Finding good stocks/ETF/MF to buy

[cocrehamster]

Efficient market theory states that in the long run, you can't beat the market (or a low cost index fund) after accounting for costs and taxes. Professional mutual funds managers can't do it. The author of Security Analysis, the backbone of modern finance and security valuation, Benjamin Graham, has stated that you can no longer earn positive risk adjusted returns in the long run and endorsed low cost index funds. He's also Warren Buffets mentor.

 

[Zippyjuan]

Efficient market theory states that in the long run, you can't beat the market (or a low cost index fund) after accounting for costs and taxes. Professional mutual funds managers can't do it. The author of Security Analysis, the backbone of modern finance and security valuation, Benjamin Graham, has stated that you can no longer earn positive risk adjusted returns in the long run and endorsed low cost index funds. He's also Warren Buffets mentor.

The market is the sum of all investors so therefore, the average investment return will be the same as the total market return. But then you have to include the costs of the investments so the average investor actually does worse than the market. Keeping costs as low as possible is the surest way to increase your returns. The lowest costs are found in either index funds or in DRIPs. The more you trade, the higher your costs and the lower your returns on average. Unless you get lucky.

 

[oyarde]

If it was easy to make tons of money, everybody would be billionares.

Not exactly Zip , they just cannot run around the world aimlessly, spending it on beer and women ( that is what I hear ) .One of my Son in Laws, a very good hardworking young man, farmer,land owner has done well for himself . He seems a little suprised that at I have managed to get by OK . One day , he said to me " I guess it is not how much you make but how you spend it". I did not say anything , he would be appalled if he knew how much I pissed away in my youth( although I am sure he has heard stories , that he probably cannot quite believe , lol.) I managed to save a little though , even then. Probably many Americans can earn some wealth, kind of hard to keep any though, ex wives , taxes, child support , more taxes , frivolous spending , loans at too high of interest etc etc

 

[cocrehamster]

The market is the sum of all investors so therefore, the average investment return will be the same as the total market return. But then you have to include the costs of the investments so the average investor actually does worse than the market. Keeping costs as low as possible is the surest way to increase your returns. The lowest costs are found in either index funds or in DRIPs. The more you trade, the higher your costs and the lower your returns on average. Unless you get lucky.

Yes, clearly the market is a zero sum game, more security analysts aren't going to make companies earnings increase. The question is whether its possible to get a larger slice of the markets return by selecting companies that are undervalued by the market. It's pretty much accepted now that it is not possible in the long term. We have "semi strong" market efficiency. By the time you have information it is most likely priced in by the market. Frequent trading also increases tax burden.

 

[helmuth_hubener]

Perhaps I shall find a new skill to pursue with the 1000 dollars then. I would probably make more money. Hmmm... Why does making money have to be so complicated(taxes suck).

That's not what I said! Westkyle, you didn't answer any of my questions. I'm trying to help here, we're all trying to help, but you've got to give me something to work with!

That said, pursuing a valuable skill with this money may be a wonderful idea, especially if you are young. That could potentially pay far more dividends, far quicker. As Harry's Rule #1 says: your career provides your wealth. Investing does not. It can help, but you're not going to go from $1,000 to $1 million. Nor even from $1,000 to $2,000 very quickly. It just doesn't happen. But becoming more valuable and talented can make your earnings go from $1000/month to $2,000/month virtually overnight, and then if you save that can add up quickly!

Then again, $1,000 is not a huge amount of money. If it is all the savings you have, I personally would hope that you save it. It sounds like you don't have a particular skill in mind, perhaps you just feel the $1,000 burning a hole in your pocket. This would explain your use of the word "spend" in the context of asking for investment advice: you may not be thinking of buying a stock as a way of saving, but as something to spend it on, in hopes of getting a lot more back, quick! If that's true, I am very glad we could dissuade you from doing that. Don't do it. Don't pick stocks. You'd almost be better off taking it to the casino and spending it on some games of blackjack.

 

[helmuth_hubener]

For anyone like westkyle who has some relatively small amount to invest, one more avenue to consider: you may not know it, but you almost certainly know someone who has a brokerage account. Be it a friend, or a close family member... there's a high probability. You can have them buy on your behalf, or maybe even set up a sub-account for you. I had an uncle who sent me some Dell stock -- a physical stock certificate -- for a b-day present as a kid.

Sidenote:I was an Apple guy and thought I'd rather have Apple stock, I should trade it. But, Dell was making money, was a more successful company at the time, so I decided to keep the Dell. As you can see, I am not a talented speculator!!

 

[oyarde]

That's terrific! I am glad to hear it. Most investors do not have that experience. The vast majority of investors do not have that experience. That's because they are not actually investors at all, they are trying to be speculators. There are far too many of them doing the same thing that you did -- betting on hunches -- and, as some simple analysis of the factors can tell us, they almost inevitably end up far worse off because of their skittish buying and selling and betting.

The crystal balls are all out of order, people!

My hunches are based on research, I know not much of of speculation.

 

[helmuth_hubener]

My hunches are based on research, I know not much of of speculation.

It's still under the category of "speculation" by the way I categorize things.

By the way, I was thinking again about what you wrote:

I do not blame him at all, I have bet much on hunches before that usually turned out to be fairly correct
.Enough so it left me ahead of the game.People should do what they are comfortable with .Guy my age should not even be much in the market.When things turn for the next correction, it could be large . If you are over 45 and plan to use any of it before 60 .You may never have a chance to get some of it back .....

I congratulated you on a job well done. And I mean that sincerely. You may have that special skill of speculating. You may prefer to call it "correctly assessing situations based on careful research" instead, but whatever you want to call it, some people can do it. They can make a lot of money and have whole careers honing and utilizing this skill. You may be one of those people.

Here's the bigger picture, though: most of us can't. I should know; I'm one of them. We may get lucky from time to time, but then our amateurism and jittery psychology will wipe out many of those gains, and furthermore we will also inevitably be unlucky from time to time. In trying to beat the market, we will end up doing far worse than we would have with a diversified portfolio -- we may even lose a significant portion of our money, maybe even all of it (especially if we decide to play around with leverage or do complex, fancy things we don't understand). So even if you are one of those few insightful masters who has succeeded in predicting the future and thus beating the market, it is still horrible, horrible advice to encourage someone to try to follow in your footsteps.

999 times out of 1000 (probably more) a man will be better off with a diversified portfolio. That way, he can preserve his wealth and even get to watch it slowly but surely grow.

I also do not agree with your advice to not be "much in the market" after age 45. That's a lot of years, even decades, to be "sitting on" your money and missing out on any growth. With a diversified portfolio that includes non-stock-market assets, such as Harry Browne's Permanent Portfolio, many of the wild swings of the stock market can be avoided, smoothed out. Observe:

 

[oyarde]

It's still under the category of "speculation" by the way I categorize things.

By the way, I was thinking again about what you wrote:

I congratulated you on a job well done. And I mean that sincerely. You may have that special skill of speculating. You may prefer to call it "correctly assessing situations based on careful research" instead, but whatever you want to call it, some people can do it. They can make a lot of money and have whole careers honing and utilizing this skill. You may be one of those people.

Here's the bigger picture, though: most of us can't. I should know; I'm one of them. We may get lucky from time to time, but then our amateurism and jittery psychology will wipe out many of those gains, and furthermore we will also inevitably be unlucky from time to time. In trying to beat the market, we will end up doing far worse than we would have with a diversified portfolio -- we may even lose a significant portion of our money, maybe even all of it (especially if we decide to play around with leverage or do complex, fancy things we don't understand). So even if you are one of those few insightful masters who has succeeded in predicting the future and thus beating the market, it is still horrible, horrible advice to encourage someone to try to follow in your footsteps.

999 times out of 1000 (probably more) a man will be better off with a diversified portfolio. That way, he can preserve his wealth and even get to watch it slowly but surely grow.

I also do not agree with your advice to not be "much in the market" after age 45. That's a lot of years, even decades, to be "sitting on" your money and missing out on any growth. With a diversified portfolio that includes non-stock-market assets, such as Harry Browne's Permanent Portfolio, many of the wild swings of the stock market can be avoided, smoothed out. Observe:

I agree with diversity.The thing someone must be careful about in the future are the downturns . They could be large.They could also last longer than what people are accustomed to in the past.Risk is higher.

 

[helmuth_hubener]

I agree with diversity.The thing someone must be careful about in the future are the downturns . They could be large.They could also last longer than what people are accustomed to in the past.Risk is higher.

And the worst thing about big downturns? They psych people out. Your investment is way down, you want to cut your losses and get out. Even if you are very patient, how patient can a human possibly be? Just close your eyes and imagine: if your investment goes way down one year, and then stays down next year, and then next year, and goes even further down next year, and now you are logging in to your account again and see yet again that it's gone down... how long are you going to hold it? You're probably eventually going to get out. And unfortunately, that's probably right when it's about to go up again. Doh!

Those big drops are called "draw-downs" in the investing biz. They are a big problem. Just look at the huge drops in that red dotted line above. Few investors have the fortitude to push through enormous losses like that. To just blissfully say "Ah well, it will be OK. No problem." You just lost 40% of your life savings!! You better believe, that is a big problem!!! During 2000-2002, stocks dove about 40% over two years (the NASDAQ dove 80%)! In 2008 stocks were down about 40% for the year. In 1987, stocks dropped 25% in a single day. The typical investor can't deal with that. We can't just sit back and relax and "do nothing" like we really should. We are driven to do something! And by "doing something," we make things worse, mess things up, and rob ourselves of gains.

That's why the Permanent Portfolio (solid blue line) is better than just holding a Total Stock Market fund (dotted red line). Long term, they have worked out to be about the same return. But the Permanent Portfolio has done it in a much more steady way, which is much better for the investor's blood pressure and sleep patterns, which means he won't be overwhelmingly tempted to be stupid and mess with the portfolio, as he would have been with 100% stocks.

 

[Dforkus]

I can't predict the market..

Neither can the people who say they can.

Beware of self-aggrandizing perma-bears, and perma-bulls...

Here's a prediction: In a major correction.. the market will lose 4% next Monday...

I'll just keep making that prediction every Friday for the next 20 years, eventually I will be spot on.

As far as efficient market theory. Yes the market is generally efficient. Given an equal amount of public information, no one investor can expect to have a inherent, repeatable, advantage over any other investor..

Individual investors have a chance of beating the market if they have either derived, or been given (which is generally illegal) privileged information that the public does not have. Also, the market is not perfectly efficient, and investors can take advantage of this on a small scale. Case in point, tobacco companies are consistently undervalued because of a general moral aversion to them..

 

[westkyle]

I live in a small town in TN and have been thinking about starting a homestead to save money and perhaps create a small company selling veggies and fruits. I'm thinking this would be a better use of my money and more fun, too. Perhaps I'll get a better return than 9% annually and keep my day job.

 

[helmuth_hubener]

I live in a small town in TN and have been thinking about starting a homestead to save money and perhaps create a small company selling veggies and fruits. I'm thinking this would be a better use of my money and more fun, too. Perhaps I'll get a better return than 9% annually and keep my day job.

That sounds like a terrific idea! Just remember to keep at least a little bit of savings, so you're not always right on the cliff of financial ruin!

 

[oyarde]

I live in a small town in TN and have been thinking about starting a homestead to save money and perhaps create a small company selling veggies and fruits. I'm thinking this would be a better use of my money and more fun, too. Perhaps I'll get a better return than 9% annually and keep my day job.

You may have a tough time meeting or beating 9 % , but it will be gratifying, I would keep the day job too.Having the ability to feed yourself is a plus too.

 

[westkyle]

You may have a tough time meeting or beating 9 % , but it will be gratifying, I would keep the day job too.Having the ability to feed yourself is a plus too.

Do any of you guys have a homestead? I just found about this place called urban homestead in california and it's awesome.

 

[oyarde]

Do any of you guys have a homestead? I just found about this place called urban homestead in california and it's awesome.

I grew up on a farm ( real farm , grew , raised everything we ate ), I own some various plots of land, I still grow , harvest , catch much of our food even though I no longer have to .When you are first starting out , of course keep the day job.It matters not how little you make, cheap , better food , learning experience, skills to have if you ever need them.The way things are going, you will need them,better to have them than not. Just an opinion from an old guy, who has been around more than a bit .

 

[XTreat]

DRIP looks like exactly what I was looking for, I have been maxing out my ROTH for years now putting it into various stock and bond mutual funds using dollar cost averaging. About two years ago I got to the point I have extra money to invest, but not quite enough that I feel I can buy individual stocks without too much risk. I tried anyways because I didn't really know where to go with my excess cash for investing and have had a few successes but more failures.

I have for the most part been buying a chunk of stock every time I can put together about $1000, which winds up being every few months. Since I am far from an expert (also because I started with mining stocks ug, I still have them all waiting for the next boom I guess) you can guess my success has been less than optimal. I discovered MLP's though and am pretty happy with those as my bank allows me to reinvest the dividends for no fee.

Picking 10 blue chip stocks that pay a good dividends like Exxon, Johnson and Johnson, and AT&T to put a few hundred dollars into a month, using dollar cost averaging and reinvesting the dividends, but without the fees, sounds like exactly what I want.


SO where do I start?


I will add I went against the RPF grain and bought $5k worth of Facebook stock during the IPO and have held it this whole time.

 

[Zippyjuan]

DRIP looks like exactly what I was looking for, I have been maxing out my ROTH for years now putting it into various stock and bond mutual funds using dollar cost averaging. About two years ago I got to the point I have extra money to invest, but not quite enough that I feel I can buy individual stocks without too much risk. I tried anyways because I didn't really know where to go with my excess cash for investing and have had a few successes but more failures.

I have for the most part been buying a chunk of stock every time I can put together about $1000, which winds up being every few months. Since I am far from an expert (also because I started with mining stocks ug, I still have them all waiting for the next boom I guess) you can guess my success has been less than optimal. I discovered MLP's though and am pretty happy with those as my bank allows me to reinvest the dividends for no fee.

Picking 10 blue chip stocks that pay a good dividends like Exxon, Johnson and Johnson, and AT&T to put a few hundred dollars into a month, using dollar cost averaging and reinvesting the dividends, but without the fees, sounds like exactly what I want.


SO where do I start?


I will add I went against the RPF grain and bought $5k worth of Facebook stock during the IPO and have held it this whole time.

Each DRIP has its own rules including minimum investments and minimums for additional purchases (minimum additionals on mine is only $25). You will have to check out each one individually but good luck! You may have to purchase at least one share of the stock on your own before joining the DRIP (again- check out what the rules say for that particular stock you are interested in).

 

[helmuth_hubener]

I will add I went against the RPF grain and bought $5k worth of Facebook stock during the IPO and have held it this whole time.

Going against the grain is the only way to make money speculating. You must buy when everyone else thinks you're stupid and crazy to buy, and then sell when everyone else is slapping you and saying "What are you thinking, you idiot? XYZ investment is going to explode! Why would you sell now?!?!?!"

Being a successful speculator means going against the grain, thinking differently. It means taking the same info everyone else also has, but interpreting it in the opposite way they do. It also means being lucky.

Mostly being lucky.

 

[eric_cartman]

I just started a new job with a large financial planning company in Canada. I'm 2 weeks into training. But I took an 8 month financial planning course at a local community college prior to getting this job.

I've been following the markets and studying Austrian Economics since I read Crash Proof back in 2007. I'm licensed to sell mutual funds, but not individual stocks or ETFs. However, there is a "securities specialist" in my office... so if I want to recommend an ETF to a client, he has to sign off on it first (basically to make sure it's appropriate for the client).

It's a commission based job, so I only get paid if I sell mutual funds, insurance products, or mortgages/loans. If I put a client into an ETF, I don't get paid.

Personally, I think that buying index ETFs is probably a much better deal than buying a mutual fund. In many cases, they hold the same stuff, just with a lower fee.

So my plan is to attract clients by showing them how I can save them money by putting them into ETFs instead of mutual funds.... and then make my commissions by selling them insurance (where the commissions are actually much higher... and it's illegal to rebate, so you can't give them a better price by taking a lower commission).

Because it doesn't matter how good your investment recomendations are... if you become disabled or critically ill, and you don't have enough insurance... all your investment planning goes out the window. if you're supporting a family and you die without any life insurance, your spouse and kids are going to be in big trouble financially.

And I don't really know too much about insurance, but i'm trying to learn as quickly as possible. It seems like there are insurance products where you get your premiums back if you don't file a claim. These products aren't that good a deal in an environment with normal interest rates... but in a low interset rate environment, it might be a good option to consider, even if you have a lot of money. Because you could put your money into a long term government bond and make a few percent in interest per year. Or you could buy an insurance product where you'll either get your money back (so you earn 0% on your money, but it's guaranteed by the government that you get your money back) but if you need to file a claim, you'll come out way ahead. So I need to learn this stuff in much more detail... but it seems like there might be some good ways to invest using insurance instead of just holding cash.

I do like Harry Browne's Personal Portfolio approach... but I feel as if he is overly concentrated in the US. One of my main points that I will try to explain to clients is that investors suffer from a "home country bias" ... where they are too heavily invested in their home country and they are vulnerable to an economic downturn in their country. This is a bigger issue for Canadians since our economy is only about 4% of the global econmoy and we're heavily concentrated in financials, energy and materials.

So I like Browne's 4x 25% model... but I would try and diversify it more. Don't just hold US dollars, hold a variety of foreign currencies (so of that 25%... maybe have only 10% in US dollars and 15% in a variety of foreign currencies). And for stocks, don't just own the S&P500 stocks... also buy some index funds maybe in some of the Asian countries too. Same thing with bonds... don't just have bonds denominated in US dollars... have them spread out around the world. And you can still keep the remaining 25% in precious metals... or you could own agriculture commodity ETFs (Jim Rogers likes sugar at the moment), other precious metals (silver, platnium, etc.) in addition to the gold.

So what i'm going to explain to my clients is that your real estate (house and maybe a cottage) is denominated in Canadian dollars and their value can fall if there's a downturn in the Canadian economy. Their stream of future income will all come in Canadian dollars (and they could lose their job if Canada has a downturn). Your pension and goverment benefits are also all paid in Canadian dollars. So when you're investing your savings, it's very risky to own exclusively Canadian stocks and bonds... and only have Canadian dollars for cash. You can't change the fact that your income, pension and real estate are all heavily dependent on the strength of the domestic economy and the currency... but you can diversify your savings so that your investment assets will go up in value if there's a problem in your home country.

Most Canadians think that we avoided, for the most part, the financial crisis. We look at the US and how their financial system basically almost collapsed. We look at Europe and see how bad things are over there. We tend to think that we avoided all those problems (because of our great "regulation"). I'm more of the opinion that we have the same problems, but that we manged to postpone our problems by lowering interest rates, increaseing our debt, making our housing bubble bigger, etc. Unfortunately, the people at the head office have to approve all your marketing material... and i'm not allowed to make "predictions" about what is going to happen... but I am allowed to explain things. So i can't say "canada's housing bubble is going to burst"... but hopefully i can say "if housing prices in canada happen to fall... how will this affect your financial plan, and how can we take steps to protect you from this potential outcome". So i'm hoping that i'll be able to get this message out to people in my geographic area and attract clients... and then invest their money so that they wont suffer as much in the event of a downturn in Canada (which I personally think is coming).