STOCK MARKET RULES

SOURCE: MCGRAW HILL

Axioms relating to the stock market have probably been around as long as
stock trading. One of the oldest known axioms relates to selling short: He
who sells what isn’t hisen must buy it back or go to prison. The continuous
buying and selling in the stock market attracts clever sayings and words of
wisdom about what to do or what not to do in a particular situation. Always
remember that buying or selling stock involves two differences of opinion.
The buyers believe that the price will rise and the sellers believe the price is
going nowhere or down. How can axioms about trading stock be helpful?
They are based on real stock market experience, and experience is often the
seasoning that makes investors richer or poorer.
Many old axioms are still true today, while others that were once true
have changed. “Buy on Monday, Sell on Friday” is a wellknown
principle among investors, but many aren’t aware that the patter
has changed. Statistically, the axiom is not as good a strategy as it was
prior to 1990.
“Good Companies Buy Their Own Stock” might be
good for the company, but is it always good for the investor?
Bellwethers—stocks that turn before the rest of the market—have been
kicked around for decades. Part of the problem with bellwethers is their
tendency to be inconsistent, turning ahead of the market sometimes or
with and after the market other times, “Watch the
Bellwethers.”
Although many of the time-honored sayings are helpful, knowledge
of the axiom alone is not enough; it is essential to understand the meaning
behind the saying. If it is better to “Sell the Losers and Let the Winners
Run” how does an investor determine which stock is a loser
and which one is a winner? Is price the only determining factor, or should
other factors be considered? If the investor continually sells the losers,
how and when does profit taking become an event? Answers to questions
like these can give the investor a strong understanding of the full meaning
behind the axiom. These are only a few of the concepts covered in this
book. A review of the Contents pages will give a complete picture.
The one thing certain in the stock market is change. But sometimes
the old can become new again. The term “new economy” was popular to
describe tech and Internet stocks, whereas the companies that had been
around for decades became known as the “old economy stocks.” Most of
these new economy stocks became referred to as “the tech bubble” as they
came crashing down. Many of the old then resumed their label of “Blue
Chip” stocks.
A look at the list of illustrations shows the depth of coverage of this
comprehensive work. The book contains many charts of stock market
indexes and individual stock prices. Although the analysis is relevant to
the time of the charts, things change. In today’s market, change happens
quickly. The price charts and analyses are not meant to be current buy or
sell recommendations; rather they show real-world examples of the concepts
presented in the book.
The “rules” presented in this book are axioms based on investing in
and trading stocks of publicly held corporations. The concepts are
explained, examined, and exposed in order to bring about an understanding
of the many fine points of stock trading. The investor’s understanding
of these concepts will improve his or her decision-making process and
help him or her with the buying and selling of stocks. Greater knowledge
and understanding can lead to greater profits.
What’s the future of the stock market? “It’s Always a Bull Market”
Once the major powers of the world settle down and get back
to the war of business instead of the business of war, we’ll be in for some
major economic surprises. Development in countries like China, Russia,
and India could open up amazing markets for all sorts of products and services.
The one commodity these countries have is people and people need
things. As stability and growth materialize, people will demand better
standards of living, better products, and better services. It’s inevitable. It
is this kind of demand that creates earnings and higher stock prices

TO BE CONTINUED...........................