Please respond to The Motley Fool 
======================== THE MOTLEY FOOL ========================
                        INVESTING  BASICS
                      Thursday, May 15, 2001
benjamin.rogers@enron.com
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IN THIS ISSUE
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- Q&A: WHAT'S AN ORDER IMBALANCE?

- Q&A: WHY NOT SELL HIGH?

- LESSON: COMMON FINANCIAL MISTAKES

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YOUR QUESTIONS ANSWERED

Q. What's an order imbalance?

A. Order imbalances happen on stock exchanges such as the New
York Stock Exchange (NYSE) when there are too many buy orders
and not enough sell orders -- or vice versa. When they occur,
the exchange might halt trading temporarily, to allow more of
the other kind of order to come in. This permits better matching
of buyers and sellers, and makes prices less volatile.

You might see order imbalances happen whenever there's very good
or bad news related to a company and suddenly many people want
in or out of it.

The Nasdaq stock market, meanwhile, operates on more of a
supply-and-demand basis, with its trading conducted between many
market participants. It doesn't halt trading for order
imbalances.


Q. Don't you think that anyone who doesn't sell a stock near its
all-time high is a fool?

A. A Fool with a capital "F," maybe, but not an idiot. It's true
that many stocks are now down considerably from their all-time
highs. But few stocks ever go up in a straight line. And any
stock that continually rises will continually set all-time
highs. It's not consistently possible to know what a stock will
do in the short term, so we avoid trying to carefully time
purchases or sales.

If you're ever holding onto stock in a company whose future
doesn't look too bright or stock that seems grossly overvalued,
you might do well to sell But those of us who have long-term
faith in a company and expect its price to be significantly
higher in the decades ahead, we'll often do well just happily
hanging on. Many volatile but solid stocks have often been
halved, only to double and quadruple again.


P.S. GOT AN INVESTING QUESTION FOR US? Post it on our Ask a
Foolish Question message board.
http://www.fool.com/m.asp?i=409220

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THIS WEEK'S LESSON

COMMON FINANCIAL MISTAKES

Be smart about managing your money. Here are some common
financial mistakes, and a few resources to help you avoid them:

- Racking up credit card debt. It feels like free money, but it
  isn't. High interest rates increase your debt, making it harder
  and harder to pay off. That's reverse investing! Remedy: Find
  our nine ways to pay it back.
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- Not investing soon enough. You're rarely too young or too old
  to invest. Kids have the most to gain from many decades of stock
  appreciation. But even retirees can benefit from leaving in
  stocks whatever money they won't need for five or ten years.
  Remedy: See how you can start investing with only $20 a month.
  http://www.fool.com/m.asp?i=409222

- Investing too conservatively. Any long-term investment is
  likely to grow most rapidly in stocks.

- Over- or under-diversifying. If all your eggs are in two or
  three baskets, you're exposed to too much risk. If you have too
  many baskets to count, then you probably aren't able to keep up
  with each company. Between five and 15 stocks is a manageable
  number for most people. . Remedy: Index funds are a great place
  to start.
  http://www.fool.com/m.asp?i=409223

- Focusing inordinately on a stock's price. Contrary to popular
  opinion, a "cheap" stock isn't a bargain. Penny stocks, those
  trading for less than $5 each, are risky and dangerous. A $150
  stock can actually be a bargain, and if your funds are limited,
  you can always just buy a few shares.

- Investing in what you don't understand. The more familiar you
  are with how your company works and how well it's performing,
  the fewer unpleasant surprises you're likely to encounter.

- Relying on the advice of others. It's great to learn from
  others, but ultimately you should make your own decisions.
  You're the one who cares the most about your finances.

- Not tracking your returns. Shrug off this duty at your own
  peril. You always want to be (in the long run) beating a
  benchmark such as the S&P 500. If you're not beating it, you
  might as well meet it, by investing in an index fund. Remedy:
  Track your portfolio for free on our website.
  http://www.fool.com/m.asp?i=409224

- Impatience. Building great wealth takes time.

Perhaps the worst mistake is never taking the time to learn
about investing. You're not making that one, though, if you're
reading and thinking about this article!

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in Financial Planning program prepares you for success in
the #1 ranked profession. Invest in your future career
today!
http://www.lnksrv.com/m.asp?i=409225

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