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Avoid speculative securities. Initial public offerings (IPOs), penny stocks, and “hot tips” aren’t worth the risk. Even the best traders don’t buy all their stocks at what turn out to be lowest prices; mistakes are part of the business. But good quality stocks recover and eventually go on to new highs; losers just curl up and die. IPOs are simple to deal with. The “hot” ones go to large institutional customers; the little person might get a few shares if he/she is lucky. If you are offered a good chunk of an IPO, odds are the broker was unable to unload all the shares to institutional customers and is calling with a “hot tip” because he’s got to get rid of them somehow. Penny stocks are a speculator’s dream. A $40 stock that goes up an eighth equals a yawn, but a $1 stock up 1/8 equals a 12.5 percent gain! There’s also the ego boost of saying “I just put away 10,000 shares of X.” But “up 1/8″ can quickly become “down 1/8.” And wait until you see the commission on 10,000 shares! Temptation, get thee hence!

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Regarding hot tips in general, please face facts: You’re a small player, and when the hot tip gets all the way down the chain to you, it’ll be lukewarm at best. If an investment seems too good to be true, it is too good to be true.

Miscellaneous Tips

· Investment returns arise from two sources: appreciation in the price of the security and dividends.

· The payout ratio is the percentage of a company’s profit that is distributed to the shareholders as cash dividends.

· DRIPs offer an easy, low-cost way to build a position in a company.

· Excellent businesses possess certain characteristics such as the ability to pass on cost increases to consumers, sensible management with reasonable compensation, a Board of Directors with significant personal holdings, open and honest communication, little or no debt, tons of free cash flow, a history of share repurchases market leadership, and an attractive price.

· You always want to read a company’s annual report, 10K, and proxy statement before investing.

· The frictional expenses, tax considerations, and unpredictable nature of Wall Street make market timing extremely difficult.

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