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.

If you had bought when the market was down 800 or more points, you could have made some quick easy money. From that point stocks went back up and although it was a bad day with the Dow losing around 350 points, it was no where near what it was at it’s worst.

Whenever people panic like this it makes one wonder whether it is a buying opportunity? It was if you timed it just right today but few people have the ability to do that. Other than that, it might be too risky to buy now and hope things get better. This was the third day in a row that the market went down and there is definitely a lot of bad news and uncertainty on the horizon. This could be just the start of more bad things to come so buying here could be foolish. At least one thing seems to be for sure: stock trading will driven by a lot of fear in the near future. 

If you are a stock market beginner just wanting to find out what it is all about, you might use this opportunity to sign up for free to Stock Market Survivor where you can be in control of your very own portfolio. You are given $100,000 in virtual play money to get started and you can trade stocks exactly like in real life. There are also monthly prizes to win and it is all free. Most of all though, Stock Market Survivor is a great place to get your feet wet in stock trading and find out what it is like to have your own portfolio of stocks. It should be a lot of fun to watch your stocks go up and down in the coming months and not have any of the risk. 

However, somewhere around the time the Internet started to become a factor in investing, things become much more volatile and unpredictable. You can see the chart below that shows a very steady increase in the Dow from 1981 all the way up to about 2000. Then things start to get a lot more choppy and the ups and downs are much bigger.

Buying and holding stocks in those early years on the graph was a winning play. You could confidently buy most any solid company, forget about it for 10 or 15 years, and come back to see how much you made. But from the 2000’s onward, things seem to have changed and I attribute much of that to the Internet.

Online trading is now the way most people buy and sell stocks. It is quick, easy, and cheap which at one point led to the proliferation of day traders. Guys (and gals) trading in and out of stocks every day made for a lot of volatility and you can see a big difference in the chart from 2000 to the present. Day traders weren’t investors and they weren’t interested in picking good stocks that had value. They just wanted to find the best stocks to buy right now, get a quick up tick, and then they were happy with their small gain and sold. You can see how much things have fluctuated since 2000 in the graph below:

The Internet has also made information on companies and the business news of the day accessible to everyone almost instantly. This has helped to somewhat even the playing field between the professionals and the everyday average investors. Things happen fast now and when news breaks, everyone knows about it and reacts. This is a big departure from the way news traveled in the 1980’s.

Technology now is progressing at a quicker pace than it used to. There are new industries popping up all the time (like sun power, wind power, recycling, and others) that take the place or add onto the way we do things. New companies are formed and old ones have to adapt to survive. This makes buying and holding stocks for long periods of time no longer a profitable way of investing. Now, when you buy a stock, you need to keep a close eye on it more than ever before.

There are many sources of information including the “Stock Market For Dummies” types of books that are geared toward beginning investors. Online and offline, you can now find more stock market material than ever before. People who might have never before gotten interested in stocks are now pulled in because of the ease of it all. This all contributes to more investors who are unsure of what they are doing and more likely to panic and sell when things look bad or buy too high when the market is flourishing.

The stock market is indeed more of a crap shoot than it was 20 years ago. It doesn’t mean you can’t make money in it: it just means you have to keep tabs on all your investment choices and watch them carefully all the time. Long gone are the days when you could buy a stock and sit back and hold it for a long period of time.

When it comes to investing, there is one thing that you can always count on: a wide range of views. This MSN Money article shows that you can find analysts who totally disagree on whether now is a good time to put money in the market or whether now is the time to pull out. The more you search for opinions, whether it be online or anywhere else, the more you will find that there never is much of a consensus.

In fact, the most scary time is when everyone seems to agree. That is when the opposite often happens. Sometimes for instance, stock analysts will be really negative on the market and it’s immediate future warning anyone who will listen that bad times are here and just ahead. They cite all the political and economic problems saying that the market can’t go higher. It is during those times of pessimism that the market will keep climbing the “wall of worry” and keep going up even though people think it won’t.

So, is now the right time to buy stocks or should you hold off and wait to see what happens? No one knows the answer even if they pretend they do. These experts you see on television look and sound very convincing but so does the knife salesman on late night TV trying to sell you the latest Ginsu knife.

The fact is that know one knows for sure and if you wait to buy, the market may go to 12,000 or 13,000 and you will have missed your chance. Just as likely, if you jump right in, the market may go straight down and you will feel like you are in a stocks for dummies scenario. Rather than time the market, it is best to try to pick the best stocks that are in a good position in relation to their competitors or industry. Picking strong and undervalued companies is usually the best way to build a portfolio that will perform well under any circumstances.

Between the time when the stock market closes  and then reopens again the next morning, the world still turns and there are lots of economic things happening. While it may be night in America, it is daytime somewhere else most notably in Europe and Japan. Good news, bad news, any kind of news is coming out while are markets are closed and that news may affect how the Dow opens.

If there is good news in Europe, it may help raise the futures and give the NYSE a bump in the morning. Bad news from Japan may hurt the futures and mean a down opening. Additionally there can be any and all news overnight from America and American based companies that might affect the futures. Economic reports from the government involving GDP, unemployment and anything else also often come out when the market here is closed and they all have an impact on the futures.

So when you hear the talking heads discussing the futures before the market opens each morning, all you really need to know is that if the futures are down, the market will most likely open down. If the futures are up, the stock market will probably open with a gain. Of course, the more down or up the futures are means the bigger the plus or minus the open will be.

This does not mean that every stock will be up or down. In fact, bad or good news from one really big stock company can make the difference in the futures. When stocks like Apple or Google come out with really big news, it can be big enough to sway the futures either to the positive or negative. Penny stocks can never do anything to move the futures because they are irrelevant but some of the really influential companies can have quite an effect on how the markets open every day.

As an example, you can look at the prices of health care stocks before and after the vote in the Senate to mandate health insurance. There is lots of speculation from both sides on what this bill will do to our country and to the health care industry. Some people say it is the beginning of the end and others think it is the best thing ever and of course there are a million opinions in between.

With the passage of the bill one might have thought that health care stocks would go down as the government is going to be more involved and private companies might be on the short end of that. But on Monday March 24th the day after the vote, health care stocks went up and the market as a whole went up as well.

One of the biggest reasons for that is that finally something had been decided and some of the uncertainty was removed. People hate not knowing what the future holds when it comes to their money. The whole stock market is based on people’s opinions of what is going to happen in the future. Uncertainty about that future leads people to sell and/or sit on the sideline because they just don’t want to commit any of their money until they feel like they know what is ahead.

People are constantly searching for the hottest stocks to buy right now and those would be the ones that have the brightest future prospects. What is happening to a company right now is less important than what might happen to it in the future. For instance, Apple has a lot of great products out there that help and have helped the stock climb to it’s very high price. But right now, people are specifically interested in the Ipad which hasn’t even come out yet. Investors are continuing to bet that the Ipad will be a hit as they drive up the price.

Uncertainty was also very evident on 9/11 and the beginning of a big sell off. When people feel uncertain about the future, they tend to sell. They just don’t want to have their money out there and vulnerable when they are unsure of what is happening or going to happen. 9/11 was one of the most hazy and unsure times our country has ever seen. In those instances, the phrase “cash is king” comes to mind because most people are content to sit on their cash and wait things out.

Stocks usually go down when a company announces bad news but sometimes even that isn’t the case. If a cloud has been hanging over a company and driving the price of the stock down, sometimes news from the company achnowledging the problem will stablize the stock and maybe even send it up. Likewise, bad news and numbers from a specific quarter can be offset by good news about the future. In cases like that, a companies stock may actually go up the day they announce poor sales but give a rosy picture of the future.