Erik, Interesting topic. Warren Buffet didn't get to be a billionaire by trading in and out. I've got experience on both sides as I've been both a retail and institutional broker. I have seen tons of people with huge networths concentrated in a few stocks like Coke or Ge. You asked when they bought them or, what they paid and they don't know. Their grandfather or greatgrandfather bouth them and put 'em on dividend reinvestment and forgot about them. My own family is a good example. In 1943, my father was shipped to Italy. He drew base pay, combat pay, and flight pay. He kept his base pay and sent the rest of the check to a mutual fund. This was back when here was a 6 to 8% sales fee with each transaction. When it came time to put my brother through college { I went on a football scholarship} he just stopped reinvesting the capital gains and dividends and took 'em in cash and that paid for about 60% of the tution. Buy and hold people have 3 advantages over traders. First of all, they keep it all if they are right. They pay no capital gains taxes. Secondly, they are not continually paying commissions and finally, they are not subject to the bid-offer spread like a trader. And don't kid yourself that is a real cost. Dozens and dozens of market makers have survived for generations by making a market. There are a couple of good books on the subject. Peter Lynch in "One up on Wall Street" and, a book about Warren Buffet called "of Permanent Value" and finally {and probably out of print} "The Battle for Investment Survival" by Gerald Lobes. Anyway, whatever your style be right and get paid!
keepmine, what book(s) would you recommend for a true novice wanting to get involved in the stock market? I would like to read something very user friendly (i.e. "the stock market for dummies") and clearly outlined. I need to fully understand capital gains, P/E ratios, no loads, etc... and whether to buy or sell. Are the ones you mentioned above appropriate for someone new to the stock market? Thanks,
Marci, I think Peter Lynch has 2 very good books. "Beating the Street" and, "One up on Wall Street". Andrew Kilpatrick wroye "of Permanent Value". What I liked about the last book was the thought process of someone who really "walked the path less traveled". Warren Buffet's neurons fire on an entirely different level from 99.99% of the rest of the population. It's not that he is unconventional it's just that he ask different sorts of questions and has a long time horizon. He says his favorite holding period is infinity! Anyway, the Lynch books will be a good start. You can all of them a www.half.com.
Keepmine I respect your opinion and you make some good points but I tend to disagree. I an not talking about day trading but rather the idea that people should set a stop loss on all stocks. If I were to purchase a stock that I deem risky and volatile like perhaps a tech stock I would set the stop loss at 26% down from the purchase price. For more conservative blue chip stocks like DOW type stocks I would set the stop loss at 8 or 10%. What I see happening in the markets now is people have held on to stocks to long and are now selling stocks that should have been sold two years ago. The bottom in the market is near. People who play the markets correctly should be rejoicing right about now because they should have all their money out of the market now and be ready to jump back in. People who say timing the market is a fools game and is to hard to do are loosing a lot of money. I say yes it is hard to see the exact bottom of a market but it is not hard to see that the market has been going up for a couple of months once that happens. We need to see a bottom and then retest the low. Then we need a couple of months of the market going up before we know that we have seen the bottom. Technology stocks are another mater. They will continue to slide for at least another 6 months. Worldcom may file CH 11 BK soon. Five year chart of DOW vs. NASDAQ http://quote.bloomberg.com/gcenter/...=CCMP&EXCH=US&T=markets_gcenter99.ht&x=38&y=6 I year chard of the DOW http://quote.bloomberg.com/gcenter/...INDU&EXCH=US&T=markets_gcenter99.ht&x=37&y=11
Erik, I agree with your current assessment of the market. One good sign I've used over the years is when you began to see some cross currents. For example, every forensic accountant on earth has taken a shot at GE's books and can find nothing more than a truely complicated accounting system and, GE hit there numbers. Less and less talk of comparing GE to Tyco. We're also seeing so M&A activity and a few companies beginning stock buyback programs. There is still more bad news to come in dotcoms and, I seriously doubt U.S. Air or United Airlines will make it but, it ain't all bad news any more. We all have different styles. BY profession, I'm a commodity options trader and yes I use stops. And, I use stops when I trade stocks that are highly volitale. But, I've seen emmense wealth created by people who a couple of generations ago did there homework and bought good quality stocks and kept them forever. I mean, the real bull market started in Aug. of 1982. People who bought then and are still invested {and they are a lot of 'em out there} are in terrific shape and should be adding to positions. Good fortune!
Keepmine I agree that in the past holding stocks for a long time and forgetting about them worked well. If one purchased Coca Cola and GM in the 1920's they could have held them for 60 years and made a ton of money. If you bye a stock and it goes up, the only reason to sell is if you can find another stock you thing will go up more. In today's market more less sophisticated people have their retirement money in mutual funds that are managed by fund managers that have to stay in the market. Individual investors pored tons of money into the technology market in the 1990's. Now that the tech stocks have crashed these people are so disillusioned they may never invest in stocks again. Billions of dollars is coming out of the stock market and going into real-estate. In a couple of years there will probable be a small bubble in real-estate as a result. If you know you are in a bear market like we have been for 2.5 years, let your positions be stooped out and put you money into treasuries. When the market bottoms out do some homework and pick good medium and large sized companies. Stay away from Tell-Co.'s and computer hardware companies. For people who would rather suffer a 80% loss rather than sell because of tax reasons or because they have become emotionally attached to their stock, consider using put options or shorts as a way of placing a contra bet to protect your stock positions. Two other golden rules are sell a stock if it falls under $10 and never have more than 20% of your 401K money in your companies stock. In the long run stocks go up at about 10.5% a year. No other investment can touch this. If your time horizon is 15 years or longer, good stocks will have time to come back. I wanted to add that one should move their stop loose up if your stock goes up. You should do this daily or weekly. For example I bye 100 shared of a stock at $100 for $10,000. The stock is a conservative stock so I set my stop loss at .92 X 100= 92 $ per share. The stock goes up to say $122.56 per share over a two year period. I would now set my stop loss at 100% - 8% = .92 X 122.56 = $112.75 per share. Then if the stock goes down and I get stooped out I would still make 12.75% minus trading commissions and taxes.
Marci thanks Here is a link to the LA Times money library. This site covers a wide range of financial topics from stock investing to taxes. http://www.latimes.com/business/la-moneylib.htmlstory This link to financial engines.com is a link to a great place to learn about retirement plans and their tax consequences. Why pay a financial planner to do what you can do yourself. http://www.financialengines.com/FeContent?&pt=ga&act=sitemap&bcfg=yy&s=51f9b31bb72be3&pact=gawelcome CNN link on investing: http://money.cnn.com/pf/investing 401k matching discussed: http://www.doityourself401k.com Got a company name or a stock symbol and want to know more: http://quotes.nasdaq.com/Quote.dll?page=empty Be a fool at the motley fool site http://www.fool.com
Erik, Nice chatting with you. Are you familar with Single Stock Futures? They'll be introduced sometime this summer. The product will be goverened by the Commodity Furures Trading Commission {CFTC}. It will be a futures contract on 100 shares of a stock. Margin will be set at about the 20% level. Just like a commodity, this margin is sort of a preformance bond. You are not borrowing anything from the brokerage firm so, no margin interest expense. The website is www.onechicago.com. The free analytics page looks very interesting. There is also a list of the first stocks set for trading. Mainly Dow stocks.
Keepmine I don't know much about futures except that they are risky. I will look in to it when I have a chance. The market, meaning the DOW and S&P 500, are getting nearer to a bottom. If we are lucky it could happen in the next 4 to 8 weeks. If we are not it could happen right around the end of the year. http://cbs.marketwatch.com/news/story.asp?column=Market+Snapshot&siteid=mktw
Marci, check out www.Bobbrinker.com. He has a recommended reading list that he says will give you a graduate degree in investing. He also has a nationwide radio callin show (Moneytalk-weekends)for those with questions. Hes been around since 1986 and he was one of the few to call the top in early 2000. He has the #1 ranked newsletter for the past several years. He is a no nonsense guy, honest and very knowledgable about personal finance of all kinds. I highly recomend his site, show and his advice.
Is the bottom here or it a mirage? For those savvy investors who have their cash on the sidelines the time to get in the stock market may be at hand.
Dont count on it. Maybe short term, but when we go into Iraq in the fall I think we will revisit the lows and maybe lower.
quite possible. I tend to think around the 9/11 1 year date. Check out www.debka.com for some interesting intel. They tend to be weeks ahead of the mainstream press.
For all of you that have been smart and have a lot of cash siting on the sidelines, the time to get back into the stock market is coming! My rough guess that I figured out about 16 months ago was March 1 2003. The deal is that with the second gulf war about to take place the time to get back in is about 48 hours after the ground war starts. Now I would guess the war will start at 5 AM middle east time February 22 2003. The bottom in the market then might be end of business Tuesday February 25 2003. What do you all think?
