Apparently rapper 50 Cent owns about 30 million shares of H&H Imports which is a penny stock. Right away warning signals should be going up for any knowledgable investor because penny stocks are very risky, especially ones that sell for between 5 and 10 cents.

Over the weekend the rapper started pumping the stock on Twitter to his 3.8 million followers. He was telling everyone they would double their money and that he owned the stock and they should too. In response to this, the stock at one point was up more than 240% all the way up to 39 cents. That equated to a gain very nice gain in the millions of dollars for 50 Cent.

The stock is down today more than 25% and he has now backed off his recommending it. Now he is telling everyone to do their homework before they buy but for those foolish folks who didn’t, it’s too late and many of them have gotten burned.

I’ve always said that penny stocks are for dummies but a story like this one is better than I ever thought I would find to illustrate it. It goes to show how gullible people are and how much influence celebrities have over their fans. It is really sad that so many people would buy a worthless stock just because a music rapper told them to. In reality, it is hard to feel sorry for those folks that have lost money on this bad penny stock.

You can read more about this story here on MSN.

The author of the article speculates that the reason for this is because the first two years, a new President is trying to get his agenda enacted and is not concentrating as much on the economy. After the midterm elections he is then more focused on getting reelected which means he will do more things to boost his approval ratings and to boost the economy. A good economy going into an election means a greater chance of getting elected.

While the new Obama tax package was just passed one might argue that things are already happening along those lines. With investors and companies knowing that their taxes are not going to be raised for the next two years, things are already looking good for the business environment.

But wait a minute.

Didn’t Obama already throw everything he had against the wall trying to stimulate the economy in his first two years? What about a little thing called the Obama stimulus bill in the amount of 787 BILLION! How much more can he do to try to stimulate the economy? Seems to me like he’s got very little left and that new Republican House is not going to let him get away with other reckless spending like that.

No, Obama was trying his hardest to stimulate the economy in the first two years and he clearly failed. He gave away our tax dollars and flushed them down the toilet like all Democrats seem to do. Whatever happens from this point will be more of a result of the Republicans who are there to put a stop to all his shenanigans.

If there is an Obama stock rally in 2011, it shouldn’t be called that. It should be called the return to sanity rally.

Earlier today, there apparently was a rumor that Apple might be looking to by Sony (SNE). That “news” even sent Sony stock up 3% in Japan on Tuesday and it probably was the reason the stock went up right at the open here in America as you can see in the chart below.

Apple has over 50 billion dollars of cash and there has long been speculation about what they are going to do with it. Many shareholders want them to start distributing dividends but so far Apple hasn’t done that. They have bought some smaller companies that were competitors of theirs or that had technology they needed but so far no major purchase.

The rumor was based on nothing more than an article in Barrons that perhaps Apple is setting up to buy a bigger company with all it’s excess cash. Sony might have been mentioned in the article and that was enough to start the rumor.

Stay away from rumors as that is a sure way to lose money. If you bought Sony stock early this morning you still have a good stock but you probably paid more than you should just because of all the unfounded speculation. Additionally, you now own stock in a company that you likely had no interest in until you heard the rumor. You can always sell it back but that is not a good way to invest. Always invest in things you know, not on what you think you know.

People like Bill Gates and Paul Allen at Microsoft have so many shares that they usually sell the same amount every month or two months or whatever schedule they decide on. That way the same number of shares are being sold throughout the year and it doesn’t look to investors like they are bailing out on the company or that anything unusual is happening.

Insiders are thought to have inside information and it makes a lot of sense to keep an eye on what they are doing. Many investors like to closely monitor insider buying and selling as they think it is a good indication of whether a company is doing well or poorly.

For instance, if you suddenly see an insider at Intel (or any company) buy a large amount of shares, it must be because they think the company is doing well and they think the stock price will be going up. Why else would they be buying, right? Conversely, if you find out that an insider at another company is suddenly selling shares in numbers that are uncharacteristic, perhaps that is an indication that things aren’t going too well at that company?

Company insiders often have so many shares of stock that they have a problem trying to get the most money they can for them. If they sell a lot of shares at once, they have enough shares to actually move the price of the stock. Additionally, selling large numbers of their stock could lead to a panic. That is why most of them sell reasonable amounts of stock at predetermined times.

Many stock market investors and analysts look for instances where sales or buys are made by insiders that are not on a regular schedule. This is especially true of insider buying because these people have key information that we don’t. If their inside information is so good that these company insiders want to buy more shares, that is often a strong indication that they think the stock is undervalued.

To learn more about stock insider buying and selling, I suggest you go to your bookstore and buy one of the Stock Market For Dummies books or any one of the other ones that covers the basics of stock investing.

Not all stocks pay dividends and in fact, most don’t. Those that do usually have ones that are very small (under 1%) and that doesn’t amount to much. But some stocks pay dividends that are 2% or higher and it all depends on the company and how much they want to give back to shareholders. Some companies like to keep all the cash themselves for research and development, expansion, legal costs, and any other emergencies that might develop.

Microsoft was a good example of a company that had absolutely tons of cash but refused to pay out any of it to investors for years. The stockholders complained and complained and finally Microsoft relinquished and decided to pay a small amount back quarterly. Today the dividend amount is around 2%.

Some investors only buy stocks that pay dividends as they feel they have better value. When given the chance, why not pick stocks that pay you back a little every quarter rather than ones that don’t? Other investors would rather focus strictly on picking stocks they feel have the best chance to go up and they ignore whether a stock pays a dividend or not.

No dividend is safe and often times it will be the first thing to be cut when a companies profits are down. So, even if you buy a stock with a healthy dividend today, it is not something you should count on. During this very difficult economic stretch over the last 3 to 4 years that saw the market go way down, many companies stopped paying their dividend.

For a list of the highest paying dividend stocks you can go here. Remember though, while those stocks may pay that dividend today, there is absolutely no guarantee that they will pay it tomorrow. You should not be buying stocks just because they pay a nice dividend. If they go down, it will most likely wipe out any money you made with the dividend and probably a whole lot more too! If you want more information about stocks with dividends, you might pick up one of the books called Stock Market For Dummies that you can find in almost any bookstore.

Right now there is a lot of bad news about the economy. I mean a REAL LOT OF BAD NEWS. Unemployment has gone up to 10% under Obama and stayed there. The government is spending money at rates like we have never seen before. This country is deeper in debt in every way than it ever has been before. In short, there is a lot to worry about.

Yet stocks aren’t going down and it seems like they even want to go up. All the bad economic news I just described is the wall of worry and it is a very big wall right now. But if stocks end up today (9/3/2010) like it looks like they will, it will be the third straight day that they have gone up. Any bit of good news about the economy or jobs seems like it is enough to send the market up.

When stock investors ignore bad news or general pessimism about the market or economy and bid stocks higher, that is when it is said that the market is climbing the wall of worry. Its like there is bad news and the market should be going down and yet it defies gravity and goes up.

You can go out and buy the Stock Market For Dummies book and learn all the basics and fundamentals there are. But no common sense principle or any set of fundamentals can explain why, in the face of so much economic bad news, people are still willing to bid the market up and part with their money.

This is what makes the stock market very interesting for many people. A good investor is in tune with not only what stocks are doing well but also with what people are thinking about those stocks. Often time what people are thinking is even more important than the nuts and bolts of a companies inner workings.

If people like a stock or what a company makes (like Apple for instance), sometimes that alone is enough to keep it going higher. If people want to buy they sometimes will buy, no matter what is happening to the economy. The wall of worry is when there is seemingly enough bad news and a lot of experts predicting bearishness to push the market down. And yet it stealthily keeps going up, usually slowly. Is that what we are seeing here? It sure looks like people want to buy stocks and are just waiting for any little bit of good news as an excuse to buy.

When it comes to individual stocks and how they relate to the mutual fund investor, the explanation is anything but simple and a quick read through a Stock Market For Dummies book might be advised. The dilemma that many investors become enthralled with has to do with the advantages of purchasing shares of individual stocks or buying mutual fund shares.

One of the primary reasons that mutual funds have dramatically increased in popularity is directly related to the underlying investments of 401(k) participants. Anyone investing in their employers 401(k) plans generally have a few investments options to choose from. During that annual company meeting where the retirement benefits are explained, the historical performance data of the investments found within the 401(k) are highlighted. Generally, mutual funds fare much better than the other investment choices found within the plan. Many employers also provide a match to any employee participating in the 401(k), which makes many employees feel compelled to join up. Thus, a mutual fund investor is created.

Mutual funds are open ended investments that invest in individual stocks, bonds, certificates of deposit, real estate and money markets. These funds are usually managed a team of professionals that are employed by the mutual fund company. Individual stocks within a mutual fund are purchased to match the focus of the fund itself.

There are lots of different fund you can buy that have different goals or criteria. Growth funds purchase large amounts of individual stocks that have a high potential for growth. Whereas, growth and income funds contain various issues of stocks that have dividends that provide income as well as growth. There are funds that focus in on geographic or specific business and technological sectors. Some mutual funds may have over 100 different individual stock issues contained within it’s portfolio.

One of the greatest considerations within managed mutual funds is called turnover. This is the frequency in which the fund’s underlying portfolio is bought and sold within any given year. High turnover with profit can create a higher tax liability. This is a huge consideration when buying shares of mutual funds because it can undercut the net profit of the investor.

The most frequently questioned consideration of most mutual funds is their often excessive expense ratios. This along with turnover can make investing in aggressively managed growth funds unattractive, especially in a down market.

Individual stocks are often considered during both bull markets and bear markets. When the bulls are running and the market is high, new issues of stock also known as “hot issues” are created with impunity. Many individual stock investors jump on these risky bandwagons with religious fervor. The end result can be huge losses in the blink of an eye.

However, purchasing individual stocks during down markets can be profitable over the longer term. This is known as value investing, which is something that has grown in popularity since the peak of the recession. However, investing in any individual stock limits the diversity found within the mutual fund world. The risk of buying individual issues over the potential to purchase many may be a concern to the average investor.

For the 401(k) investor, individual stocks are usually not available within the plan itself. Therefore, exposure to individual stocks would likely come outside of the retirement world. However, IRAs and Roth IRAs are easily set up to accommodate the purchase of individual stocks. The biggest problem with buying individual stocks is that the average investor must actively manage his or her own portfolio. Though there are brokers who will gladly perform this task for a commission, it is still up to the investor to express their own personal goals for profit and success. Buying individual stocks means that the investor must make the correct choices twice. Buying low and selling high is definitely not as easy as it may seem.

Right now, the Dow Jones is in a trading range which can be seen clearly in the graph below. For more than a month there has been little to no change and it is at about the same point now as it was on May 18th.

It is during times like these that it is confusing what to do with your money that you have sitting on the sidelines. At some point in the future, the market will breakout of this trading pattern and either go down or start to head up. But for now, it is unclear when a change will start to happen and which way it will go when it does start to move.

People who have stocks that pay dividends are in the best position when the market gets stuck in a trading range. Dividend stocks pay you money no matter what the market is doing and regardless of whether the stock price is going up or down. This is why many professional stock analysts recommend you have at least some dividend producing stocks in your portfolio. Especially now with interestrates so low, stocks with dividends are especially attractive.

As to the question of whether it is better to buy funds or stocks though, there is no right or wrong answer. Some of it will depend on how much you have to invest. If you only have a couple thousand dollars, it will be difficult for you to buy 5 or 6 stocks and properly diversify your holdings. In that case, it might be better to to buy a mutual fund that invests in a basket of stocks.

There are stock funds (or equity funds) and mutual funds that are now available for seemingly every investment strategy you might have. Stock funds invest just in stocks and mutual funds can invest in stocks, bond, money markets, and other investment vehicles.

If you want big short terms gains, you will be able to find a fund with that goal. If you are more conservative and want long terms growth with stocks that pay dividends, you should be able to find something for that. If you want to only invest in stocks that comprise a certain industry, that is available as well.

An advantage of stock funds, some people believe, is that your money is being managed by a “professional”. Of course some professionals are better than others and there are never any guarantees. When you put your money in a mutual fund, you have to keep your fingers crossed that the fund manager knows what he is doing and is a good stock picker.

The cost for having the “professional” manage the fund and your money is not free. There will be a fee which is part of the price you pay to get into the fund. The amount of the fee is different for every fund and the way you are charged can be different as well. Before you invest in funds you should do some research and understand the real costs you are going to be paying for the privilege of having your money managed by someone else.

Some people hate putting their money/investment decisions in the hands of another person. They would rather buy their own stocks and make their own decisions. If they do well, they can take all the credit. If they fail, they at least know that they can’t blame it on someone else. Whether you decide to invest in mutual funds or individual stocks that you buy yourself depends a lot on the person. 

If you are one of those people who are interested in keeping up with individual stocks and constantly looking for the best stocks to buy right now at any point in time, you will not be able to do that through stock or mutual funds. Buying and selling stocks yourself will be the route you have to take so you should keep that in mind.  

There are stock experts all over the place that are more than willing to throw out a few names of stocks you should own. But why should you follow their advice and why are they recommending them?

Take a look at this 3 page article from Michael Brush on MSN Money about 14 stocks that he says are safe to own right now. It is one of many such articles you can find on the Web on any given day that give you a few stock picks and then outline why they are a good bet right now. But take notice of the last line in italics that is under his piece ( it is displayed below).

So, after doing all that recommending and analysis, it turns out that Mr. Brush does not own any shares of any of those companies he calls safe. I think that’s pretty important. I want to make sure you know I am only using his article as an example of thousands of others like it and I have nothing against Mr. Brush.

Now, stock picks are a tricky thing. If he did own shares of some or all of those companies you might be able to make the case that he is just trying to pump up the stocks he owns. On the other side, since he owns none of them you might say that he isn’t willing to put his money where his mouth is. So either way, anyone who gives stock picks can be in the line of fire for criticism.

Most importantly though, you should know to always look for that type of disclaimer at the bottom of every stock market article you read. On TV and radio you will sometimes similarily hear a stock analyst state whether he (or she) owns any of the stocks they are talking about. It is important to know whether they have a financial position in the stocks they are recommending.

You might wonder whether it is best for an analyst to own the stocks they are recommending or whether not owning any of them is okay. After all, anybody can come on the air and make predictions all day if they don’t matter. If a stock picker recommends Nokia and then it goes down 50% from the time they make the recommendation, who cares right? After all, they personally didn’t lose any money.

The bottom line is that free stock picks are a dime a dozen. You know the saying “you get what you pay for” and with stock picks the same is true. Some will work out and some won’t. The best you can really hope to do is to track different stock analysts and see who you grow to trust. There is no doubt that some are better than others and you might find one that works out better than the rest.