What should I look for when looking for stocks that are 'on-sale'?
It might seem like the PE ratio is very useful, but it's actually pretty useless as a measure used to make buy or sell decisions, and taken largely on its own, pretty useless becomes utterly and completely useless. Stocks trade at prices based on future expectations and speculation, so that means if traders expect a company to double its profits next year, the share price could easily double (there are reasons it might not increase so much, and there are reasons it could increase even more than that, but that's not the point). The Price is now double, but the Earnings is still the same, so the PE ratio is double, and this doubling is based on something some traders know, or think they know, but other traders might not know or not believe! Once you understand that, what use is a PE ratio really? The PE ratio of a company might be low because it is in a death spiral, with many traders believing it will report lower and lower profits in years to come, and the lower the PE ratio of a given company gets probably, relatively, the more likely it is to go bust! If you buy a stock with a low PE ratio you must do so because you feel you understand the company, understand why the market is viewing it negatively, believe that the negativity is wrong or over done, and believe that it will turn around. Equally a PE ratio might be high, but be an excellent buy still because it has excellent growth prospects and potential even beyond what is priced in already! Lets face it, SOMEONE has been buying at the price that's put that PE ratio where is is, right? They might be wrong of course, or not! Or they might be justified now but circumstances might change before earnings ever reach the current priced in expectation. You'll know next year probably! To answer your actual question... first you should now understand there is no such thing as a stock that is on sale, just stocks that are priced broadly according to the markets consensus on its value in years to come, the closest thing being a stock that is 'over sold' (but one man's 'over sold' is another man's train crash remember)... so what to actually look for? The only way to (on average) make good buy and sell decisions is to know about investing and trading (buy some books, I have 12), understand the businesses you propose to invest in and understand their market(s) (which may also mean understanding national and international economics somewhat). Don't invest. Keep cash. And wait till you see a crash in the price of some of your favorite blue chip stocks. But wait till the true bottom is in...you will know when is the right time as it will be obvious.
"It depends on what you're talking about. If this is for your retirement accounts, like IRAs, then ABSOLUTELY NOT! In your retirement accounts you should be broadly diversified - not just between stocks, but also other markets like bonds. Target retirement funds and solid conservative or moderate allocation funds are the best 'quick-and-dirty' recommendation for those accounts. Since it's for the long haul, you want to be managing risk, not chasing returns. Returns will happen over the 40 or so years they have to grow.  Now, if you're talking about a taxable stock account, and you've gotten past PF questions like ""am I saving enough for retirement"", and ""have I paid off my debt"", then the question becomes a little more murky.  First, yes, you should be diversified. The bulk of how a stock's movement will be in keeping with how its sector moves; so even a really great stock can get creamed if its sector is going down. Diversification between several sectors will help balance that.  However, you will have some advantage in this sector. Knowing which products are good, which products everybody in the industry is excited about, is a huge advantage over other investors. It'll help you pick the ones that go up more when the sector goes up, and down less when the sector goes down. That, over time and investments, really adds up. Just remember that a good company and a good stock investment are not the same thing. A great company can have a sky-high valuation -- and if you buy it at that price, you can sit there and watch your investment sink even as the company is growing and doing great things. Have patience, know which companies are good and which are bad, and wait for the price to come to you.  One final note: it also depends on what spot you are in. If you're a young guy looking looking to invest his first few thousand in the market, then go for it. On the other hand, if you're older, and we're talking about a couple hundred grand you've got saved up, then it's a whole different ball of wax. It that spot, you're back to managing risk, and need to build a solid portfolio, at a measured pace." I bought 1000 shares of a $10 stock. When it doubled, I sold half, no need to be greedy. I watched the shares split 2 for one, and sold as it doubled and doubled again. In the end, I had $50,000 in cash pulled out and still had 100 shares. The shares are now worth $84K since they split 7 for one and trade near $120.  Had I just kept the shares till now, no sales, I'd have 14,000 shares of Apple worth $1.68M dollars.  $130K for an initial $10,000 investment is nothing to complain about, but yes, taking a profit can be the wrong thing. 25%? Was that all the potential the company had?  There's one question to ask, not where is the price today compared to last year or two years ago, but what are the company's prospects. Is the reason I bought them still valid? Look at your investment each quarter as if you were making the decision that day. I agree, diversification is important, so the choice is only hold or sell, not to buy more of a good company, because there are others out there, and the one sane thing Cramer says that everyone should adhere to is to not put your eggs in one basket. "First, let me say that $1000 is not that much of amount to invest in stocks. You need to remember that each transaction (buy/sell) has fees, which vary between $4-$40 (depending on the broker, you mentioned Scottrade - they charge $7 per transaction for stocks and about twice as much for some mutual funds). Consider this: you invest $1000, you gain $100. You'll pay $15 in fees just to buy/sell, that's 1.5% expense ratio. If you invest in more than 1 stock - multiply your fees. To avoid that you can look into mutual funds. Different brokers offer different funds for free, and almost all of them carry many of the rest for a fee. When looking into funds, you can find their expense ratio and compare. Remember that a fund with 1% expense ratio diversifies and invests in many stocks, while for you 1.5% expense ratio is for investing in a single stock. Is it a good idea to invest only in US or diversify worldwide? You can invest in the US, but in funds that diversify worldwide or across industries. Generally it is a good idea to diversify. I am 28. Should I be a conservative investor or take some risks? Depends on how bad of a shape will you be if you lose all your principle. What online brokerage service is the best? I have heard a lot about   Scotttrade but want to be sure before I start. It seems to be the   least expensive and most user-friendly to me. ""Best"" is a problematic term. Scottrade is OK, E*Trade is OK, you can try Sharebuilder, Ameritrade, there are several ""discount"" online brokers and plenty of on-line reviews and comparisons amongst them. What is a margin account and how would it affect my investing? From   what I understand it comes into play when an investor borrows money   from the broker. Do I need to use it at all as I won't be investing on a big scale yet. You understand right. There are rules to use margin accounts, and with the amount you have I'd advise against them even if you get approved. Read through the brokers' FAQ's on their requirement. Should I keep adding money on a monthly basis to my brokerage account   to give me more money to invest or keep it at a certain amount for an   extended period of time? Sharebuilder has a mechanism to purchase monthly at discounted prices. But be careful, they give you discounted prices to buy, but not to sell. You may end up with a lot of positions, and the discounts you've gotten to buy will cause you spend much more on selling. Generally, averaging (investing monthly) is a good way to save and mitigate some risks, but the risks are still there. This is good only for long term savings. How should my breakdown my investments in terms of bonds vs stocks? Depends on your vulnerability and risk thresholds." I am a believer in stocks for the long term, I sat on the S&P right though the last crash, and am 15% below the high before the crash.  For individual stocks, you need to look more closely, and often ask yourself about its valuation. The trick is to buy right and not be afraid to sell when the stock appears to be too high for the underlying fundamentals. Before the dotcom bubble I bought Motorola at $40. Sold some at $80, $100, and out at $120. Coworkers who bought in were laughing as it went to $160. But soon after, the high tech bubble burst, and my sales at $100 looked good in hindsight. The stock you are looking at - would you buy more at today's price? If not, it may be time to sell at least some of that position. Your order may or may not be executed.  The price of stock can open anywhere.  Often yesterday's close is a good indication of today's open, but with a big event overnight, the open may be somewhere quite different.  You'll have to wait and see like the rest of us.  Also, even if it doesn't execute at the open, the price could vary during the day and it might execute later. Note that the rules around wash sales vary depending on where you live. For the U.S., the wash sale rules say that you cannot buy a substantially identical stock or security within 30 days (before or after) your sale. So, you could sell your stock today to lock in the capital losses. However, you would then have to wait at least 30 days before purchasing it back. If you bought it back within 30 days, you would disqualify the capital loss event. The risk, of course, is that the stock's price goes up substantially while you are waiting for the wash sale period. It's up to you to determine if the risk outweighs the benefit of locking in your capital losses. Note that this applies regardless of whether you sell SOME or ALL of the stock. Or indeed, if we are talking about securities other than stocks. "Selling as well as buying a stock are part science and part art form.  I remember once selling a stock at its 52 week high too. That particular stock ""quadrupled"" in value over the next 52 weeks.  Mind you I made 50% ROI on the stock but my point is that none of us have a crystal ball on whether a particular stock will ever stop or start going up or stop or start going down. If someone had those answers they wouldn't be telling you they would be practicing them to make more money! Make up your mind what you want to make and stick by your decisions.  Bulls make money when stocks go up and Bears make money when they go down but pigs don't make money. -RobF" The Art of Short Selling by Kathryn Stanley providers for many case studies about what kind of opportunities to look for from a fundamental analysis perspective. Typically things you can look for are financing terms that are not very favorable (expensive interest payments) as well as other constrictions on cash flow, arbitrary decisions by management (poor management), and dilution that doesn't make sense (usually another product of poor management). From a quantitative analysis perspective, you can gain insight by looking at the credit default swap rate history, if the company is listed in that market. The things that affect a CDS spread are different than what immediately affects share prices. Some market participants trade DOOMs over Credit Default Swaps, when they are betting on a company's insolvency. But looking at large trades in the options market isn't indicative of anything on its own, but you can use that information to help confirm your opinion. You can certainly jump on a trend using bad headlines, but typically by the time it is headline news, the majority of the downward move in the share price has already happened, or the stock opened lower because the news came outside of market hours. You have to factor in the short interest of the company, if the short interest is high then it will be very easy to squeeze the shorts resulting in a rally of share prices, the opposite of what you want. A short squeeze doesn't change the fundamental or quantitative reasons you wanted to short. The technical analysis should only be used to help you decide your entry and exit price ranges amongst an otherwise random walk. The technical rules you created sound like something a very basic program or stock screener might be able to follow, but it doesn't tell you anything, you will have to do research in the company's public filings yourself.