"The real key to making money in stocks is not to get scared out of them." Use a proven strategy and stay in the market for the long term.

 Lynch recognized that the stock market was unpredictable in the short term, even to the smartest investors. Over the long term, however, good stocks rise like no other investment vehicle. Lynch's philosophy: Use a proven strategy and stay in the market for the long term and you'll realize those gains, jump in and out and there's a good chance that you'll miss out on a chunk of them.

That, of course, means resisting the temptation to bail when the market takes some short-term hits and good stocks fall in value - no easy task. But as Lynch once said, "The real key to making money in stocks is not to get scared out of them."

Volatility is not risk. Avoid investment advice based on volatility.

So if volatility is not risk, what is?

The major risk is not the short-term stock price volatility that many thousands of academic articles have been written about. Rather it is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms.

Click:
It sure beats FD rates and it is safe too.
http://spreadsheets.google.com/pub?key=tWENexpUrXS_RMxB7k73RgQ&output=html 
  
Take Home Lesson

Using the above definition of risk, stocks are actually the safest investment out there over the long term.

Investors who put some or most of their money into bonds and other investments on the assumption they are lowering their risk are, in fact, deluding themselves.

"Indeed, it goes against the principle we were taught from childhood - that the safest way to save was putting our money in the bank."


Also read:
The Four Essentials of Successful Investing
Forget about Everything Else and Buy Only Stocks
The story of Uncle Chua
Uncle Chua's Portfolio & Dividend Income 
Investment Owner's Contract
What keeps most individual investors from succeeding?
Think for Yourself
Controlling Yourself at Your Own Game: You are your own Worst Enemy
Controlling the Controllable
Time is Money for the Young Investor
Be a shrewd investor
Timing is of no real value to the investor unless it coincides with pricing
Be confident in the quality of your investments
To Invest or Not to Invest: That is NOT the Question
It is the Business that Matters
Finding companies that can be held long-term
Ten Habits of Highly Successful Value Investors

*****Long term investing based on Buy and Hold works for Selected Stocks

It sure beats FD rates and it is safe too.
http://spreadsheets.google.com/pub?key=tWENexpUrXS_RMxB7k73RgQ&output=html

Click: Dividend Yield Investing - Stock Selection is still the Key
http://myinvestingnotes.blogspot.com/2010/03/dividend-yield-investing.html

Click also:
How can the average investor improves his investment returns in stocks?

and here too:

Dividend-paying companies: major shareholders must be willing to share their profits with their investors through good dividend payments.

Invest for the Long Term - Twenty years or longer is the right time frame.

If you can read and do fifth-grade arithmetic, you have the basic skills to be a successful investor in stocks.  The next thing you need is a plan.

The stock market is one place where being young gives you a big advantage over the old folks.  You've got the most valuable asset of all - time.

The old expression "Time is money" ought to be revised to "Time makes money."  It is a winning combination.  Let time and money do the work, while you sit back and await the results. 

If you have decided to invest in stocks above all else, avoiding bonds, you have eliminated a major source of confusion, plus you've made the intelligent choice.  This assumes, you are a long-term investor who is determined to stick with stocks no matter what. 

People who need to pull their money out in one year, two year, or five years shouldn't invest in stocks in the first place.  There's simply no telling what stock prices will do from one year to the next.  When the stock market has one of its "corrections" and stocks lose money, the people who have to get their money out may be going home with a lot less than they put in.

Twenty years or longer is the right time frame. That's long enough for stocks to rebound from the nastiest corrections on record, and it's long enought for the profits to pile up.  11% a year in total return is what stocks have produced in the past.  Nobody can predict the future, but after 20 years at 11%, an investment of $10,000 is magically transformed into $80,623.

To get that 11%, you have to pledge your loyalty to stocks for better or for the worse - this is a marriage we're talking about, a marriage between your money and your investments.  You can be a genius at analysing which companies to buy, but unless you have the patience and the courage to hold on to the shares, you're an odds-on favorite to become a mediocre investor.  It is not always brainpower that separates good investors from bad; often, it's discipline.

Stick with your stocks no matter what, ignore all the "smart advice" that tells you to do otherwise, and "act like a dumb mule."  That was the advice given 50 years ago by a former stockbroker, Fred Schwed, in his classic book Where are the Customers' Yachts? and it still applies today.

People are always looking around for the secret formula for winning on Wall Street, when all along, it's staring them in the face:  Buy shares in solid companies with earning power and don't let go of them without a good reason.  The stock price going down is not a good reason.

It's easy enough to stand in front of a mirror and swear that you[re a long-term investor who will have no trouble staying true to your stocks.  The real test comes when stocks take a dive.  Nobody can predict exactly when a bear market will arrive (although there's no shortage of Wall Street types who claim to be skilled fortune tellers in this regard).  But when one does arrive, and the prices of 9 out of 10 stocks drop in unison, many investors naturally get scared.

The Long-Term Scope of Stocks

In order to become an educated stock investor you should always keep in mind that stocks are an investment tool that gives the best results over the long-term. Only then their positive rewards can be felt.

It is advisable to move your assets to more secure investments when you foresee that you will need some cash out of your stock investments. Some potential parking places include fixed income investments (e.g. bonds, bank CDs) or other products that are characterized by substantial stability.

A planning of three to five years ahead of the time you will need the money is recommended. Reasonable judgment is required in order to make a good prediction on when exactly you will need the money so that you can plan ahead the reallocation of assets. After you have determined that you should select the stable products to which you can transfer your assets.

http://www.stock-market-investors.com/stock-strategies-and-systems/long-term-scope-of-stocks.html

The goal is to make good returns over the long-term.

Making Money In The Stock Market - Demystified
posted December 9, 2008 - 1:36am

The key to making money in the stock market is to earn a high-level finance degree, or listen to those on TV who already have one… right?

Of course not. You don’t need a financial degree to make good money in the stock market. Neither do you need to listen to the so called “gurus” on TV, in fact you would be better off ignoring what the gurus are saying. All you need to make money in the stock market is a little knowledge, and a check on your emotions. The toughest enemy that investors face is their own emotions. Let me throw out an example:

John Q. Investor watches a stock market expert on TV and hears, “Sales of XYZ software company has tripled over the last six months and the stock price has skyrocketed to its 52-week high. The company is expected to increase revenue another 25% in the next year. There looks to be a lot more upside for this company.” This news sounds great! So a very excited John Q. Investor calls up his stock broker, or logs into his online brokerage account the next day, and buys 100 shares of XYZ company at $50.00 per share. Confident that making a lot of money on this stock is a sure thing (after all, a financial guru is pushing it) John Q. prepares to watch the stock price soar. Maybe this is the stock that will enable an early retirement! Two weeks later, some bad news is revealed. A fortune 100 company installed the latest version of XYZ’s software, only to discover a security glitch that exposed top secret product design drawings on their website. Immediately, XYZ’s stock price plummets to $30.00 per share. John Q. is very concerned when he sees his $5,000 investment drop to $3,000 over night. The next day doesn’t help the stock at all and it drops another $10 per share. John Q. Investor is strapped with fear as he sees that his $5,000 investment is now only worth $2,000 and still dropping quickly. He panics, and by the time he can sell all 100 shares it has dropped to $15 per share. So his “sure thing” $5,000 investment lost him $3,500 in two weeks. John Q. is determined that he has no business investing in the stock market and pledges to never invest in the market again.

The scenario above is quite common… especially with the recent problems in the economy. People have just gotten hammered by this current market! But here is the problem with the above scenario. What prompted John Q. Investor to purchase stock in XYZ company? He heard a supposed expert saying that the stock was soaring higher and higher… a sure thing, and he got “greedy” and bought the stock. Greed is an emotion that needs to be kept in check. Something that is overlooked by many people trying to make money in the stock market, is that making money is only half of the equation. The other half of the equation is the possible down-side risk of a stock. This stock was up at its 52-week high… its most expensive price. If you look at buying stocks the same way you would look at buying a car, or a washing machine you would make wiser decisions in your stock picking. Let me explain what I mean. If you are in the market for a new washing machine, do you go buy it at the most expensive price that you can find? Of course not. You may call or visit different stores, or go online looking for the “best price” that you can find for that particular washing machine. Stocks should be bought the same way. You buy them, ideally, at the lowest possible price. This reduces the “down-side” part of that equation. You don’t buy a stock at, or even near, its 52-week high… the down-side risk is too high. When you buy stocks, you look for companies that are financially strong; with history of good growth, good revenue, little to no debt, nice profit margins, and a low profit/earnings ratio for its industry. The lower the profit/earnings ratio (Profits divided by Earnings), the least expensive that stock is. If you are comparing two consumer goods companies with comparable revenue and debt, but company A has a P/E of 16 and company B has a P/E of 11. Company B has less down-side potential (less risk) than company A. Company B is less expensive than company A… even if company B’s stock price is higher than company A’s.

So when you are looking to invest your hard-earned money into the stock market, don’t be frightened away by recent price fluctuations or even by the current economy. Study the financials of strong businesses; compare companies within the same industries and choose the ones with the strongest financials, and the least amount of down-side potential and put your money on those companies… then don’t worry about short-term price fluctuations. The goal is to make good returns over the long-term. This investing style is what is known as “value investing”, and it has been proven the most successful style of investing since its inception in the 1930’s.

http://www.xomba.com/making_money_stock_market_demystified

How to be a long term investor?

Those with a long term portfolio giving positive returns to date are probably reacting to the market differently to those without a long term portfolio. These should be distinguished from those also having a long term portfolio with negative returns to date.

Unlike the former, the latter holds many stocks with "paper" losses. Holding onto these stocks, especially those with poor fundamentals, and with no potential for "recovery" for many years, probably make little or no sense at all.

On the other hand, those lucky investors in the former group have portfolios holding gainers. The gains are probably significant due to the effect of compounding. Moreover, this is a buffer that these investors enjoy, giving them the ability and the courage to ride the volatilities in the market.