions. Do not surrender your investing decisions totally to a broker or 
     personal financial advisor without clearly understanding the investments being made and the logic behind those investments. 


QUALIFICATIONS REGARDING THE ABOVE COMMENTS: THE ABOVE INFORMATION IS FOR YOUR CONSIDERATION ONLY. THESE RULES SHOULD NOT BE FOLLOWED BLINDLY WITHOUT CONSIDERING ALL FACTORS RELATED TO AN INVESTMENT.  IT IS NOT INTENDED AS SPECIFIC INVESTMENT ADVISE FOR ANY INVESTOR. EACH INVESTOR SHOULD CONSIDER THEIR SPECIFIC INVESTMENT GOALS AND WILLINGNESS TO ACCEPT RISKS.
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