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Let's talk about investing! Stock market, ETF, etc.


Springfield

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Hello fellow EStronauts!

 

Over the last few months I've started to dabble in the stock market.  Just a little bit and only enough that if I were to lose a lot I wouldn't miss it.  I want to make lots of money though, therefore I've started this thread.  WARNING:  I'm about to say a bunch of **** that probably doesn't make much financial sense and is probably very risky.  That's why I'm here, to talk to you smart people about it!

 

 

So a few months ago, I downloaded an app called Robinhood.  It's pretty legit to be honest.  The trades are absolutely free.  Only downside is that it's mobile only, you can only play stocks and ETF's, you can't short any stocks, the historical view of stock performance only goes back one year.  But it's FREE!

 

So, a few months ago I started with a little bit.  I've been depositing a little bit into this app every paycheck so that I've grown a small little sum.  I haven't gained or lost much, I was up about $50 at one point and now I'm down about $10.  No big deal.

 

So I started off with a stock that was cheap, so I could buy a large quantity.  I wanted a brand that I was well aware of so I bought Sirius (SIRI) and rode that one for a little bit but there was very little movement.  I'd make a dollar or two a day, lose a dollar or two a day.  I dabbled with a couple of other stocks and found another that looked promising in GoPro (GPRO).  GoPro did great.  Made me a bunch of money but I held on to it for too long and got out with only modest returns.  Right about the same time, a friend of mine suggested I look into ETFs.  Specifically, he liked Direxion Daily Gold Miners Bear 3X (DUST) as well ass Direxion Daily Gold Miners Bull 3X (NUGT).  DUST and NUGT are inverse of each other, essentially meaning that if one is going up then the other is going down.  Very volatile and very risky but they aren't hugely expensive so they can be fun if it's going the right direction.  I held DUST for a short bit and it did well.  I sold before I could have realized more gains so I bought back in and am holding them even longer.

 

 

So.  As of now, I've been watching yahoo finance all day while I'm at work, looking at the markets and trying to learn about this stuff.  I'm much more interested in ETF's as it stands right now.  Direxion has funds that are inverse of each other on many things, which seems like a 50/50 shot at winning.  As far as the markets go, I'm much more interested in consumer and technology stocks.  Stuff that I know about. It is interesting to me.  Learning how to do all this stuff on my own, with my own money at stake.  I know if I lose I'll still be OK, but if I win then I'll be richer... so, cool I guess.

 

What currently piques my interest in the markets...

DUST - It keeps on going up.  It's betting against the gold miners, and with the current world economic situation it doesn't make sense, but it does.

 

FIT - Fitbit.  They just IPO'ed and they are on the rise.  I've read that it'll probably go up another $10 or so.  Would make for a nice short term holding.

YANG - China.  It's getting ready to bust, hard.  Or so I would like to think.

RUSS - Russia.  Likewise.

 

 

 

Anyhow.  I'd love other people's advise and perspective on the markets.  I am but a novice.

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OK, cue Techboy to say anyone buying stocks is dumb, only buy equities tied to indexes.

 

Then we will get into a discussion on market timing even though you aren't timing anything when you put in small investments each month.

 

I like what you are doing but I am pretty sure I warned you about SIRI.  :)  I bought 5000 shares when it was trading between .29 cents and .75 cents.  I just hold it now.

 

Go forth and have fun.

Edited by chipwhich
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Unfortunately, I don't have the option with the app that I use to buy anything like that. I'm pretty much limited to stocks and for some reason ETFs. So far as I can tell, ETFs are about as close as you can get to gambling without going to Vegas.

I suppose I am trying to time the market to some limited extent. I'm trying to get into stuff when it's low and get out before it drops down again... Especially with those ETFs. Not with a huge amount of cash of course, but I'm trying to make a dollar out of 15 cents.

And yeah, SIRI was dumb. But i was able to buy a bunch at once. Luckily it didn't cost me and it it wasn't a huge gainer either.

And thanks for not coming in here to tell me how stupid I am for investing the way I have so far.

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And thanks for not coming in here to tell me how stupid I am for investing the way I have so far.

 

I have been investing that way for years "in my sandbox account".  Which is some discretionary money I like to play with in the market.

 

I typically buy and hold.  I don't sell often.

I have said this on here before, my dumbest trade was with Rite Aid (RAD).  I bought it when it was struggling around $1 a share.  It went to $2, then back down close to $1.  When it went back to $2 I premature traded and sold it for a gain of $1000.  It's been trading around $8.

 

My dumbest purchase was Six Flags.  I knew Danny was great at marketing even though he can't run a football team.  So when he bought into six flags, I bought stock.  It was probably about $1000 or so, I don't remember.  Six Flags declare for bankruptcy and I lost it all.  Don't bet on Danny.

Edited by chipwhich
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Ideally as much as the cap is, but at the very least what your company matches.

 

Ok i put 10% of my paycheck towards my retirement and the company matches 5%.  Early in my career i think i made a mistake by putting too much into retirement and not enough in regular savings to put towards purchases like a home or a car

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Meaning matching what your company gives you?  Or up to $17.5K per year???

 

What your company matches.  If you can afford more, you can do it.  The negative about putting too much in is if you ever need it you get heavily penalized to access it.  I wouldn't max it out if you don't have your financial house in order....which starts with 6 months savings :)

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Only if they match and the funds therein are low-cost. 

 

Yeah I mentioned that in a follow on post.

 

As far as being low-cost, I would guess 90% of the people on this board, maybe higher, would have zero clue to know whether the funds in their plan have low maintenance fees.  Additionally, not all funds actually hold the real fund in their 401k that is traded on the open market.

Edited by chipwhich
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Yeah, sorry saw that after I posted. 

 

I personally don't invest in individual stocks. But that's for another thread. 

 

My mom is friend's with this investor in Fairfax. Used to work in IT and got interested in the stock market. He owns ten stocks and now is in the 1%. He's thoroughly researched each one and just buys and holds until he feels the fundamentals of the company no longer meet his standards.

 

I have not invested, hah, the time to learn about individual companies. I recently pulled the annual report of Honda Motor company but didn't glean much from it. In the past I've also pulled SEC filings—I just need to spend more time. 

 

Heck, you're buying a company. I spend a ton of time researching a product before I buy it, whether it's a drill, a car, or a vacuum cleaner. I figure the least I can do is research this company that I'm buying. 

 

But as you can see, you're already waist deep into market timing and have seen the good and bad of it. There are so many market forces at work—global suppliers, laws changing, global politics, environmental factors. 

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Research is just impossible. For instance, were someone to research Enron in 2000, it would look like a great buy

I guess that's an argument for index funds

That said I do think it's shrewd to invest in certain industries. Someone above mentioned healthcare I think for our aging population. Market forces are real and tend to be predictable in macro but almost impossible in micro

Good discussion so far

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I'm about to put some dough into the Vanguard Healthcare mutual fund. With the aging population I think it's a good way to go.

 

 

The only question is whether people already missed the run up in healthcare.

 

I bought Humana stock a while back.   It is now worth 7 times what I paid for it.  That's crazy.  Even with the aging of the population, that looks like a bubble to me.  It's not like tech stocks, where a completely new industry was being formed.   These companies have gotten bigger and more profitable, but not 7 times bigger and more profitable.    

Interesting.  Would you recommend deviating from your 401K to put money in a mutual fund?

 

 

 

You should max out your 401K.

 

 

 

Correct.   Always pay off your credit cards, then max out your 401k, before you do anything else.   Always.

Meaning matching what your company gives you?  Or up to $17.5K per year???

 

 

All of it.   Legal tax avoidance is the most reliable investment you will ever find. 

 

I have said this on here before, my dumbest trade was with Rite Aid (RAD).  I bought it when it was struggling around $1 a share.  It went to $2, then back down close to $1.  When it went back to $2 I premature traded and sold it for a gain of $1000.  It's been trading around $8.

 

 

 

As I have said, I sold 20k of Apple.   Right before the IPod and ITunes came out.   It would be worth $700,000 now.   

 

Sometimes I cry myself to sleep.  

Bought FIT (Fitbit) for $39.10 per share just now. Let's see how high we can ride it.

 

 

 

Nothing wrong with cashing in and locking in a profit, either.  

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All of it.   Legal tax avoidance is the most reliable investment you will ever find.

I disagree somewhat. I think a lot of people over do it with savings and retirement planning. At the end of the day, the most reliable investment is one that you get a return on. No financial planner ever mentions that when they suggest maxing your 401k and opening an Ira etc. etc.

You should save for retirement. You should start young and put in often. But you should also realize there are no guarantees in life. There is absolutely no guarantee you will live to see 65. None.

I see these people essentially living miserable existences because they have been scared into thinking you need $8 million at retirement. You don't.

My investment advice boils down to putting your money where you will get the most return. Maxing your 401k above the company match and doing without the family vacation, to me, is poor return.

Ask any retired guy you know what their biggest regret is, 99 percent of them will say they worked too much and didn't spend enough time with their kids as they grew up, and didn't have enough fun in the prime of their life.

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I disagree somewhat. I think a lot of people over do it with savings and retirement planning. At the end of the day, the most reliable investment is one that you get a return on. No financial planner ever mentions that when they suggest maxing your 401k and opening an Ira etc. etc.

You should save for retirement. You should start young and put in often. But you should also realize there are no guarantees in life. There is absolutely no guarantee you will live to see 65. None.

I see these people essentially living miserable existences because they have been scared into thinking you need $8 million at retirement. You don't.

My investment advice boils down to putting your money where you will get the most return. Maxing your 401k above the company match and doing without the family vacation, to me, is poor return.

Ask any retired guy you know what their biggest regret is, 99 percent of them will say they worked too much and didn't spend enough time with their kids as they grew up, and didn't have enough fun in the prime of their life.

 

 

I agree with every word of that.

 

I was just comparing investments, assuming investments are going to be made.   If you have 10k and are trying to decide how to invest it, it is almost always better to pay off your credit card debt first before dabbling in the stock market.   If you don't have any credit card debt, it is almost always better to max your 401k than dabbling in the stock market.   

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I agree with every word of that.

I was just comparing investments, assuming investments are going to be made. If you have 10k and are trying to decide how to invest it, it is almost always better to pay off your credit card debt first before dabbling in the stock market. If you don't have any credit card debt, it is almost always better to max your 401k than dabbling in the stock market.

I'm somewhat convinced that the financial industry has found that paranoia around retirement saving is good business. Start paying attention to how much media bombardment there is on the subject

And, I'm also convinced the "amount needed" is being artificially inflated in the interest of selling financial instruments to people who don't think they have enough money saved

It would be an interesting discussion., "how much do you truly need for retirement"

I mean, a few basic assumptions, that your kids will have moved out and put through college And your mortgage is paid off

Right now I seriously wonder if my social security check wouldn't be enough. I think it would. Just about every expense we have involves the kids or mortgage.

But I'm dutifully putting away into my 401k anyway, because I just cannot turn down free money

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I disagree somewhat. I think a lot of people over do it with savings and retirement planning. 

I'm mid 30s and I was trying to figure out how much to have in retirement. A lot of retirement calculators are pretty useless because it assumes the same level of spending I have now (with 2 kids, 2 car payments, and a mortgage). I calculated, as best I could, what a typical budget for a retired couple living to a hundred would need and it's much much less than I expected. My expected social security  benefit (if it still exists due to the benevolence of our insect overlords) almost covers the monthly amount I predicted. The kickers will be inflation and the cost of healthcare so I would have to save more to cover that x-factor.

 

BTW, the number of months between age 65 and 100 is 420 months. 420. Is that a coincidence or what. 

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OK, cue Techboy to say anyone buying stocks is dumb, only buy equities tied to indexes.

 

Then we will get into a discussion on market timing even though you aren't timing anything when you put in small investments each month.

 

I like what you are doing but I am pretty sure I warned you about SIRI.  :)  I bought 5000 shares when it was trading between .29 cents and .75 cents.  I just hold it now.

 

Go forth and have fun.

 

The problem with holding a few stocks, assuming you hold them a long time, isn't so much market timing as it is diversification.

 

You could buy/sell index funds and still be guilty of market timing.

 

The basic under lying problem is still the same.  Essentially, you believe you know more about that stock then most other people.

 

And that's exceedingly unlikely.

Edited by PeterMP
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OK, cue Techboy to say anyone buying stocks is dumb, only buy equities tied to indexes.

It's not that buying individual stocks is dumb, necessarily, it's suboptimal. If you have fun picking individual stocks, and you're doing it with money you can afford to lose, it's no different than any other entertainment. The danger is that people have a little success, think they can actually beat indexing, and go all McD5.

Personally, though, I don't find playing a game with a suboptimal expected value to be at all fun, especially when I'm saving for that villa in Tuscany we're planning on retiring to.

But, since you asked so nicely ;), here's something I wrote a few years ago. (I'm cutting and pasting, so please excuse the pronouns where they don't apply):

Vast amounts of the best academic research on the subject tells us that stock selection and market timing are a loser's game, that the best predictor of investing success is asset allocation and cost, and that the best method is to use broadly diversified index funds.

I wrote a huge amount about it here, with lots of citations of research.

Why people think they can beat the market is an interesting subject, though, and I recently read Don't Blink: The Hazards of Confidence by psychologist Daniel Kahneman (who is a Nobel laureate in economics). It's a fantastic piece, including an interesting story of his time in the Israeli Army, but here's a relevant excerpt:

 

To determine whether those appraisals were well founded, Odean compared the returns of the two stocks over the following year. The results were unequivocally bad. On average, the shares investors sold did better than those they bought, by a very substantial margin: 3.3 percentage points per year, in addition to the significant costs of executing the trades. Some individuals did much better, others did much worse, but the large majority of individual investors would have done better by taking a nap rather than by acting on their ideas. In a paper titled “Trading Is Hazardous to Your Wealth,” Odean and his colleague Brad Barber showed that, on average, the most active traders had the poorest results, while those who traded the least earned the highest returns. In another paper, “Boys Will Be Boys,” they reported that men act on their useless ideas significantly more often than women do, and that as a result women achieve better investment results than men.

That's pretty bad, and the thought is raised that it must be pros taking those amateurs to the cleaners. What they also find, though, is that...

 

Although professionals are able to extract a considerable amount of wealth from amateurs, few stock pickers, if any, have the skill needed to beat the market consistently, year after year. The diagnostic for the existence of any skill is the consistency of individual differences in achievement. The logic is simple: if individual differences in any one year are due entirely to luck, the ranking of investors and funds will vary erratically and the year-to-year correlation will be zero. Where there is skill, however, the rankings will be more stable. The persistence of individual differences is the measure by which we confirm the existence of skill among golfers, orthodontists or speedy toll collectors on the turnpike.

Mutual funds are run by highly experienced and hard-working professionals who buy and sell stocks to achieve the best possible results for their clients. Nevertheless, the evidence from more than 50 years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker. At least two out of every three mutual funds underperform the overall market in any given year.

More important, the year-to-year correlation among the outcomes of mutual funds is very small, barely different from zero. The funds that were successful in any given year were mostly lucky; they had a good roll of the dice. There is general agreement among researchers that this is true for nearly all stock pickers, whether they know it or not — and most do not. The subjective experience of traders is that they are making sensible, educated guesses in a situation of great uncertainty. In highly efficient markets, however, educated guesses are not more accurate than blind guesses.

So even the pros generally can't do it consistently. He also relates a fascinating story about going to a group of investment advisors, analyzing their data, determining that they were awarding bonuses for effectively luck rather than skill, and being blown off when presenting this analysis to the big shots at the firm. Subjective experience trumps hard data, and this is why market timing and stock selection are so seductive (and popular).

In terms of how you should invest, there are a few funds you could use with very low costs and broad diversification which also have low entry points.

Schwab, for instance, has a family of funds that have rock bottom expense ratios, and a minimum purchase of $100. You could get some percentage of total stock market and total international, for example with your $500.

Or, with $1000, a lot of people like Vanguard's STAR, which includes stocks and bonds.

Either way, I'd recommend doing it in a Roth IRA.

Truthfully, you should probably ask this at the Bogleheads forum, in their "Investing- Help With Your Personal Investments" forum. Read the stickies (and probably the Wiki) first, and then ask your question. There are lots of very helpful people there (including several authors, advisors, and even an economist or two) that give of their time freely to help people out, and do a great job. You'll actually need to settle on goals, a time frame, and an asset allocation that meets your need and ability to take risk before you do anything else.

For more reading, you can start with my other post linked above, the aforementioned forum and wiki, and these online articles:

Investing with Simplicity, a transcript of a speech by John Bogle.

This NPR article interviewing David Swensen.

Online speech to watch (about an hour, but very informative and actually pretty entertaining):

David Swensen. I know the page is in Swedish, but if you click on Swensen's name, it brings up a video of a speech he gave in Stockholm, in English.

Free E-Book:

Serious Money, Straight Talk about Investing for Retirement.

Wiki:

The Bogleheads' Wiki

In terms of books, I'd recommend:

The Only Guide to a Winning Investment Strategy You'll Ever Need by Swedroe

All About Asset Allocation by Ferri

A Random Walk Down Wall Street by Malkiel (a real classic)

and

Unconventional Success by Swenson.

I'd recommend you start with the Ferri or Swedroe books... they're easy to read and very accessible.

Edited by techboy
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