The Stock Market

[wallus]

I am really interested in getting in the stock market. Any tips or hints? I want to learn now while it is not the greatest time to invest so I will be ready to put some money in when it will be good.

[razzzorsharp]

 

You're welcome.

[wallus]

Good but not quite what I was looking for...

[DHonks]

wallus, most smart investors would tell you that this is a pretty darn good time to invest. I've spoken with lots of folks that have money and are shifting more and more of their assets into the market because they are perceiving it as a value. Heck, my IRA in late October was half of what it was in March '08. However, it has nearly rebounded back to previous levels thanks to the surge in the last 4 months.

[Diskono]

I am really interested in getting in the stock market. Any tips or hints? I want to learn now while it is not the greatest time to invest so I will be ready to put some money in when it will be good.

Actually, now is probably a very good time. If your goals are long-term, you want to get in before things get better (which it already is), thus finding bargains.

 

Investopedia has a ton of information to help get you started.

[sargennm]

As an inexperienced investor I would not recommend on buying individual stock but going for something like a Roth IRA instead. Regardless, the best advice I've ever received is to invest in what you know. IDon't buy a stock in an industry that you no nothing about just because you got a hot tip. The tipster could be equally clueless on the prospects of the company or be getting a BS line from somebody.

[dadofandrew]

I'd look at what mutual funds have done the best, pick 3-4 (depending on how much you can afford to invest, most let you set up an automatic $50/month direct withdrawal) and get started today. For individual stocks, set up a pretend portfolio on Money.com or something like that. Sharebuilder is dandy if you have small amounts to invest, but that should be a small percentage (20% or less) of your total.

 

If you only have $50/month, pick a fund that is meant for someone that is your age. Everybody has 'em now.

[nate82]

gonna second third fourth and fifth everything that has been said so far. Right now is the perfect time to get into the market. You don't buy high and sell low you buy low and sell high. When the market is at its highest (it could be at its highest right now it just depends on how you view the market right now) is not a good time to start investing. You don't buy a TV when you know there is a sale the next weekend on the TV. Why pay regular price when you can pay reduced?

[Patrick425]

I'll also agree that this is probably one of the best times to get in to the market. Not that the market could not test new lows at some point, but assuming you will never time the low perfectly, the market is historically at a pretty good buy point right now.

 

I would also suggest that if your plans are long term that you not try to time market highs and lows and that you don't dabble too much in individual stocks. Stick with mutual funds that offer you greater diversification. Assess the level of risk you are willing to take. Allocate your cash (small cap, large cap, international, fixed, etc) based on your risk tolerance and stick with this allocation for the long term, re-balancing your portfolio as needed.

[MJLiverock]

I am going to contradict a few of the earlier posts here and make a correction on one statement.

Quote:

"As an inexperienced investor I would not recommend on buying individual stock but going for something like a Roth IRA instead. "

 

A Roth IRA is a type of account not an investment choice like a stock, mutual fund, etf, or bond. You can buy these investments within a Roth IRA. Utilizing a Roth IRA is subject to tax considerations and the like which differ greatly for everyone. It also depends on what your goals are for the money because if you use a Roth IRA or traditional IRA as the account type you may not be able to take the money out until you are 59 1/2. The deductiblity of the regular IRA contributions may be limited if you are covered under an employer plan like a 401k, 403b, or pension account as well (usually depends on what your income is). You may be better off just opening a regular taxable investment account depending on your plans, income level, and tax situation.

 

Quote:

"I'd look at what mutual funds have done the best, pick 3-4"

 

One of the most common mistakes inexperienced investors make is buying a bunch of mutual funds and thinking they are diversified. Look at what the investment objectives for each fund are and make sure they are truly different, i.e. Large cap vs. Mid cap vs. small cap. Also take a look at the top ten holdiings for each fund - - quite often the funds end up owning the exact same thing, i.e. you can look at the funds and see XOM, MSFT, CSCO, PG, WMT, etc. as the the top holdings because they are big companies and the mutual fund is basically just tracking an index like the S&P 500. I have seen many a portfolio that holds 10 different mutual funds but all 10 hold pretty much the same stocks and perform almost exactly the same.

 

Funds in the same investment family quite often own many of the exact same stocks regardless of the stated fund objective because the firm has already done the research on the companies in question. Very large mutual funds often just don't want to make a huge mistake like drastically underperforming the market which causes people to switch funds so they basically mimic the benchmark or index they compare to like the S&P 500 or Russell 1000 (large caps) or Russell 2000 (for small caps).

 

Take a look at the fees, which can differ greatly among funds and look at the portfolio manager's tenure. He or she may have just taken over for someone who generated the great historical performance. Or the fund may have been really small, made some great investments, had good numbers, gathered a lot of assets, and now is just going to play it safe by copying an index.

 

Picking the best performing 3 or 4 may just result in someone taking higher risk than they are comfortable with or buying a segment of the market at the top. A year ago all the best performing funds were in emerging markets, energy, and mortgage backed securities. Wanna guess which areas of the market got hammered from Sept. to Dec.?

 

Here are two different tables showing some of the different asset class returns over the last 20 years.

http://www.callan.com/research/institute/download/?file=periodic/free/311.pdf

http://www.russell.com/indexes/documents/CorePerformance.pdf

 

What this illustrates is owning a bunch of mutual funds or etfs in just one type of asset class probably won't be diversified and unless you can time switching right you are going to have some bad years if you pick whatever did well last year because things on the top don't stay on top.

 

I would check out ishares.com and look at some of the etf information there rather than go the mutual fund route. I agree that as others have said buying individual stocks is pretty risky for most investors (I will admit here that I am a professional investor and stock analyst - - not a broker those are sales people not analysts). ETF's offer the diversification of a mutual fund with lower fees and more transparency of the actual holdings. You can buy an ETF that holds a basket of stocks exactly like the S&P 500, or Russell 1000, or Russell 2000, or China's Major index (FXI), or what have you. You can even buy baskets of government bonds with long, short, medium maturies, corporates, etc. This will give you a great deal more control over your holdings and diversification and risk. They are now even designing ETF that hold mixes of other ETF's to set up a virtual portfolio based on higher or lower risk by changing the weighting of stocks, bonds, international holdings, etc.

[PeaveyFury]

Well, after another nice day yesterday, the Dow is back nearly 3000 points and almost 45% in just 5 months since its low. What a very interesting year, to say the least.

 

Sure glad I kept putting into the market while a lot of people I knew were getting out...

[pitchleague]

I'll second that, peavey.

 

I know a ton of people who got out. Of course, they are a lot closer to retirement than my wife and I, so it kind of made sense.

 

We stuck with it and kept buying with our quarterly dividends going right back into reinvesting in more shares. So, assuming things continue, we actually stand to make more money than we lost.

[jazzytrav]

I'll 3rd that. I raised the percentages of all my investments right around the time when the market was at it's lowest point. Lookin good right about now.

[wallus]

I got in a couple of different companies. So far they are doing well so I am happy.

[PeaveyFury]

Well, over 9500 after another great market day on Friday and a new high for the year. My stock portfolio is up 93.1% since I opened it in July 2008- anyone have similar success stories?

[JimH5]

wallus, the only real advice that I would offer is to not assume that everything HAS to rebound. . .Worldcom taught me that lesson. I bought some at 20, and then some more at 8, since of course it would have to come back. . .My dollar-cost-averaging strategy was fine, though when all their common stock was deemed worthless, I learned a nice little lesson.

 

Crappy at the time, but I'm now glad I didn't put even more in at 4. . .

 

The other advice. . .if you can afford it, and if you can stomach some occasional losses, is to have the bulk of your stuff managed in a well-considered thoughtful way, but then pick one outsider stock that you think is going to take off. Something in the $10-20 range that might get to $50 down the line. Maybe a green technology stock, or a cutting edge biotech, or something well positioned in an emerging market. . .sort of an educated lottery ticket type of stock that will put a smile of satisfaction on your face when it takes off.

 

Good luck!

 

Congrats, Peavey on your timing. . .

[dragoon84]

I'm betting that the market is going to crater, we're in for a double dip recession/depression. You thought March was bad? heh, what we're seeing right now is the bounce, and its about to peak and fall further back than before. Gerald Celente says buy precious metals, and I wholeheartedly agree.

 

Silver is around $15 dollars an ounce right now, buy $150 worth. If it goes back down, so what, you only spent $150, if it goes up, into the stratosphere, as Celente says, that $150 could make quite a handsome return. We're talking massive returns here, in the absolute worst case scenario for the conventional markets.

 

Don't believe the crap the MSM says about the recession being over. Tell me, what is a recovery without jobs to replace the ones that left? Is anyone else on here aware that the next wave of ARM rates is going to peak next year? This "recovery" is pure BS, hedge yourself accordingly.

[PeaveyFury]

Tell me, what is a recovery without jobs to replace the ones that left?

 

Someone probably knows better than I, but in every recession, isn't unemployment the last thing that recovers every time?

 

If it goes back down, so what, you only spent $150, if it goes up, into the stratosphere, as Celente says, that $150 could make quite a handsome return

 

Couldn't you say/do the same thing with any stock?

[bbrauch2000]

I agree that this is a bounce in the stock market and not a recovery. Those who are close to retirement should probably be looking into finding a hedge on their current investments. If you look at how much it costs to have an option hedging your investment against another washout, it makes a lot of sense

[dadofandrew]

People close to retirement should have less than 30% of their money in stocks at all times.

 

I'm not sure what it takes to have a recovery...unemployment is down, first time claims are way down, the housing market is far stronger than it has been, and the GDP is only down 1% last quarter, and will almost certainly be up in Q3...that's what a recovery is. I know many are depressed this has turned out to be "just another downturn", but facts are facts.

 

Those who think this is "just a bounce" have missed 45% in growth since the bottom. I have little confidence of a long growth cycle, with the current environment of spend and tax and spend, but to dismiss a huge spurt seems odd. If you expect 10% a year, you've missed 4.5 years in the last few months.

 

Precious metals follow inflation, and that's it. An ounce of gold bought a man's suit in the late 1800's, and it still does. There's no chance of winning unless you can time the market perfectly...the pros can't do that, so I have no illusions about doing so.

[wallus]

All the analysts I talk to expect the market to get to 11,000. I am glad I picked "safer" stocks so I could learn the ropes, even though I have missed out on higher returns.

[mothershipconnection]

If you're thinking of gold, you may as well invest in foreign markets and currencies, as both present the biggest payoff if your economy and currency completely tank (so long as you don't invest in a dependent economy). There, you have the added bonus of that economy potentially taking off, which you don't have with gold, unless we find a groundbreaking new use for it.

[MJLiverock]

Yes as mentioned, unemployment is a lagging indicator. It doesn't rise until the economy is already heading down and it doesn't fall until the economy is getting better. Why? Because companies don't want to get head faked either. They don't start hiring workers again until they absolutley have to, they wring all the productivity gains they can out of the existing workers then start hiring. It just makes econonomic sense since there are cost associated with hiring, laying off, etc. they don't want to jump the gun and be early. Unemploymet won't start dropping until the recovery is well on its way, we are probably still in the very early stages, interest rates haven't even been raised off the bottom yet which will be a sign the Fed is confident they won't crater the economy with higher rates. Remember, much of the panic selling that lead to the March 9th lows was fear that everything was going to collapse, once the financial system stabilized that armegeddon fear was removed and a more normal recessionary type environment set in. The average recession last about 18 months, our past couple ones were short, about 6 months so it makes sense that this one would be worse than average. In December we will hit the 2 year mark which is also right about the time GDP should start showing positive numbers.

 

Investing in gold is really more of a hedge and even then losses can occur. Anyone that thinks gold is some sort of guranteed returne should ask people who bought Gold at $1000/oz. last year and watched fall to $750/oz. in a short period of time. It moves with inflation fears, currency fears, speculations, industrial demands, and stock market fears. A lot of variables that tend to trap people into buying it at the top and thinking they can't lose money but never realizing Gold can lose value.

 

Investing in foreign markets can be risky as well. Regulations are different, valuations may be hard to trust, and frankly it is hard to know a lot about some foreign companies. Europe tends to move pretty close to the U.S. and the emerging markets tend to be closely tied to the U.S. economy, just shifted a few quarters ahead. i.e. China, and SE Asia fell first last year and fell even harder and also recovered first this year. China has a huge government stimulus package helping to keep their economy going as orders from the U.S. fell off a cliff.

 

I think international diversification is good but it isn't a panacea of uncorrelated returns with the U.S. markets.

[dadofandrew]

I second MJ's post, except I have heard many say GDP will be up in Q3, which started July 1st.

[MJLiverock]

3rd Q is expected to be the first positive quarter in some time, mainly on the backs of cost cutting and easy comparison to last year. People probably won't start feeling a little better under 4th quarter but it depends on if companies can get some top line growth, you can't cost cut your way out of a recession. Of course that top line is dependent on people spending money which is hard if they are jobless so we all have to hope this government stimulus found its way to some of the right places and gave people confidence to spend money on something/anything or start a business or buy some equipment. If companies start rebuilding a little inventory this fall there could actually be some hiring, at least the layoffs should slow now.