Investing

[Draconic Aiur]

I would like to invest and get stocks but everything is so confusing and I don't know what I should invest in. Also google say with much research, that there is short term investing. I want to invest for the long and short term future, how and where should I go?

[Baruch]

Calling Cavebear on the bear phone ... ring, ring ... Cavebear picks up the phone in his cave ...

I only have one advice ... diversify ... never put all your eggs in one basket ...

On Monday, one trader, of a high volatility, high margin financial product ... lost the 4 million dollars in one day, that took him 3 years to build up thru clever trades.  He should have at least put some money into Chia Pets.

[SGOS]

My advice would be to buy low and sell high.  The method is simple.  You buy a stock at $5, and when it gets to $150 sell it.  You have now made a profit of $75.  Some of the profit disappears.  No one knows where, but I think it goes to the bankers, probably mostly the bankers.  Do this 10 times, and eventually, you will have $300.  You have now made a bunch of money in stocks, and you can tell your friends.

[Baruch]

My advice would be to buy low and sell high.  The method is simple.  You buy a stock at $5, and when it gets to $150 sell it.  You have now made a profit of $75.  Some of the profit disappears.  No one knows where, but I think it goes to the bankers, probably mostly the bankers.  Do this 10 times, and eventually, you will have $300.  You have now made a bunch of money in stocks, and you can tell your friends.

Investment fail!  If you sell at $150 and bought at $5 ... you made $145, not $75!

And yes, profit is conserved ... it is the law, and it belongs to the banks ... that is the law too!

[Blackleaf]

Investment fail!  If you sell at $150 and bought at $5 ... you made $145, not $75!

And yes, profit is conserved ... it is the law, and it belongs to the banks ... that is the law too!

"Some of the profit disappears." If you made a profit of $145 off of a $145 increase in stock value, the profit wouldn't be disappearing, would it?

[SGOS]

"Some of the profit disappears." If you made a profit of $145 off of a $145 increase in stock value, the profit wouldn't be disappearing, would it?

This comment harkens back to the days before you could trade stocks on the internet, and I don't know what that's like now.  There were brokerage fees for setting up an account, fees for buying stocks, fees for selling stocks, monthly service fees.  There were other mysterious happenings.  If you bought a stock at $42, your statement showed you had bought it at $44.  If you sold it at $58, you would actually sell it at $54.  I assumed the brokerage firm would take your bid and then wait a day for a more favorable transaction made by their traders on the floor, which they kept as profit for themselves.  I can't prove that.  I only suspect it.  None-the-less nothing was clean an by the current numbers you dealt with, and money just sort of disappeared during transactions.  That was with Merrill Lynch.  I quit the stock market long ago.  Nothing seemed legit.  I suspected hanky panky.  Turns out 30 years later, my suspicions were vindicated during the crash.   Now bankers have learned their lesson.  Now you can trust them with your money.  Investing is safe again.

[Johan]

I would like to invest and get stocks but everything is so confusing and I don't know what I should invest in. Also google say with much research, that there is short term investing. I want to invest for the long and short term future, how and where should I go?

Best stock investing advice on the internet: Do not use the internet for stock investing advice. Go talk to a financial advisor or two or four.

[Baruch]

"Some of the profit disappears." If you made a profit of $145 off of a $145 increase in stock value, the profit wouldn't be disappearing, would it?

Three walnut shells and a dried pea.  No, it only appears to disappear.

[Baruch]

This comment harkens back to the days before you could trade stocks on the internet, and I don't know what that's like now.  There were brokerage fees for setting up an account, fees for buying stocks, fees for selling stocks, monthly service fees.  There were other mysterious happenings.  If you bought a stock at $42, your statement showed you had bought it at $44.  If you sold it at $58, you would actually sell it at $54.  I assumed the brokerage firm would take your bid and then wait a day for a more favorable transaction made by their traders on the floor, which they kept as profit for themselves.  I can't prove that.  I only suspect it.  None-the-less nothing was clean an by the current numbers you dealt with, and money just sort of disappeared during transactions.  That was with Merrill Lynch.  I quit the stock market long ago.  Nothing seemed legit.  I suspected hanky panky.  Turns out 30 years later, my suspicions were vindicated during the crash.   Now bankers have learned their lesson.  Now you can trust them with your money.  Investing is safe again.

You forgot the sarc tag.  With Charles Schwab etc you could be your own day trader.  I knew one back 30 years ago.  Here is how he explained it to me ...

You have a guy with a cat and another guy with a dog.  They both value their pet at $10,000 each, but that isn't monetized, it is emotion.  So they go get a bank loan, for $10,100 each, and using that liquidity trade the cat for the dog.  Now they have a monetized asset of $10,000 each, but they are both out $100 each to the banks.  The net cash flow for each is -$100.  Their balance sheet shows a $10,000 asset increase though, because before an actual business deal is made, nobody knows what the dog or cat are really worth.  In accrual accounting terms, their net worth both increased by $9,900.  Then having a greater balance sheet, they are a better credit risk, so now they can do further trading, on credit (liquidity provided by bank, which might only be s short term loan).  It wouldn't count as such, if they simply shook hands and traded pets.

[Baruch]

Best stock investing advice on the internet: Do not use the internet for stock investing advice. Go talk to a financial advisor or two or four.

A licensed advisor, same as only working with a licensed doctor.

https://www.youtube.com/watch?v=GPOv72Awo68

For some of you, this isn't even a clear memory.

[Baruch]

I don't consider Jim Cramer to be a good investment advisor ...

https://www.youtube.com/watch?v=NkytKDzCEeU

[Blackleaf]

Stock trade seems a lot like gambling to me. If stock goes up, you can take your money and run, or risk it all for the chance of a bigger win. If stock goes down, you lose money. Maybe it's generally more stable than I think, but companies can only grow so large before they stagnate.

[SGOS]

I don't consider Jim Cramer to be a good investment advisor ...

https://www.youtube.com/watch?v=NkytKDzCEeU

I saw that interview when it first aired.  I actually thought Cramer was finished, but he didn't go away.  He's full of crazy antics which makes him a curiosity.  I haven't followed his picks, but I have followed others.  From what I can tell, these talking heads really don't know what they are doing.  They are self appointed authorities that pitch themselves to TV executives based on their style and delivery.  Whether they do any stock research, or whether they have others do it for them is doubtful.  Like Moody's or Standard and Pours, they are most likely paid to pitch certain stocks.  I can't prove this of course.

[Baruch]

Stock trade seems a lot like gambling to me. If stock goes up, you can take your money and run, or risk it all for the chance of a bigger win. If stock goes down, you lose money. Maybe it's generally more stable than I think, but companies can only grow so large before they stagnate.

Summary of recent observation by Nasim Talib (a real investment advisor) regarding the collapse of the XIV fund on Monday ...

1. You project a certain sale price at a certain time, with different values over time.  You know what you paid for a security, but you are projecting its future sale value.

2. If you take the average of the projected sale price this can be deceiving, if it has high price volatility.  You can be correct on the average value, but totally wrong on any particular day.  This isn't a problem with low price volatility.

3. Murphy's Law says, you will be forced to sell your security (because bought on margin) precisely on a day when the price is way down.  The average sale price on all other days, doesn't count, because those are the days you didn't sell.

4. XIV is a high volatility fund.  People who bought on margin, were forced to sell when it took a swan dive (see Nasim Talib on Black Swans aka 2008).  Unfortunately it dropped from a high of $147 to a low of $5 ... so even if you didn't buy on margin, your paper value is way lower.  You may have to wait a long time to make that up.  And if the fund liquidates you get whatever the price was that day of liquidation (usually not a good price at all).

Here is how margin works ... if you buy on 10x margin (one dollar controls ten dollars of security) then a 10% swing down in price, forces a margin call (you have to put in more money or lose it all).  With a 100x margin (one dollar controls one hundred dollars of security) then a 1% being down in price, puts you in the same sad boat.  So high volatility is the enemy of securities bought on margin.

https://en.wikipedia.org/wiki/Black_swan_theory

If you are really crazy, you go with high volatility, high margin and the principle was financed on a high interest loan ... then when your securities are wiped out, you are left with a big loan that you can't repay.  Enter Guido ...

[Cavebear]

I bought Vanguard Index Funds at the bottom in 2009 or so and stuffed every dollar I had into them after that.  It paid off.  I tripled.

Even with this "correction", I'm not too concerned.  A 10% loss on a 150% gain is nothing. 

What ticks me off is that I wanted to get out of stocks entirely a week before the "correction" and go in to safe retirement funds, but was asking some questions about capital gains.  I wasn't trying to time the market, just leave.  If I had just moved to bonds and CDs and such, I would $80,000 less poor than today.  Not that I ever had that money, but it would have been mine had I accepted the capital gains on the sell.

But I am patient.  The market will rise again.  I'll hold and leave then...  Seriously, I hit $1M briefly, and if I get out with $900K I sure won't complain.  I only put $300K in it totally.

And if it never rises to that level again, I'm still way ahead. 

My car is a13 year old Toyota Highlander.  I like the car, but old age is hitting it,  The dealer says all the belts are shot to the tune of a grand.  Repair or replace?  Hmm...  I don't want fancy computer IOTs on a car, no tracking, no wifi. 

I suspect my desired fuel cell car isn't going to be available in time.  Maybe an Toyota hybrid?