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Now that the economy has gone to shit I believe this could be the best time to start investing that their has been in many years.

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You're a little late to the party my friend!  The US stock market has already experienced one of its best periods in history, from the low of 666 on the S&P 500 back in March, the index currently stands at 1101... that's a 65% return in less than a year!

I would advocate being very cautious with how you begin to invest your money at this juncture, as it seems likely that the stock market will experience negative pressure during 2010 on account of double-digit unemployment restraining consumer spending, increased marginal tax rates, the withdrawal of government stimulus, worldwide credit troubles persisting (see: Dubai), and a reduction in cost cutting by corporations.  To note, cost cutting was a major factor in allowing many companies to beat their earnings expectations during the past year, but there aren't many more areas where they can continue to cut costs and so there will have to be real growth going forward in order to maintain upward momentum in their stock price.

Be careful with the advice Trance104 gave you above... claiming that you can be a millionaire in 2 - 3 years, yet that stocks are not a get rich quick scheme?

Also, there is no "predictor" for the stock market, if there were, we would all be filthy rich!  Generally speaking, the S&P 500 is the US based index that the majority of major money managers compare their performance against.  In other words, if someone says they are "beating the market", that generally means that they are outperforming the S&P 500.

Lastly, stock splits do not make people rich.  If I have one pencil and break it in half, do I really have two pencils?  No, I have two half pencils, which make one whole pencil.  A standard 1-to-2 stock split creates double the supply of stock, at half the price.  No value is created and the decision to split a stock is entirely optional, any company can do it at any time.  The reason high dollar stocks are often split is psychological and there is no real value created by doing so.

A stock's value is not based upon its dollar cost, but on the Price to Earnings (PE) multiple.  If a company earns $1 per share in a year, and one share of their stock costs $10, their PE multiple is 10. 

• Price ($10) = Earnings ($1) x Multiple (10)

Companies that experience earnings growth cause the dollar value of their stock to increase for each increase in earnings.  Keeping in mind the above equation (P = E x M), if a company's growth is accelerating (i.e. $1 in 2007, $2 in 2008, $5 in 2009, etc.), investors will pay a higher multiple for the expectation of exponentially increased future earnings, which in conjunction with continued higher earnings can lead to an explosion in the stock price. 

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I've laid out a lot of the basic rules that have kept me from losing my shirt in this game during the financial crisis of the past couple of years, as I have been casually investing since 2004.  I would suggest you read my Stock Market Primer, and continue to educate yourself from a myriad of sources if you are serious about managing your own money.  It's always nice to get lucky, and if you started investing in April of this year like our friend Trance did, the winds have been blowing mightily in your favor... but in the long run, the market can become a cryptic beast that will confound even the most intelligent investor from time to time.  You will lose money, so make a habit of defining your risk on any given trade or investment, and adhere to those limits so that when your thesis is violated, you cut the loss the look forward toward other opportunities.  One of the largest mistakes I've made - and indeed I presume several new investors make - is to get too attached to the stocks you own.

• PS.  If you plan to invest for a lifetime (i.e. retirement), open your investment account as a ROTH IRA.

Trance104 said:

Don't jump to much into hedge funds. They usually have bad balance sheets. I can't say all of them, but most do. I like CFP, but their earnings are sometimes questionable. Again, I AM in CFP and I do like their dividend yield. Its about 25% on your money a year. Too good to be true? Maybe. Are they paying these dividends? Of course. Just be careful with those trust funds and hedge funds. They might go under or they will fluctuate a lot.

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pothead_bob said:

I started in the market two years ago and I think I've learned a few things since then.  While there are people out there who try to make lots of money by taking a very active role in their investments (i.e. day traders), I personally find the strategy of letting somebody else do the work to be better.  I've tried making a quick buck here and there and it usually landed me in the red or just breaking even.  Granted, I was doing this during one of the worst times in recent history to invest, but still, I just don't have the time for that.  I opened up an account with Vanguard and bought into a mutual fund in March and it tracked the markets gains nicely.  I gained $1,500 on $3,500 and I was able to buy another fund just last month.  Problem for you will probably be that most funds require a minimum investment of $3,000.  I would also reiterate on the previous suggestion of investing in dividend paying stocks.  I own a stock, HTGC, which pays like 12% and I made huge gains on it over the past year.  Every 3 months, I'm banking like $110 just for owning their stock.  My Vanguard funds also pay nice divis - 5% and 7%.  Slow but steady wins the race, in my opinion.

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