That’s doing things backwards. If you want to successfully invest in the stock market, you must start with a great investing strategy. Only then do you look at how to implement that strategy.

Don’t get me wrong, implementation is just as important as strategy and both are necessary for success, however there is a specific order in which investors must do things if they want the best chance of succeeding in the stock market.

Implementation details are the actions you take that allow you to implement a strategy which in turn lets you achieve a goal. It goes without saying, then, you must have a goal. Most investors don’t have a goal or they have a vague goal such as, “I want to retire in the future.” A proper goal is very specific, such as, “I want to have $1,000,000 in my retirement account in 20 years and six months starting with an account valued at $75,000.”

Think of it like this: hockey players, sticks and goalies are implementation details. Do you need them to win hockey games? Absolutely. However hockey players, sticks and goalies that work together to implement the neutral zone trap are using a strategy (one, incidentally, that won the New Jersey Devils a Stanley Cup) that provides the best opportunity to win.

Similarly, stock software, individual stocks, brokerage accounts and such are implementation details. Using stock software to implement a Value Investing strategy that follows Warren Buffett’s techniques to purchase excellent undervalued stocks with strong economic moats is a strategy. And using that strategy to determine if there’s a high probability you can reach your goal is the proper way to invest.

If you’re currently investing without a goal and/or strategy and simply focusing on the details, you’re probably setting yourself up to fail. You must attack the investing problem strategically, then employ the proper implementation details to give yourself the best chance of success.

For example, it may not be the best strategy to simply purchase stocks you constantly read about on the Internet. Stocks that are in the news are not likely to perform well going forward because so many investors are looking at them.

You might discover that looking at a company’s financial statements and buying those with strong fundamentals that are currently out of favour is the best strategy, so instead of wasting time and money reading news and buying overvalued stocks, you should be taking the time to properly analyze companies.

If you don’t currently have a solid investment goal and strategy, take some time right now to create them. It could be one of the most important things you do today.

The current situation has turned all that on its head. Today, everyone and their child has a computer, the internet is ubiquitous and the average man-on-the-street is invested in the stock market — even if it’s just through a company pension fund.

That means you have all the tools necessary to build your wealth in the stock market without having to rely on anyone else.

But you need to know what you’re doing.

If you learn how to invest correctly, you can have more, do more and eventually spend your time as you like rather than spending it doing what someone else tells you to do.

You see, just because you have access to powerful tools and financial data, doesn’t mean you know how to use them. Consider a well-stocked kitchen with the latest gadgets and the freshest ingredients. You can throw a thousand people into that kitchen and give them access to everything the kitchen offers, but not everyone will be able to make a tasty meal.

Some will not be able to make anything. Most will be able to come up with a satisfactory, yet average, meal. Only a few will be able to combine the ingredients and use the correct gadgets in a way that creates fabulous meals again and again and again.

If these few write down the recipes for their creations, and you’re fortunate enough to get your hands on these recipes, you could also create fabulous meals, even if you’re just an average cook.

The good news is some of these talented investing “chefs” have done exactly that.

Warren Buffett has written down his “recipes” for decades. Charlie Munger too. Benjamin Graham wrote entire books on the subject. So there’s absolutely no reason why someone today can’t invest successfully in the stock market and become wealthy.

The tools are there and the instructions to use these tools properly are widely available.

But can value investing work specifically for you?

Well, consider what you would do if you wanted to become a hockey player or learn a musical instrument. You’d most likely learn the skill and then spend lots of time practicing. Investing is similar. You can learn to invest properly and then spend your time investing, making minor course corrections when necessary and continuing to build your skills in the investing arena.

I’ll repeat, investing correctly is something you can learn. And the advantage is that when you learn to do it the right way, it has the ability to change your life, for the better, to a far greater extent than playing hockey or mastering, say, the guitar can do.

It doesn’t matter if you’ve had investing disasters in the past or you’ve vowed never to put another dime into the stock market. The only question you should be asking yourself is, “am I willing to learn the correct way to invest?”

If you master Buffett’s value investing strategies and put them into practice, you’ll most likely retire rich.

Of course not everyone is suited for value investing. Some people simply want action. They NEED to be in and out of the market, they’re addicted to the adrenaline rush that comes with having lots of money on the line. These folks aren’t investors. They’re speculators. And value investing will never be something that will make them happy. They’ll also end up losing most of their money in the stock market, but the buzz they receive along the way will ensure they keep doing the same thing over and over again.

So which are you? Are you an investor? Or are you a speculator?

Once you’ve answered that question you need to determine if you really have the desire to be wealthy. Most people don’t understand this at first, if ever. “Of course I want to be wealthy!” they’ll say. However the desire to be wealthy means looking at what you’re doing and changing your actions to follow paths that will lead to great wealth.

It’s about taking smart, coordinated and well-planned-out actions. Actions that might be uncomfortable at times. Actions that might go against your nature. But if you really desire to be wealthy, you’ll take these actions nonetheless. If you don’t, regardless of what you might say, you’ll bail out at the first sign of trouble or of something that makes you uncomfortable.

At the end of the day, if you’re going spend time and effort investing your money in the stock market, you might as well become wealthy doing it. Otherwise, what’s the point?

For a solid overview on the steps you need to take to invest correctly, see my book, “The Pragmatic Investor.”

Are you glued to your desk following the ticker for hours at a time?

Honestly, that’s not the way to make money in the stock market. You have a choice: spend your time doing unproductive things or make a conscious decision to learn what has worked well in the past and use it to become a stock market millionaire.

However in order to achieve this goal you need to do something radically different from what the average (or even above-average) investor is currently doing. The best advice I’ve ever heard about winning is simply, “If someone is doing something better than you are, learn what they’re doing and do the same thing.”

So rather than spending your time randomly following advice from people who have never achieved real success, it’s far better to devote your time analyzing the strategies and tactics of super-investors such as Warren Buffett, Charlie Munger and Peter Lynch.

If you do that, you have the greatest chance of uber-success, because these investors have actually accomplished what most can only dream about. Just about anyone who follows a proven value investing strategy ends up wealthy. Of course not many people do this because it is a strategy that takes time, requires patience and goes against the grain of what most people are doing.

And since human nature likes to be part of the crowd, and shuns going against the crowd, it also takes a great deal of discipline to successfully implement value investing ideas.

But if you think about it, it makes no sense to follow the crowd in this particular endeavour because the crowd is not successful at investing. If the crowd were all stock market millionaires and billionaires, then following the crowd would be a superb idea. But they’re not. They’re not even close. So why would you want to do what is obviously not working.

On the other hand, investors who follow the ideas of Warren Buffett are millionaires and billionaires. Warren Buffett himself used exactly what he teaches to make many billions of dollars. That’s why it makes sense to piggyback on Buffett’s teachings and implement his ideas in your personal portfolios.

Value investing has been hailed as a money miracle for thousands of people and it can work for you too. But first you have to learn what it is and how to implement it correctly.

Then you have to be so confident that it will get you where you want to be, that you simply follow it regardless of what your emotions (and your well-meaning friends) are telling you to do.

Perhaps the biggest cause of failure for most investors is their lack of discipline. They allow their emotions, particularly fear and greed, to affect their investment decisions and that usually leads to large losses.

However if you believe in your value investing system, that will determine your actions. And your actions will be based on a proven strategy that works rather than ad-hoc, emotion-driven actions that have been shown over and over again to produce continual losses over time.

Of course there’s quite a bit of skepticism about making lots of money in the stock market. Many think it can’t be done or that it’s gambling or that only those with the right connections can do it.

Nothing could be further from the truth.

Obviously the investing realm is filled with the dreamers, the greedy and the scam artists. But the fact is, there are quite a few people who have become rich by investing correctly in the stock market. And right now is, with the technology and vast amounts of quickly accessible information available to anyone with a computer and an internet connection, the greatest opportunity in history to create huge amounts of wealth in the stock market over your investing lifetime.

Today, more people are making more money in the stock market than at any other time. Unfortunately more people are also losing more money than at any other time.

The world has changed dramatically in the past few decades and it will continue to change as we move forward. However the basic concepts built into value investing don’t change. The methods we now have to implement these concepts change rapidly, but the actual concepts are timeless.

So remember this: Technological change will continue at an ever-increasing pace and you must harness this change to better implement the unchanging concepts that have been proven to build substantial wealth in the stock market.

The sooner you start, the better off you and your family will be in the future.

You don’t have to be a brain surgeon to realize that method doesn’t work and never did.

How do you think mutual fund companies and investment banks are able to pay their employees so much money each year? Where does the money come from to pay their top executives tens of millions of dollars every year?

It comes from all those “investors” who believe handing over their money to others is the right way to go. It isn’t. And if you’re in that boat, you’re losing out on millions of dollars that should be yours over your investing lifetime.

In fact, over 80% of actively managed mutual funds underperform the markets. And investors pay high fees for that dubious record.

You’ve probably noticed by now the vast majority of people never become rich by the time they retire. There’s a reason for that and it involves these people not taking responsibility for their own investments.

You have to position your portfolio correctly to achieve solid, long-term wealth. It just doesn’t happen by accident.

Dreaming about having a multi-million dollar portfolio, when you retire, by following conventional wisdom is like being in a strange place trying to find your way in the dark. You just don’t know what to do next. However when you turn on the lights, everything becomes clear. You know the next step to take, you see what needs to be done.

If you’re one of the few people who invests their own money rather than relying on others who don’t have your best interests at heart, that’s good, but probably not good enough. Unless you’re following a proven plan that allows you to outperform the markets, you’re falling behind and will most likely never be wealthy.

On the other hand, investing properly and following the proven Warren Buffett value investing strategy positions you to be one of the relative few who build their wealth efficiently, effectively and as quickly as possible.

That’s how Buffett did it and that’s how you can do it too. The sooner you get started following Buffett’s value investing plan, and stop trying anything and everything, the sooner you’ll be successful.

Fortunately, this is easy to do because ultra-successful investing is something you can learn. You don’t have to be blessed with a special “investing” gene or have parents who were super-investors. You don’t even have to have a college degree or need to be an accomplished mathematician.

All you need is the correct information and the discipline and perseverance to see it through.

The more you learn and the more experience you build, the more money your investments will make and the less risks you’ll take.

There are lots of great books available that discuss value investing. In fact, you can obtain a wealth of information for free directly from the main man himself. Warren Buffett’s Berkshire Hathaway website is a treasure trove of top-notch information free for the taking. Visit www.berkshirehathaway.com and spend a few hours going through the information there.

If you want a shortcut to investing success, I’ve written a book called, “The Pragmatic Investor,” which gives you a head start to implementing a profitable Value Investing strategy.

There are a number of ways to get started quickly. All you need to do is decide to get started and then take the appropriate action. It can pay off like nothing else you do in your lifetime.

As you know, there are literally thousands of stock market systems bombarding you with ideas of getting rich quickly and living the Hollywood lifestyle. However the majority of them don’t work. And what’s more telling is the people promoting them don’t actually use them with their own money. So if someone doesn’t have enough confidence in a system they’re promoting to use it to manage their own money, what does that tell you?

It tells me you shouldn’t listen to them.

So, you might be asking yourself, “why should I listen to you?”

Well, you shouldn’t. But you should listen to a man who has made tens of Billions (that’s Billions with a capital “B”) of dollars in the stock market. In fact, he’s one of only a handful of investors you should listen to.

And in case you haven’t guessed, his name is Warren Buffett and his system is a very specific version of Value Investing.

I’ll be very clear upfront and say that over 99% of the things I’ve learned over my more than 20 years investing in the stock market have been from other people. I haven’t come up with anything groundbreaking or new myself and I don’t expect to in the future.

The reason is that sound investing in the stock market is conceptually very simple. So most of the really good strategies have already been discovered and tested. What I’ve been able to do, however, is distil the myriad advice and separate what works from what doesn’t and explain it in plain English. So that’s my contribution to the field.

I’ve also been able to build software based on the ideas that work and harness the power of technology to make the, often tedious but necessary, tasks required to invest successfully easy to do. That’s my other contribution.

But the actual ideas behind what I’m telling you were developed by others with proven track records and major investing success.

Let me warn you, however, if you’re expecting complex ideas and complicated formulas, you’re in for a pleasant surprise. Value Investing methods are conceptually simple to understand and they are also easy to implement when you have the appropriate tools.

And they make people rich over time.

Value Investing is for people who are tired of the “get rich quick” hype so often associated with investing. It doesn’t involve fancy derivatives or Forex markets, it abhors day trading strategies and positively stays away from penny stocks and the latest “hot stocks” so often discussed at cocktail parties.

It’s really for anyone who knows they have to invest for their future and wants to become financially free in the safest, easiest and most highly probable manner.

When it comes to investing, conventional wisdom doesn’t work. Handing your money over to the big banks and mutual fund companies never worked, and will never work in the future, if you measure success by outperforming the markets.

However listening to someone who has consistently outperformed the markets for decades does work. And it will continue to work for the foreseeable future.

If you’re interested in what Warren Buffett can teach you, get the free report, “Stock Market Investing for Maximum Profits,” and follow what it says.

And that strategy is selling puts.

Normally options traders sell puts when they feel the stock will rise. If it does, the put expires worthless and the trader pockets the premium. That’s not a bad strategy in and of itself, however when combined with a sound Value Investing strategy, the synergy can help wring out extra profits while adding a dose of discipline to the mix.

Before I outline the combined strategy, let’s take a step back and analyze the risk profile of some options trading strategies. Regardless of the investing strategy you use, it is vitally important to look not only at returns, but also at risk. The majority of investors don’t do this. If you don’t believe me, ask someone you know, who invests in the stock market, what their returns were last year. They’ll most likely be able to tell you, especially if they made money.

Next ask them what their risk was like. Nine times out of ten you’ll receive a blank stare.

Unfortunately this lack of knowledge ends up costing oblivious investors lots of money over their investing lifetimes. Since we don’t want to end up in that category, we need to focus on the risk part of the investing equation as well as the returns part.

Options Trading Strategies Risk Profiles

So, what are the risk profiles of the various options strategies?

Since I only recommend two options strategies, those are the two I’ll look at. Be aware there are many other strategies out there and you should look at the associated risks before using any of them.

For example, if you decided to sell uncovered calls, that strategy would be extremely risky because the underlying stock could, theoretically, rise indefinitely and therefore expose you to unlimited risk. That’s the sort of analyses you need to do before investing your money.

However, let’s move on to the two strategies I recommend for Value Investors. As we discussed in part one, writing covered calls can be very profitable. Of course there is the risk of potential lost future profits if the stock price rises above the striking price and keeps going up. However if you follow the rules I outlined in part one, your investment will always be profitable, so you forgo potentially greater profits for limited, but fairly certain profits.

Selling puts, on the other hand, is completely different. As a put seller you’re banking on the underlying stock’s price rising. As the stock’s price goes up, the put’s value goes down — and since you’re a seller, you make money when the put’s value declines.

If the stock’s price falls, the put’s value will increase and you, as a put seller, could face a loss. However, unlike an uncovered call, the loss is not unlimited. A stock’s price can only fall, theoretically, to zero, however it’s a rare stock that goes to zero. Usually stocks, especially well-selected stocks, decline to some value that’s greater than zero.

The other factor to consider is that short puts are always uncovered, but the risk is always limited because the underlying stock’s price can only fall so far.

Theoretically the price should fall no lower than the underlying stock’s intrinsic value, however since we are dealing with relatively short time periods, intrinsic value is probably not a good indicator to rely upon.

Intrinsic value works reasonably well in the long term, but the markets have proven that short-term pricing is based on emotions far more often than logic and therefore prices can, and do, fall below intrinsic value over short periods of time.

Keep these things in mind if you decide to sell puts.

Always use Fundamentally Strong Stocks
in any Options Trading Strategy

As with the covered call strategy, the key is to select fundamentally strong stocks. Whether you’re writing covered calls or selling puts, you must start with a fundamentally solid underlying stock. Doing otherwise will only increase your risk and turn you into a speculator rather than an investor.

Now that we’ve covered risk, let’s move on to the actual strategy. As a value investor you look for strong stocks that are undervalued. However it’s not always possible to find lots of strong, undervalued stocks. In strong bull markets it might not be possible to find any undervalued stocks.

However since we know that markets are irrational in the short term, we can use that to our advantage. First you must decide which stocks you like. Again, and I can’t stress this point enough, only look for stocks that have very strong fundamentals and strong economic moats.

Once you have a list of stocks, the next step is to decide what you’re willing to pay for the stock. Usually you would calculate a stock’s intrinsic value and then build in a reasonable margin of safety. Once you’ve calculated that price, you’re ready to implement the options trading strategy.

To do so, simply sell puts with striking prices at the price you just calculated. The lower the price, the lower your risk. For example, if you sell puts with striking prices of 10, your maximum loss is $1000 per contract (recall that one options contract controls 100 shares). On the other hand if you sell puts with striking prices of 20, your maximum loss is $2,000.

Of course, as I mentioned earlier, stock prices rarely go to zero, so your potential loss is more likely to be the gap between the striking price and the underlying stock’s book value.

By selling puts with striking prices at your calculated intrinsic value less the margin of safety, you’re essentially saying that you would have no issue with purchasing the underlying stock at that price. And if exercise occurs, that’s exactly what will happen.

In essence, you’ve now removed the decision of when to purchase the underlying stock from your control (at least until the put expires). If exercise occurs, you’ll buy the stock. If not, you won’t. And anytime you can remove emotions from your investing decisions, that’s a huge plus.

The Payoff from Trading Options

Now once you sell a put, you’ll collect the premium. This is cash in your pocket you would not otherwise have. If the put expires, the premium is pure profit. If exercise occurs, the premium will essentially discount your basis in the stock, so your cost basis will actually be a bit less than the striking price.

And since you feel the long-term prospects of the stock warrant purchasing at the price you calculated, if exercise occurs, you’ll be getting into the stock at a favourable price. Of course you may have to hold the stock for some time in order to realize a profit, so you can see why I’m so adamant the underlying stock have strong fundamentals and a wide economic moat.

The downside to this strategy is that if exercise occurs, you’ll end up paying a higher price for the stock than you would on the open market at that particular time. However the higher price you end up paying still includes a reasonable margin of safety and gets you into an undervalued stock that should perform well over the long term.

In fact, this is exactly what Warren Buffett does when he likes a stock that is currently trading at a price he’s not willing to pay. He simply sells puts at a striking price he’s happy to pay and waits. If the stock gets put to him, he happily buys it, knowing he’s just purchased an undervalued stock at a great price with a built-in margin of safety.

As I mentioned at the beginning of part one, there are many different options strategies available. However I feel the two we’ve just discussed are the safest and most profitable to use with a sound value investing strategy.

If you’d like to include options in your investing toolbox, writing covered calls and selling puts are the best way to get started. Just remember to ensure the underlying stock has exceptionally strong fundamentals and a wide economic moat.

The main idea to remember when using an options strategy is it’s meant to increase your returns and/or lower your risk. Therefore you should stick to strategies that have been proven to do these things and ignore the ones that promise untold riches but expose you to absurd risks.

A big point of confusion when trading options is found in the jargon and the technical explanations of how options trading works. Add to the fact that traders sometimes refer to the same strategy by different names, and it’s no wonder beginners are confused.

If you’re new to options and don’t fully understand them, I highly recommend you purchase a good book on the subject and educate yourself on exactly what options are and the mechanics of how they work. Go to Amazon.com and search for “options trading” to find some excellent books on the subject. You’ll be able to read reviews and see other people’s ratings before you buy.

I’m not going to explain what options are in this article, but I’ll introduce two excellent options trading strategies (one in this article and the other in a follow up article) that can enhance your returns while minimizing your risk. I’ll assume you know the basics of trading options and understand the terminology.

The first thing you need to do before doing any options trading is to look at the underlying stock. A big mistake traders make is ignoring the underlying stock and just looking at the premium level hoping to make a quick short-term profit. That’s a HUGE mistake and has no place in an investor’s bag of tools. If you’re a speculator or like to roll the dice in the stock market, then perhaps you can ignore the underlying stock, but if you’re an investor, then don’t ignore it.

With over 9600 stocks trading on U.S. exchanges alone, the overwhelming problem facing most investors is how to select good stocks. There are many ways to do this but, in my opinion, the best way is to use Warren Buffett’s techniques to rate a stock on its fundamentals strength and its moat strength. Buffett has proven that he knows how to select strong stocks, so rather than trying to reinvent the wheel, it’s better (and more profitable) to simply piggyback on what he’s already discovered and revealed.

Warren Buffett’s Stock Selection
Strategy for Options Trading…

Buffett usually goes through a 3-step process that consists of asking some relevant questions, calculating a company’s fundamentals strength and determining its intrinsic value. For our first options strategy, we’ll skip the intrinsic value calculation because we’ll be working with whatever price the market is currently valuing the stock at.

However we’ll still need to perform the first two steps. If you haven’t already, sign up for the free report, Stock Market Investing for Maximum Profits, and study it carefully. It describes, in complete detail, the important questions to ask, how to rate a company and determine its moat strength and how to calculate its intrinsic value (you won’t need this last piece for the first strategy I’ll describe, but it is interesting to go through the exercise nonetheless).

Once you’ve rated your stocks, select only the very best ones. Underlying stocks should stand on their own merit. Picking stocks based on premium levels usually translates into picking the riskiest stocks which further translates into losing positions. If you remember one thing, remember this: always select fundamentally strong stocks. Period.

Well researched stock selections are the foundation of any consistently profitable strategy, whether using options or not. With options, however, stock selection is the key.

Writing Covered Calls…

The first options strategy I like is writing (or selling) a covered call. As long as you hold a portfolio of well-selected stocks, a minimum profit level is very likely (on the other hand selling an uncovered, or naked, call is a very risky options strategy that no true investor should follow).

The key to a solid covered call strategy is to base it on high-quality stocks that have appreciated since you purchased them. You then have to monitor the option premiums to determine if it’s worth the risk of having your stock called away from you. If your purchase price relative to the striking price is not great enough to ensure a reasonable profit, then you should not write the call.

The stock price in relation to the striking price of the call also has to ensure you a reasonable profit and there has to be a reasonable volume in the stock and the related options so liquidity is assured.

Finally the premium should be great enough to compensate you in the event of exercise.

Basically you need to ensure the following conditions are met:

1. The striking price is greater than what you paid for the stock. In that case exercise will give you a capital gains profit in the stock in addition to the premium you received. If your cost basis is higher than the striking price, then your profit will have to come entirely from the premium (which would also have to cover transaction costs). Therefore it’s preferable to only write calls when you can profit from both the premium and the capital gains.
2. The underlying stock’s price is close to the striking price, either just in the money or just out of the money, but not deep in or deep out of the money. In the first case, the option premium should move in step with the underlying stock value so you have the highest chance of profitably closing the call even if the underlying stock moves very little. In the second case, all of the premium is time value, so as long as the stock’s price doesn’t rise above the striking price, the option will expire worthless.
3. The expiration is three months or less. You don’t want to be locked into a striking price for long periods of time. In general you want to write a call just before time value starts to accelerate its fall (which is usually at about the two month mark). In addition, the stock market has an upward bias, so the longer you hold a good stock, the greater the chance its price will rise. As a call seller, you want to minimize the probability of the stock’s price rising above the striking price, so shorter periods are better.

Keep in mind there may not be too many times when all these things come together for a fundamentally strong stock, so patience is important. Wait until the market gives you what you need and don’t try to force things. Impatience is one of the biggest factors that contributes to stock market losses.

The downside to this strategy is that if exercise occurs, you’ll have to sell your stock at a price below the current market value. However as long as you’ve followed the rules I’ve just outlined, you’ll realize a profit. You can then invest that profit into another fundamentally solid stock and repeat the process.

The upside is that the call may expire worthless and you’ll keep your stock as well as the premium. In that case you can simply write another covered call, theoretically over and over again. Another benefit this strategy gives you is a definite exit price. Many investors find it difficult to know when to sell. Sometimes they hold on too long and watch their paper profits disappear when a stock rises and then falls again.

By selling carefully researched covered calls, you guarantee you will sell at a certain price if the stock’s price rises that high. The decision to sell is removed from your control (at least temporarily).

Finally, this strategy allows you to discount your cost basis. Since you’ve been paid the premium, your cost basis is reduced and therefore gives you a buffer if the price of the underlying stock falls. In effect your losses are less than they would otherwise be had you not written the call.

Covered call writing is an excellent options trading strategy that, when done correctly, can make your portfolio more efficient, more profitable and less risky. In my next article, Options Trading: Selling Puts, I’ll discuss another terrific options strategy, that’s not used as much, but works very well with Value Investing. In fact, Warren Buffett uses it when he invests.

However that doesn’t have to be the case. It’s very simple to find excellent software that fits your investing style. Keep reading to discover how easy it really is.

First, research the underlying investment strategies you’ll be using with your money. Ensure they have been proven to make money in all types of markets over long periods of time. Check to see if they focus on reducing risk as much as they do on returns. Then, when you’re happy with the strategy, start looking for investment software that helps you implement that strategy.

Too often inexperienced investors look for the software first and don’t bother to check the underlying strategies on which it’s based. That’s a recipe for disaster.

Once you’ve selected the software correctly, the final step is to use it. Even the best stock market software won’t help you if you leave it gathering dust on your hard drive or let your emotions override what it’s telling you to do.

You don’t have to be a wizard with numbers or even understand the minute details of the software. All you have to do is be able to enter information and read the results when the software returns them to you. This enables you to avoid headaches, make solid purchases and sell at opportune times so you can consistently make money in the stock market.

Now that you know why you need stock market software and the proper way to select it, let’s delve into how to decide which one you want.

Choosing Great Stock Market Software…

When it comes to choosing a software program for your stock market investments, there are many options available. There are different brands, different prices and different features. However underneath all the bells, whistles and fluff, you are only going to need certain components. When you shop you should ensure the software you choose contains the following features.

1. It gives you a proven way to find safe, solid stocks.
2. It provides recommendations on what price to pay for your stocks. Paying too much, even for a strong stock, can significantly reduce your returns and increase your risk.
3. It helps you effectively diversify the stocks you purchase.
4. It can optimize your portfolio in order to wring out better returns and further minimize your risk.
5. It tells you when your stocks are overvalued so you can sell them and reinvest the proceeds into better stock choices.
6. It is easy to use. Human nature is such that if something is difficult or unpleasant to use, we simply won’t use it consistently.

Making informed decisions, and keeping your emotions out of the decision-making process, as well as knowing you’re following a proven plan when markets are turbulent, are the main reasons to use stock market software.

Being informed about the important aspects of a stock allows you to increase your profit margin, reduce your risks and buy at the opportune time.

Ignoring myriad financial forecasts and market reports online, on TV and in newspapers require a great deal discipline A good investment plan eliminates these types of distractions and a good software package removes the often tedious and boring work by automating the repetitious and error-prone parts. And that leaves more time for you to spend on the things that are most important to you while knowing your investments are being handled appropriately.

So whether you are heavily invested in the stock market or consider yourself more of a “dabbler,” stock market software can simplify the investing process and make it easier for you to be a successful investor.

And the sooner you take action, the better off you and your family will be in the future. So start now.

The stock market is all about buying and selling stocks in order to grow your money and make a profit. Today, everyone seems to be involved in the stock market in one way or another, from the Wall Street banker to neighborhood grannies forming investment clubs. But most, including a good number of Wall Street bankers, don’t know what they’re doing.

To an inexperienced investor, the entire situation may seem confusing and more than a little overwhelming. After all, an inexperienced investor can lose a fortune simply by not making the right decision at the right time, or just as frustrating, a person can miss out on making a fortune by missing the proverbial boat.

Even experienced investors make mistakes and hold onto stocks they shouldn’t or sell stocks they should keep. The major issues that cause these problems can be separated into two groups: first, not having a great investment strategy and second, not being able to keep emotions out of the decision-making process.

Fortunately both of these problems can be solved using high-quality stock market software.

Why Investors Need Stock Market Software…

Stock market software simplifies the entire process of investing in the stock market. These programs can do everything from selecting potential stock picks to calculating buy and sell prices to managing every aspect of your portfolio, including providing exact recommendations on what to do in just about every situation.

But most importantly, a good investment software package will give you a solid plan you can follow no matter what the markets are doing and thereby keep your emotions out of your investment decisions.

Of course the caveat is that you need to select investing software based on the strategy it follows. There are thousands of packages out there that purport to be the magic bullet for your investing needs, but the reality is, there is no magic bullet (whether through software or any other system) that will make you rich overnight.

Sound investing starts with a proven plan and takes its time doing the right thing over and over again until results have a chance to grow. Stock market software does not eliminate these requirements, rather it builds on them by making it easier for an investor to implement and manage his or her portfolio.

Keep this in mind. It’s an important point. You can have the best looking, fastest and newest investment software on the block, but if it follows a bad strategy, you’ll most likely still lose money, and you’ll lose it faster.

So whether you own thousands of shares in a dozen different companies or you received a gift of a few shares in one smaller company, you can benefit by using stock software as long as you choose it the right way.

In my my next article I’ll explain the correct way to choose the stock market software that’s right for you and divulge the 6 important, must-have, features a software package needs to have if you want to improve your investment results.

When it comes to investing money in the stock market, you have a choice. You can go your own way, listen to people who are trying to sell you something, or follow the lead of someone who has already done it successfully.

Most people logically know that following in the footsteps of someone who has already done it is the best way to go. However, even with this knowledge, most people choose to go their own way and invest their money based on emotions and gut feeling or listen to the random musings of Jim Cramer. It’s no wonder there are so many investing failures and panics when the markets go wild.

However there are a small handful of people who follow the techniques pioneered by Benjamin Graham and implemented with great success by Warren Buffett and others. These techniques are paramount when investing money in the stock market.

They tell you which stocks to buy, when to buy and when you should sell.

Of course Graham and Buffett’s techniques form the basis of what is generally known as Value Investing. Unfortunately there are so many definitions for value investing that the term itself adds to the confusion.

Fortunately, Graham and Buffett have documented in precise detail what they mean when they refer to value investing. And when investing money in the stock market, you’d be wise to follow their version of value investing.

Keep in mind that Ben Graham’s value investing techniques are not exactly the same as Warren Buffett’s. While both have the same goal, which is to purchase shares at substantially below a company’s intrinsic value, the implementation details differ significantly and whereas Graham chose to sell when intrinsic value was reached, Buffett in many cases chooses not to. However Buffett’s implementation is based broadly on Benjamin Graham’s as well as a number of other people’s and it is generally acknowledged as the superior value investing strategy.

If you’re investing money in the markets and wondering which stocks to buy, I would highly recommend using Buffett’s Value Investing strategy as a basis and supplementing it with a few other complementary techniques.

The reason is because Buffett’s strategy not only focuses on returns, but on risk as well. In fact it has risk built in as a primary element. Most other investment strategies look first at returns and then treat risk as a secondary attribute, if at all, or are based on popular theoretical research that severely underestimates risk.

Investing money is simple. However it is not easy. Keeping emotions out and eliminating noise is one of the most difficult things for any investor to do. That’s the reason you need a solid, proven system that will take control of your investments and guide you through the correct investment steps even when your emotions are screaming at you to follow the crowd and give into fear or greed.

Knowing Which Stocks to Buy Involves Analyzing Risk…

Buffett’s Value Investing strategy incorporates risk at its heart. It doesn’t treat risk as a simple number based on a Gaussian curve or other statistical methods that underestimate the real risks.

Rather it treats risk as a concept that Benjamin Graham called, “permanent capital loss.”

There are three main concepts that serve to define risk: Company risk, valuation risk and earnings risk.

Company risk can be minimized by evaluating a company’s financial statements (usually its balance sheet, income statement and statement of cash flows) to determine the relative fundamental strength of the company. In addition, these statements can also tell you about, what Buffett refers to as, a company’s economic moat. Companies with strong moats are generally less risky than companies with weaker moats.

Valuation risk is based on Graham’s concept of the margin of safety. As Buffett puts it, the price you pay determines your return. The lower your purchase price, the higher your return. The higher your purchase price the lower your return. And as Graham famously stated, the margin of safety is nothing if not a form of risk management against errors and bad luck.

The third risk source, earnings risk, is, as Graham says, “the danger of a loss of quality and earnings power through economic changes or deterioration in management.”

James Montier, in his excellent book, “Value Investing: Tools and Techniques for Intelligent Investment,” writes, “the challenge facing investors… is to assess whether any changes in earning power are temporary or permanent. The former represent opportunities, the latter value traps.

Keep an eye on the ratio of current EPS to average 10-year EPS. Stocks which look ‘cheap’ based on current earnings, but not on average earnings, are the ones that investors should be especially aware of, as they run a greater risk of being the sort of stock where the apparent cheapness is removed by earnings falling rather than prices rising.”

Once these three main sources of risk have been accounted for and minimized, then the Gaussian risk management tools can be applied in order to further reduce risk.

Unfortunately, given the prevalence of theories such as MPT and CAPM by such economic luminaries as Harry Markowitz and Bill Sharpe, many investors, professionals as well as individuals, rely solely on the Gaussian risk tools and end up taking large risks without ever knowing it.

Diversification and Asset Allocation can be implemented by statistical, Gaussian, tools in order to further minimize risk, while rebalancing at the appropriate times, according to proven rebalancing techniques, ensure investors always buy low and sell high when investing money in the stock market.

If you are interested in learning how to methodically determine which stocks to buy and sell, how to diversify and rebalance correctly and a host of other investment-related concepts you need to know in order to be successful in the stock market, get my book, “The Pragmatic Investor.” It’s entertaining, easy-to-read and will most likely improve your investing skills.