Stocks

[joe42]

Just remember that on most mutual funds do worse than market average because of the fees they charge and window-dressing practices. If you really want to diversify then buy an index fund. It's pretty much the equivalent of buying every stock and thus guarantees market average.

Absolutely. In the long run, broad index funds will beat out all mutual funds, due to absurdely high expenses. Mutual funds are a huge waste of money. Vanguard is probably the de facto source of index funds.

 

[moo321]

Just remember that on most mutual funds do worse than market average because of the fees they charge and window-dressing practices. If you really want to diversify then buy an index fund. It's pretty much the equivalent of buying every stock and thus guarantees market average.

He's right. Index funds are the way to go because of fees. They're also uber-diversified: there are many funds where you could invest all of your retirement money and be fine.

There are fund managers that can beat the index, but not many. It becomes more difficult the more money they manage.

 

[moo321]

couple of more questions about stocks.

it's supposedly good to diversify. so how does one do that? i mean i guess it's a balance against types of commerce one wants to establish stock wise.

also what about this low cap, mid cap & high cap categories. anything strategy wise that one should consider as far as those various categories?

You should own companies in different industries, that trade apart from each other. Intel, Google, Microsoft, and Dell is not diversified, even though they all do different things. Ford, Intel, Merck, Wal Mart, and JP Morgan Chase is diversified.

You should also learn to understand what is called "market rotations". Some stocks do well in certain market environments, and their earnings (and stock price) are cyclical.

For example, Maytag does well when the economy is doing well, and people are buying higher cost items. Similar with Ford, GM, etc. On the other hand, gold does well when everything is tanking, and Proctor & Gamble does well at the very bottom, because no one will ever stop buying toothpaste and shampoo, and P&G will be making earnings when everyone else is missing.

If you can decide which sectors will be hot, AHEAD OF TIME, you can shift funds into them. This is often a function of the Fed rate. Now, you can't throw everything into one sector at once, so your portfolio should be selling what is about to tank, and buying what is about to go up, and holding everything in between.

Price to earnings is important, but in order to trade properly, we must figure out if a company will actually make those earnings. The only way to do this is to understand rotations.

Our economy does NOT grow in a steady line. It lurches forward, and has smaller retreats: http://www.statistics.gov.uk/cci/nugget.asp?id=192 (Archive copy). GDP has massive swings, and the key to well above average returns is trying to time these.

 

[ChefJJ]

On the other hand, gold does well when everything is tanking, and Proctor & Gamble does well at the very bottom, because no one will ever stop buying toothpaste and shampoo, and P&G will be making earnings when everyone else is missing.

Be careful with generalizations like that, because PG is not recession-proof. It is a name-brand company that does not make private label products like those that Wal Mart and Target sell as "off-brands". Sure, people still buy toothpaste and shampoo, but not always the name brands when the economy is rough.

(By the way, I do have a very solid position in PG. But it's not because it does well in the tough times. I own it because it is a great company that has increased dividends annually for decades.) :joker:

good luck

 

[N&B]

Out of PCU, AMX, CAT in June. All IBM baby!
The rest is in AAPL, GWR, CNI, and I tossed a few large at ACAS under $20.

 

[moo321]

Out of PCU, AMX, CAT in June. All IBM baby!
The rest is in AAPL, GWR, CNI, and I tossed a few large at ACAS under $20.

Only thing I disagree with here is CAT. They might be a good buy in the next few months.

 

[moo321]

Be careful with generalizations like that, because PG is not recession-proof. It is a name-brand company that does not make private label products like those that Wal Mart and Target sell as "off-brands". Sure, people still buy toothpaste and shampoo, but not always the name brands when the economy is rough.

(By the way, I do have a very solid position in PG. But it's not because it does well in the tough times. I own it because it is a great company that has increased dividends annually for decades.) :joker:

good luck

I'm not saying PG is recession proof. But PG's earnings are much less cyclical than other companies. So generally it's a good buy when the economy is tanking. Healthcare, and to some extent drug stocks also tend to be less affected by recessions.

 

[N&B]

I would also have a solid 20% in Gold. Personally, my pf is up to 1/3 after the June turnover. Much of that is a long-term (2005 based) holding based on 20%.

I do agree with the Chef on this one for exactly the reason listed... generics. Buy a box of K brand cereal for $3+ or buy 2 store-brand boxes for $3.50. Guess which one gets popular in a deteriorating economy?

 

[ChefJJ]

I do agree with the Chef on this one for exactly the reason listed... generics. Buy a box of K brand cereal for $3+ or buy 2 store-brand boxes for $3.50. Guess which one gets popular in a deteriorating economy?

'Tis true...but PG is a big solid company that will end up positive in the long run. That's why I don't panic and sell even though it is down. They still make money, pay me a dividend, and I buy low with that divy. There's always a positive spin on it regardless of the share value.

 

[moo321]

The thing about timing market rotations is you may not even prevent yourself from losing money in a bear market. BUT, it allows you to lose less in bears, and then be in the stocks that catch on fire in bull markets BEFORE they get hot.

You'll still face bulls and bears anytime you're buying stocks (as opposed to shorting) but you lose less in the bears, and make much more in the bulls. Another thing to consider is that when you see a recession coming (because of Fed rate hikes, etc) you can pull money out of the stock market, and get it into cash and bonds, which are usually paying more because of the higher discount rate.

 

[ChefJJ]

The thing about timing market rotations is you may not even prevent yourself from losing money in a bear market. BUT, it allows you to lose less in bears, and then be in the stocks that catch on fire in bull markets BEFORE they get hot.

You'll still face bulls and bears anytime you're buying stocks (as opposed to shorting) but you lose less in the bears, and make much more in the bulls. Another thing to consider is that when you see a recession coming (because of Fed rate hikes, etc) you can pull money out of the stock market, and get it into cash and bonds, which are usually paying more because of the higher discount rate.

This is good advice for a TRADER, not necessarily an investor. But then again, you originally did ask if anyone traded stocks.

good luck

 

[moo321]

This is good advice for a TRADER, not necessarily an investor. But then again, you originally did ask if anyone traded stocks.

good luck

I don't see a difference. To me, investing in a company for 12-18 months when you expect to see strong earnings is still investing.

 

[ChefJJ]

I don't see a difference. To me, investing in a company for 12-18 months when you expect to see strong earnings is still investing.

Fair enough Moo...I had gotten the feeling that you were looking at a time frame of weeks or months with your moves. I agree with you. Especially getting past that 12 month plateau to avoid short term cap gains.

good luck

 

[Brock Windsor]

None. I almost never buy companies that aren't paying strong dividends, and gold stocks aren't paying high dividends. Dividends let you play with the house's money.

Not true. The dividend is priced into the stock. I worked as a prop trader for a while holding some positions for seconds trying to scalp a penny here and there. It's exciting but few people can actually make money at it (kinda like bj). Trading and investing are very different animals. You can trade anything and make money if something gives you an edge...but once others find out you have to adjust, psychology is key. Investing you've got to look for value and have huge time horizons...or just invest in what Buffet says to invest in and you'll have and edge eventually (coke is still cheap so the oracle fortells). For trading literature read up on the Turtles, technical indicators, and for BJ enthusiasts if you can borrow Thorp's book it might be entertaining though I've never read it. If you just want to invest money go with indexes, long bonds, and probably some hedge on the US dollar like a Euro and Yen ETF.

 

[ChefJJ]

The dividend is priced into the stock. /QUOTE]

That's not quite as black and white as it may seem though, is it :joker:

 

[sagefr0g]

The dividend is priced into the stock. /QUOTE]

That's not quite as black and white as it may seem though, is it :joker:

nor are fee's maybe?

 

[Brock Windsor]

The dividend is priced into the stock. /QUOTE]

That's not quite as black and white as it may seem though, is it :joker:

Over the long-run in an efficient market it is. There are assumptions of course to M&M's theory though it's hard to think back to finance class for that one. I think the assumption was to ignore taxes. But essentially over the long run (investing) markets are efficient enough to price all the information into the stock, which includes dividends. If you own 200 diversified non-dividend stocks over a 40 year period and 200 diversified dividend paying stocks over that same period your net return is still going to be at the market rate, one won't outperform the other with significance. Traders on the other hand make their money off exploiting inefficient market conditions. If tomorrow the government announces all capital gains are tax free and all dividends are taxed as income, traders (short term players) will make money in the rush to get out of dividend stocks and into non-dividend stocks.
BW

 

[Mimosine]

ETFs ( Exchange Traded Funds) are another way to go.As an example,I own PBJ,an ETF that tracks the snack food/fast food/low end franchise eatery market. You buy PBJ,you end up owning shares of Mcdonalds,Nabisco,Pepsi,Coke,Yummy and a bunch of others,as well as some companies that supply them or deliver their goods.
Another I like is QQQ which tracks the top few hundred non-financial stcks of the NASDAQ.
You won't hit a Grand Slam with either,but you have a fair degree of certainty that you won't strike out.

For the long term Shadroch's posts are right on, dollar cost averaging and buying exchange traded funds, what others have been referring to as index funds. Unlike mutuals there is no or little fee, other than what it costs to trade the stock with your brokerage firm.

The 3 I have are:
SPY - tracks S&P500
DIA - tracks the Dow Jones Industrials
QQQQ - tracks the tech heavy NASDAQ

these three track the 3 most widely followed indexes. Big companies. If you own these you own MSFT, AAPL, Google, JNJ, IBM, etc... etc...

in addition to these, i have bought into some 'junk' banking stocks lately, knowing that in 10 years, my picks will have recovered. Also I hold some AAPL, TTWO (bought before GTA IV was released and doubled it's value), and hmmm what else.... mostly in in the index funds so i don't have to think about them since they are all in a ROTH.

 

[ChefJJ]

in addition to these, i have bought into some 'junk' banking stocks lately, knowing that in 10 years, my picks will have recovered.

I wish you the best!

 

[Mimosine]

I wish you the best!

well technically they aren't complete junk, they do have several billion in cash reserves .... for now! :cat: