investing in the stock market

[miss djax]

ok, i've been taking warren buffet's advice and investing in the stock market..he says don't do more than you'd feel confident losing in a hand of poker, and every month or so - i drop 40 bucks in. since sharebuilder charges 4 bucks a trade, i'm doing ok actually...in fact my rate of return is over 100% thank you, ford motor co stock at 1.93 a share ;)

anywhoo, at this point its still like a game to me. i have a biotech penny stock, a regional airline penny stock, a chain of retirement homes, and a temp agency in my portfolio. where should i diversify to next?

what else do i need to know about investing? warren buffet says buy 'em and hold 'em, so that is what i am doing. i have no plans to cash out.

and why are people freaking out that the dollar will tank next year?

so far i feel like i'm winning at my little poker game. and i'd like to keep it that way :D i'd love to hear thoughts

[Ray Moscow]

It's quite possible that stocks are still overvalued, but I think they will go up a bit more. Nothing goes up forever, as we've recently seen.

Paul Krugman (http://krugman.blogs.nytimes.com/2009/10/11/when-should-the-fed-raise-rates-even-more-wonkish/)has been posting a lot about some worrying noises at the Fed that they might take action, like raising interest rates to boost the dollar. It's wrongheaded, but since when has that stopped anyone?

what else do i need to know about investing?

Get a certified financial advisor before you do any serious (meaning your retirement money) investing.

[Celsus]

You're doing well because there's a mini-rally of sorts. But it will come to an end, so do take care.

Personally, and DO NOT TAKE THIS AS INVESTMENT ADVICE, I like property and commodity stocks. Properties in the form of real estate investment trusts (REITs) and commodities. Property is a sure winner as long as the company is not heavily indebted. That's the only risk - and if their debt ratio gets too high, combined with what I think is a bubble, I get out. For commodities, there's a fairly fixed short term supply whereas demand can fluctuate so if you know what industries use those materials and especially if big companies are going heavily with new production, you can make a fair buck off them (e.g. stuff like coltan, silver, oil, NPG, etc. are often safe bets when timed well).

I don't know about individual stocks in the US. Also currently I'm 100% liquid because I'm doing studies in the UK and no time to monitor Asian markets - I got out of this rally a bit too early but what can you do...

[miss djax]

hi ray,

why would raising interest rates be a bad idea? sorry to sound like a financial noob, but i am...

don't worry - i would never gamble like this with any serious cash. my retirement accounts are not in my own hands :D

[miss djax]

You're doing well because there's a mini-rally of sorts. But it will come to an end, so do take care.

*snip*

I don't know about individual stocks in the US. Also currently I'm 100% liquid because I'm doing studies in the UK and no time to monitor Asian markets - I got out of this rally a bit too early but what can you do...

so how do i know when to cash in on my gains during this run? buffet's advice is to wait. and wait. and wait..... and wait....

[Celsus]

so how do i know when to cash in on my gains during this run? buffet's advice is to wait. and wait. and wait..... and wait....
That's a million dollar question though isn't it? ;) It depends on the degree of risk you're willing to take. I know that's not very helpful, but then I got out way too early because of necessity.

If I was still in, I would actually be looking to get out some time around now (I pulled out about 2 months ago and would have made an extra $600-$800 or so if I'd stayed in, not a big deal but it still is annoying). That's because my estimation of the property markets in both Shanghai and Singapore are overheated and I'm a fairly conservative type. So that's only applicable to my case.

Basically, the technically correct answer is to look at your own stocks and whether they're overvalued - you know about EPS/DPS and all those kinds of figures? If you're 'playing' the market, you need to know how your EPS compares with a whole lot of other companies (and this is a hard part, but getting there can be worth your while) and if it's not doing so well, you know other people who 'play' with stocks will also be looking to get out. You can overcomplicate things that way too, however.

Stock markets involve a lot of stuff you'd find in game theory - irrespective of the nature of the stock. That's kind of what makes it fun, also what makes it potentially risky. If you're trying to beat the market (which I sense since you're playing on very short term gains), you take the risk that the market beats you, hence the Buffett advice to hold-hold-hold (not applicable if your company is Lehman Brothers however) because markets always perform well over time, and all you have to do is have a decent basket of stocks, pulling out at signs of trouble, diving back in at signs of recovery. If you're wondering when the US market rally will end, my guess is very soon(tm), before Christmas, but that's only in my completely made up estimation (basically I'm not going to stick my neck out and say why here on this board). But you don't absolutely have to get in at rock bottom and get out at the peak, if you get in within 5% of the bottom and get out within 5% of the peak you still will make a lot of money on a decent bull run.

So again, no real advice from me, you had better consult a financial advisor... they can do things like find you financial products or stocks to suit your risk profile, and offer you projections about what they think will happen to stocks (important rule: herd mentality works - if enough people believe something's going to happen, all the contrary evidence you can muster isn't going to be enough to stop it from happening).

Now one trick, and this is a dirty one but you may learn the ropes this way, is find out what a prominent investor invests in and just copy him. All the time. You will in fact beat the market, but finding out what he's in to is often a hard thing - you basically have to trawl through all the press releases of significant acquisitions every single day.

Disclaimer: If I had a proven winning strategy, I wouldn't be posting it on anonymous Internet forums.

Edit: Here (http://forum.channelnewsasia.com/viewforum.php?f=13) is a Singaporean stock talk forum I follow. Not to get investment advice (hell no), but to track sentiment - because market sentiment I feel is probably the most important short term factor in markets. If there's some kind of forum for your neck of the woods, that might be quite good to follow (silently).

[alien billie]

I'll have a go at answering your interest rate question. There's two main things to understand.

Firstly, money in your hand now is worth more than money due to you next year, primarily because if you had it now you could put it in the bank and in a years' time have a bit more due to the interest earned. The higher the current interest rate, the less valuable the promise of money in the future is.

Secondly, a share is a promise to pay part of the company's future profits to you. So a key component of deciding the value of a share is to work out how much to discount the value of future dividends. And just like in my initial example, if interest rates go up, then promises of payments in the future are relatively less valuable, and so the fair price of a share is less.

Having said all that, there is more to it than that. Changing interest rates have all sorts of effects on the economy, which will therefore also affect share prices. For instance higher interest rates make it more expensive for companies to borrow money, so it is harder for them to expand and make future profits, so again share prices drop. And anyway, if the market has anticipated a change in interest rates, then that will already be part of the share price - the price changes when expectations change, not necessarily when actual rates change.

And will the market continue to recover, or tank again? No-one knows, not even Warren Buffet. In general, shares are the price they are because 50% of investors think the market is overpriced, and 50% underpriced. What we can say though is in the long term, the stock market has offered a clear positive return, despite the occasional huge crash like has happened recently.

So good luck with your bets, it's much better than Las Vegas or whatnot. And you've already realised that $4 charges discourage frequent trading. I've no specific tips, but if you're looking for a new investment, I'd suggest something very different to your existing holdings. Diversity in a portfolio improves the ratio of returns to the level of risk. :)

[Ray Moscow]

hi ray,

why would raising interest rates be a bad idea? sorry to sound like a financial noob, but i am...

don't worry - i would never gamble like this with any serious cash. my retirement accounts are not in my own hands :D

It's mainly because we've had such a big contraction in the US and most worldwide economies, and the usual rational monetary models say that the interest rates should be about negative 5%. Of course, they can't actually go any lower than zero, so that's where we've been for almost a year.

That's also why we needed (and need) a lot of fiscal stimulus. Further monetary measures can't work if the interest rate is already zero.

Rates need to stay very low until we see considerable economic growth. All we've seen so far is a bottoming out and a few, very meager gains in a few areas. Overall the picture remains pretty grim and will probably be so for a few more years.

[Free in Freeport]

I am absolutely the LAST person you should take financial advice, considering that I hung on to my GM shares out of misguided sense of loyalty to Michigan. The whole world knows how that went.

Having said that, I dont think now is a good time to be playing with penny stocks. Not a good environment for new companies. Stick with well-established companies that pay dividends.

CVS appears to be growing, judging by the number of new stores going up everywhere. With all the baby boomers aging, that trend is likely to continue.

[Free in Freeport]

Now is a good time to invest in companies that sell hand sanitizer!