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Your crash course in market investing

Thinking of hitting up Wall Street? Before you start investing, TODAY Financial Editor Jean Chatzky shares tips to help maneuver the stock market.
/ Source: TODAY

As someone who travels the country on the speech circuit, I hear a ton of excuses for why people don't have full control over their finances. One of the most common is a fear of investing.I can certainly understand why. The stock market just seems way too big for most of us to wrap our heads around — it's certainly not as easy as balancing your checkbook or paying your bills on time, and because there are no absolutes -- even people who claim to know which stocks are going up and which are going down are often wrong — it can be pretty scary. That's why, at one point or another, the market has mystified most of us. I certainly have been. So has Karen Blumenthal, who admits that even after two decades as a Wall Street Journal reporter, she still didn't quite get it. So she put herself through a crash course of sorts. She decided that for a full year she was going to follow one of the country's hottest stocks — and then write a book about the experience.Her pick? Starbucks. The book? "Grande Expectations." Why did she decide on America's favorite coffee shop as a model? For starters, the never-ending chain of stores is hard to avoid, especially in a big city. But Blumenthal says she really chose the company because of the returns it generated for early investors — those who purchased the stock when it went public in 1992 have experienced a gain of about 6,500 percent on their initial investment. Not bad.Of course, she acknowledges, not everyone has that kind of luck. But her year in the trenches did yield a few lessons that all investors should take to heart when they're ready to dip a toe in the market (or as Blumenthal might say, take a sip of the cappuccino). Consider your optionsThat doesn't mean you have to wade through each and every stock on the market. "Stick inside your circle of competence," advised Toan Tran, editor of Morningstar GrowthInvestor. One of the most important things is to understand the company you're investing in, and that'll be a whole lot easier if you choose something that already makes at least a bit of sense to you. Think retail over biotech. Then, get to the bottom of a few questions: Is the company and its products or services likely to be relevant for a long time? How does the company compare to its competitors? Does the stock's selling price accurately reflect what it's worth? Do your researchCheck out the annual report, which will give you the last year's earnings summary as well as an overview of the goals they've set for the future. It'll outline how and where they plan to expand (Blumenthal says Starbucks is making China a top priority), and any new products they plan to launch in the near future. Beyond that, another good way to get a close look at the inner workings of the company is by listening in to investor conference calls that are often re-broadcast over the Internet. This will give you access to the same information the big-timers get. At the same time, be skeptical. You can't rely solely on information straight from the horse's mouth -- it would be a bit like letting your kid fill out his own report card. To get a balanced view, check out other sources as well. In addition to Morningstar, Toan suggests browsing Yahoo! Finance and the company's Securities and Exchange Commission filings on

Look at investments closest to homeMany companies offer their employees stock options, which can be a great and cheap way to get into the market, especially if you're a first-time investor. Often, you can buy in at a discount, putting you ahead from the start. But that doesn't mean it comes without a warning. "One caveat is that you're kind of doubling up on risk if you invest a lot of your portfolio in an employer's stock. If things don't go well, you could be faced with loses in your portfolio and the loss of your job," explained Tran. Anyone remember the Enron debacle? A basic rule of thumb is that you shouldn't have more than 20 percent of your money in a single stock, and that includes options offered by your company.Heed any red flagsIf you read the annual report cover to cover and you still haven't got a clue what the company does, chances are you want to take your money elsewhere. Other things that might tip you off to a bad investment are an uncooperative management team and a high trading price that just doesn't add up. "You don't want to invest with a management that isn't trustworthy. They should present a fair and balanced view of the business," said Tran. By the same token, you're looking for a good deal, and one that's going to make money, not lose it. If you've looked at the price-to-earnings, or P/E ratio (the stock's current price divided by its most recent earnings) and it doesn't seem fair compared with other companies in a similar business, you may want to back away -- or at least do some more extensive research. Once you're in, sit on your handsI'm a firm believer that boring is better when it comes to the market -- pick a couple of low risk investments and, then let it ride -- at least until something about the company changes fundamentally. If the market dips, take a walk, go on vacation or read a book; anything if it keeps you from selling, because the point is to be in the game for the long haul.

With reporting by Arielle McGowen.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show" and is also a columnist for Life magazine. She is the author of four books, including "Pay It Down! From Debt to Wealth on $10 a Day" (Portfolio, 2004). To find out more, visit her Web site, .