How to Invest Wisely when You Don't Know What You're Doing

.A few years ago, Whirlpool stock boomed after Hurricane Katrina, because thousands of storm-damaged refrigerators and other home appliances (including Maytag, also owned by Whirlpool) had to be replaced. Wistfully, I wished for some of that stock. Now I'm rather glad I didn't make a fortune from someone else's catastrophe but it got me to thinking that - in most countries - refrigeration for food and a way to do laundry are indispensable. Whether you own appliances or use those which belong to others, Whirlpool and Maytag are often part of the picture and a good bet for investors who want a nice, dependable return without taking chances.

A Get-Rich-SLOW Scheme:

Until then, the only stock I owned (in one of the major banks) had been a gift which kept on giving in the form of dividends. I am not a frenetic TRADER and my idea of investing is to hang on to a good security and watch what happens. So far this had worked well but I couldn't forget about that Whirlpool stock.

Along Came ING Direct ShareBuilder

ING Direct ShareBuilder was my chance. With a deposit of $50, I opened an account and set up automatic recurring monthly deposits of $100, to buy Whirlpool (WHR) stock. The amount of stock my money bought varied periodically, depending on the value, but each month there would be one transaction for a fee of $4. I've got to admit that I have had fun and made money even during the economic recession of 2009 when, in spite of everything, I still accrued $1.987.38 by not doing a damned thing except to let the deposit plan continue.

A Year in the Life of a Security

I started out in January of 2009 with $614.32 worth of Whirlpool worth $43.45 a share (so my $100 deposit for that month bought 2.2094 shares). February's value dipped to $35.99 which meant that my $100 for that month bought me another 2.6674 shares. I'm not sure what happened in March but while I was whooping it up out on the West Coast, WHR tanked at $22.33 a share. Had I known, I might have panicked and done something stupid like SELL! which is the only way I could have lost money at that point. By inadvertently doing nothing, I not only avoided an actual loss but enjoyed one of my best months. My March $100 deposit bought 4.2991 shares (all for one $4 transaction fee). Getting WHR stock that cheap was like buying designer shoes at WalMart -- an unbelievable deal.

Unfortunately, at that point, budgetary concerns dictated that I cut my monthly deposit down from $100 to $50 but I still did okay during the rest of 2009 as Whirlpool rallied, fluctuating a bit but ending up being worth $83.99 per share on Dec. 22. Even though all I had deposited was $795.86 (including the reinvestment of $45 of dividends), my account had increased in value from $614.32 to $2,601.70 for a change in value of $1,987.38 despite the $48 I had paid in monthly transaction fees.

A Few Things I've Learned Along the Way:

Stick to the Fundamentals.

Unless you have plenty of cash to experiment with, my advice is to invest in those things which somebody will always need -- electric power, gas, water, food, paper products, or ... yes ... refrigerators and washing machines. Fancy dot.com investments may come and go but the Fundamentals we will probably always have with us and a lot of them pay good dividends.

Don't Even THINK about Day Trading.

There can be a lot of fun involved in buying and selling constantly for a profit but remember that this article is written for people like me -- those who want to invest wisely but aren't really sure what they are doing. Day trading and trying to time the market can be stressful and don't always work even for professional traders. For me, the best strategy has been hardly any strategy at all -- I just keep plodding along, buying stocks I trust and will only sell them if I need to or really want to. Once I get 100 shares of Whirlpool, I'll change from reinvesting dividends to having them paid to me, and WHR dividends aren't bad.

Keep Your Eyes on the Prize.

Don't fret too much about the short-term rise and fall of a security's value. After all, you're not investing in a fancy certificate but the corporation it represents. I don't check the value of WHR stock everyday but you can bet I'm keeping a sharp eye on what that company does because their long-term performance is what will make me money.

Don't Worry Too Much about Doing Better than Somebody Else.

When friends brag about doing well on the market, just congratulate them and keep focused. Don't try to outgun or impress that type of ego. Concentrate on what is best for you, no matter what others may think. Pride not only goes before a fall but it can disarm and render vulnerable an investor. One of the biggest tricks that Bernard Madoff used to con his customers was to make them feel they were lucky to be investing with him. The smug delight that they were getting something special is what really beguiled their faith and destroyed their fortunes.

Never Borrow Money to Invest in the Market

Buying on margin is a way of investing with a loan which is secured by the value of the security bought. In 1929, many people had borrowed the money they invested. It was buying on margin -- not the Crash itself -- which destroyed businesses and personal fortunes. Those people who owned stock outright were able to just ride their shares down and then back up again eventually but those who had invested with borrowed money secured by stocks began to get desperate margin calls from their brokers, demanding that the hapless investors ante up extra cash to replace the lost value of the stock which had secured the loans in the first place. It sounds complicated but simply put, those margin calls wiped some people out forever. If you have to borrow to invest in the market, you can't really afford to do it and so we come to the last point.

Don't invest if you can't really afford to do it.

Make sure you have an emergency fund of at least six months or maybe a year to live on in case of an emergency before you start buying stocks. Wipe the books clean on credit card debt and any other nagging worries first. Investing in the Market isn't any fun if you have to anxiously worry about the money you have gambled on American business -- and that's what even wise investing is ... a form of gambling.

No, no, They Can't Take That Away from Me!

Today, the market has suffered a few more adverse moments but the WHR stock I've accumulated in my ING ShareBuilder account still amounts to more than 40 shares currently worth $3,340.85. Once it hits 100 shares, I'll start taking the dividends as extra income. For somebody who just sat back and let the automatic deposits go on, I haven't done badly but the real dividend I enjoyed was the fun of it all. Betting on Whirlpool was a lot of fun and -- no matter what happens next -- they can't take that away from me.