General rules of thumb from me as I'm mostly a boring trader:
Only buy large well known companies that aren't going anywhere
- Of course there's always a risk of a Worldcom or Nortel, but usually these companies ride through thick and thin. And if they have a big earnings drop, they won't drop 50% like a tech or small cap pharma company
- You won't be getting 10x or 20x gainers as the companies are already big
- But you also have the luxury of not having to watch the stock everyday because you are worried something will kill the company
DO NOT buy something based on dividend
- Dividends can always disappear if the company does poor. And dividend heavy stocks crash and burn if the divvy is cut. When that happens you'll be waiting eons for it to rebound. Dividend heavy stocks are often energy stocks, trust fund units, real estate stuff etc..... Wild swings and cyclical
- If it's a big stable company that pays out a 2-3% divvy (see above), than that's gravy. But if you see some obscure energy stock some reason paying an 8% dividend with a hit and miss balance sheet and income statement, forget it
- Brush up your financial report skills and see if the annual dividend (usually paid out in quarters, or for trust units it's monthly) is sustainable. You have to make sure the earnings can cover it and more so (buffer). If it looks like the company has a rocky future and that divvy doesn't look sustainable, the dividend will be cut soon. The board will try to pay out the divvy as long as possible (eating into cash or borrowing), but it gets to a point where it has to be cut. And once that happens, you're a dead duck
Contribute money slowly over time
- DO NOT try to time the market waiting for one of those big collapses that happen every decade and then buying cheap. If it was that easy, everyone would do it
