Investing Thread

Off Topic
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[quote]PSlave wrote:
Kilo, I would strongly advise against swing trading. No one has figured out how to time the market. Remember that any of your gains will also be reduced somewhat by your brokerage fees.

If you are too impatient to buy and hold, now may not be the time to invest. Buy and hold really is one of the best ways to make market in the market. Think about long-term returns.
[/quote]

Many times I even wonder why I try buying stocks. There is always a strong side to either support or discount a stock as a buy or long term hold. There seems to be no clear way to invest with any certainty. Mostly luck, as I have seen it.

I go to some chat rooms with daytraders who make 3k a week average. Got to admire that kind of skill. I find myself fustrated 90% of the time.

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The basics are always important, and the best basic book is Dave Ramsey’s book Total Money Makeover. Not directly about investing, but puts everything into a very logical steps that do work. My only real problem with Ramsey is that he seems to come from a position of fear about debt, but he is still 95% right.

I do like the Rich Dad Poor Dad book, but it seems more about concepts then hard reality. Similar to what a previous person said the book is about a guy who grew up with a real father who knew nothing about debt, and a mentor father like figure who wasn’t a Democrat, so knew something about money. (That should rile a few of you up.)

Motley fool is a great place to learn also. It may be gimmicky on the surface, but they just take the fundamentals and put them in a different light. Their 13 steps to investing foolishly is good, and free.

The best time to begin investing is asap. Anyone who knows anything about compound interest understands the sooner the better.

Low interest / low risk investments are actually worse then you think. This is investing through fear, kind of like lifting only those light pink dumbbells because they are safe. You will lose more money by being safe then by taking on intelligent risk.

It doesn’t hurt to start off with something like a money market mutual fund, which pays about the same as a CD with less strings attached, to build up an emergency fund.

Many people here could be making 18 - 21%, or even more tax-free just by paying down their credit cards. This is one of the first places to put money. And don’t run those cards back up either.

Now while it is bad to only invest in extremely low risk low return securities, it is worse to invest in something you don’t understand. If you do not know why you should invest in something, you are not ready to invest.

Also avoid anyone’s advice about hot stocks. There are professionals who work 40+ hours a week, spend millions on research, and I guarantee are way ahead in this game, so if the hot stock is more then gossip, by the time you hear about it, it’s old news to the pros. So the small investor needs to invest differently then they do, and ignore those hot stock tips. There are plenty of ways the small investor can make money that are not available to the big investor.

One way people make money is when an S&P 500 firm spins off a division. When a division is spun off, the new company is most likely not part of the S&P 500, so any S&P 500 mutual fund must sell this stock, temporarily depressing the price. Many people will short the stock and make money off the probable drop in price. Again you need to know what you are doing.

The best thing to do is read everything you can on the subject.

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[quote]mdragon wrote:
duke wrote:

Duke

Could you explain what a derivative is in the investing world? Who do you read?
[/quote]

A derivative is something that can be traded, which is based on the share price - Options - Futures - CFD’s…
Generally trading the deriviative is a fraction of the price of the actual share and can be far more volatile and far more profitable/risky… Also allows you to trade the index’s i.e banking index or coffee or pork etc.
Very exciting, but don’t play with money you can’t lose.

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Great thread (I’ve been lurking). I’ve heard good things about “Personal Finance for Dummies” and have been working my way thru it. Seems to cover the basics pretty well.

Any book/website suggestions for learning more about income properties?

What do you think about Jim Cramer and his “Mad Money” show? Is his book any good?

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[quote]blooey wrote:
If you have $4000 to invest, why would you spend 10 hours per week earning an (excellent) annual return of 20% ($800) if you could instead spend 10 hours a week at McDonalds, earning $800 in 16 weeks?[/quote]

This is an excellent point… so many people make the mistake of investing small amounts of money in stocks. The fees jack up the price, and you have to get a higher return to compensate. Since the amount invested is so low, the return would have to be astronomical to be worth the effort (especially after selling fees and taxes). And worse than that, the kinds of people making these investments tend to be people for whom the money invested is rather significant; so they end up with an extremely high-risk, low-reward investment. The greater the amount of money you are able to initially invest, the better your investments perform… not in terms of percentage, but in terms of real-world results.

I’m not an expert, but my feeling is that anyone who has a 401K, IRA or other retirement account should be maxing that out before investing in individual stocks or outside mutual funds.

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[quote]Jillybop wrote:
Great thread (I’ve been lurking). I’ve heard good things about “Personal Finance for Dummies” and have been working my way thru it. Seems to cover the basics pretty well.

Any book/website suggestions for learning more about income properties?

What do you think about Jim Cramer and his “Mad Money” show? Is his book any good?[/quote]

Buy, Rent and Sell: How to Profit by Investing in Residential Real Estate - Robert Erwin

Rental Houses for the Successful Small Investor - Suzanne Thomas

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I’m 22 and right now I spend my time trying to max out my IRA for the year ($350 a month right now), and then I put $1000 a month into a money market account that I get 6% return on. That money is there for when I move into my own place, otherwise I’d be investing it in something with a higher return.

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[quote]Ren wrote:
I’m 22 and right now I spend my time trying to max out my IRA for the year ($350 a month right now), and then I put $1000 a month into a money market account that I get 6% return on. That money is there for when I move into my own place, otherwise I’d be investing it in something with a higher return.[/quote]

Hey, in Ohio, you’ll have a downpayment in what, six months?

Anyway, it’s impressive that you have that much disposable income, and that you are saving so much.

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Just an FYI by the way, I really like the new google finance tool -

Problem is that I can now check my portfolio on a regular basis…today was not a happy day.

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[quote]nephorm wrote:
so many people make the mistake of investing small amounts of money in stocks. The fees jack up the price, and you have to get a higher return to compensate. Since the amount invested is so low, the return would have to be astronomical to be worth the effort (especially after selling fees and taxes).
[/quote]

A good rule of thumb is to reduce your transaction fees to 2%. So, if your trade fee is $12.99, purchasing 11 shares of a stock at $60 would equal an total purchase of $672.99. $660 in stock, $12.99 in fees.

[quote]
And worse than that, the kinds of people making these investments tend to be people for whom the money invested is rather significant; so they end up with an extremely high-risk, low-reward investment.[/quote]

An excellent reason to buy and hold for the long-term.

For me, I was happy to see the market drop today. I cheer when day traders start selling… Several stocks on my “watch” list are dropping towards prices I would consider paying for them.

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[quote]Soco wrote:
Just an FYI by the way, I really like the new google finance tool -
[/quote]

finance.yahoo.com is great, too.

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[quote]Soco wrote:
Just an FYI by the way, I really like the new google finance tool -

Problem is that I can now check my portfolio on a regular basis…today was not a happy day.[/quote]

Thanks for the info. You`re luckier than me. The link lands on a Beta page. I expected portofolio and tons of tools, but a quick try with a ticker like NT showed interesting results nevertheless.

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[quote]PSlave wrote:
nephorm wrote:

An excellent reason to buy and hold for the long-term.

For me, I was happy to see the market drop today. I cheer when day traders start selling… Several stocks on my “watch” list are dropping towards prices I would consider paying for them. [/quote]

Perhaps the day traders are selling short and making a profit on the stocks as they slide. The Aussie index followed the US and crashed today. Those selling short made a bundle.

Considering a couple of the previous comments on fees and holding for the longer term etc - has anyone tried their hand at CFD’s (contracts for difference), they’re great.

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[quote]duke wrote:
Considering a couple of the previous comments on fees and holding for the longer term etc - has anyone tried their hand at CFD’s (contracts for difference), they’re great.
[/quote]

What are those?

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[quote]PSlave wrote:
duke wrote:
Considering a couple of the previous comments on fees and holding for the longer term etc - has anyone tried their hand at CFD’s (contracts for difference), they’re great.

What are those?
[/quote]
Instead of buying the actual shares, you buy a contract for the shares at the current share price and pay around 3% to 10% of the current share value. For example if xyz is trading at $10 and you think it’ll go up, you buy 1,000 contracts for say $0.50c each (Costing $500 instead of $10,000 for the shares) and if you are right and the share goes up to say $11, then you can sell the contract back, making $1,000 profit on the deal for your input of $500, instead of having to outlay $10,000 to make $1,000. In percentage terms the return on the CFD is 200%, the return if you bought the shares is 10%.

Hope that makes sense.

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[quote]MrChill wrote:
Lonnie123 wrote:
My biggest piece of advice: Don’t put all your eggs in one (shitty) basket.

The cynic in me calls this deworsification. :slight_smile:

[/quote]

what did Buffet say? Better to get a great company at a good price than a poor company at a great price.

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[quote]duke wrote:
(contracts for difference)

Instead of buying the actual shares, you buy a contract for the shares at the current share price and pay around 3% to 10% of the current share value. For example if xyz is trading at $10 and you think it’ll go up, you buy 1,000 contracts for say $0.50c each (Costing $500 instead of $10,000 for the shares) and if you are right and the share goes up to say $11, then you can sell the contract back, making $1,000 profit on the deal for your input of $500, instead of having to outlay $10,000 to make $1,000. In percentage terms the return on the CFD is 200%, the return if you bought the shares is 10%.
[/quote]

Do CFDs have a set date on which they have to be exercised? I’m assuming the price of the CFD is set by the seller?

If so, is a CFD the same as a call option?

The downside, as I understand it (I don’t trade in options so please correct me if I’m wrong!), is that if, in your example above, XYZ drops to $9, you would be out your money.

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[quote]nephorm wrote:
Ren wrote:
I’m 22 and right now I spend my time trying to max out my IRA for the year ($350 a month right now), and then I put $1000 a month into a money market account that I get 6% return on. That money is there for when I move into my own place, otherwise I’d be investing it in something with a higher return.

Hey, in Ohio, you’ll have a downpayment in what, six months?

Anyway, it’s impressive that you have that much disposable income, and that you are saving so much.[/quote]

well, a friend and I are gonna be renting a place starting sometime over the summer, and I need to get a new car within the next month, so that grand saving is gonna be stopping soon.

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[quote]PSlave wrote:
duke wrote:
(contracts for difference)

Instead of buying the actual shares, you buy a contract for the shares at the current share price and pay around 3% to 10% of the current share value. For example if xyz is trading at $10 and you think it’ll go up, you buy 1,000 contracts for say $0.50c each (Costing $500 instead of $10,000 for the shares) and if you are right and the share goes up to say $11, then you can sell the contract back, making $1,000 profit on the deal for your input of $500, instead of having to outlay $10,000 to make $1,000. In percentage terms the return on the CFD is 200%, the return if you bought the shares is 10%.

Do CFDs have a set date on which they have to be exercised? I’m assuming the price of the CFD is set by the seller?

If so, is a CFD the same as a call option?

The downside, as I understand it (I don’t trade in options so please correct me if I’m wrong!), is that if, in your example above, XYZ drops to $9, you would be out your money.
[/quote]

CFD’s are not options (no expiry). Exit the trade similiar as for stocks. You have a set stop loss order, limit order, or exit manually. On the price drop (as you mentioned) you would be out money on “paper”, not until the trade is closed is the loss or profit booked. Your position maybe automatically liquidated by the broker if your available equity drops below a given amount. (I trade forex, but had considered CFDs)

CFD is basically trading a stock as a commodity. That is you buy or sell on leverage and not the full face value. Different than an option to buy/sell at a target price that has a time limit(expiry).

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For people interested in just reading about business, I really like the nytimes’
dealbook.