stock market investing rule #1

[rdking647]

bulls and bears get fat... pigs get slaughtered.

the market is for making money over the long term. not the short term

If you invest wisely with a long term horizon and dont chase the latest fads you will do fine.. if you go for the quick buck and have are inpatient you will get killed

[CountAllVotes]

1. stock market investing rule #2

Stay the hell away from this POS.

:dem: :kick:

[dmallind]

2. Where else can you get 50% gains in 3 years?

[CountAllVotes]

4. yeah right

Just forget about what happened in 2008/2009 ...

[rdking647]

15. if you invested in the s%p 10 years ago

you made 20%.. + you made another 20% on dividends..
and thats after the 2 of the worst bear markets on record .

if you invested 15 years ago you doubled your money + made an extra 30% from dividends.

[CountAllVotes]

23. I had no money to invest at this time

I'd be nearly 70 by now if I had done that I think. :eyes:

[Major Nikon]

38. Your math is way off

The S&P was 1,089.90 on Oct 22, 2001 (which was a Monday).

The S&P closed today at 1,215.39.

That's 11.5% over 10 years, which isn't in the same ballpark as your 40% claim.

That's a 1.1% average annual return.

Inflation has averaged about 2.7% over the last 10 years which means you effectively lost 1.7% over that 10 year period.

[rdking647]

50. now add in dividends to your 1.1%

[Major Nikon]

51. You don't add dividends to a stock index as it represents the total return (or loss) on investment

The S&P500 is an index which tracks the performance of the stock market as a whole. If you bought hard stocks in number and proportion to the S&P500, your capital gains and dividends (total return) would equal the return of the S&P500 index. However from a practical sense, once you paid all the brokerage fees, you wouldn't have as much money as you would if you had just bought a S&P 500 index fund and paid lower fees.

[dawg]

57. Actually, that isn't right.

The index represents the change in stock price only (i.e. the potential capital gains). Dividends paid are not included in the index.

[DocMac]

41. I would suggest that you sell and like it.

If your holding the same stocks, than what is the high point to sell?

I would guess it is the health care sector. Nobody can stop that sector....it's life and death.

[kentuck]

63. I love Democrats that are experts in the stock market..

They are so "capitalistic". :-)

[SharonAnn]

17. or in 2000-2001.

And remember, "Past performance is not an indicator of future performance."

The rules have changed enough that now the stock market is more like a casino. And the "house" always wins.

[CountAllVotes]

22. yep, that is when I bailed

sold never to come back. *whew*

[dmallind]

27. And you just forget about 92-2008, matching, dividends, and tax benefits

I lost fuck all in 2008/9 because I wasn't stupid enough to sell anything st panic prices. I kept buying at them.

[RB TexLa]

53. You do understand taking short positions, right?

[CountAllVotes]

54. yes I understand "short positions"

and no, I don't play the casino.

It sucks IMO.

[RB TexLa]

55. Please, enjoy looking down your nose at everyone who does

Being superior to everyone else must be so thrilling

[CountAllVotes]

56. what?

n/t

[raccoon]

6. Vegas. In either case, such gains require a lot of luck. nt

[dmallind]

29. no damn luck needed - index funds are the simplest things out there. nt

[Scuba]

9. Where else can you lose half your investment in an afternoon?

[rdking647]

16. if your diversified that doesnt happen

[SharonAnn]

18. Well, if you're diversified it can happen. Market collapse hits everything.

[dmallind]

28. And are always temporary. Just don't sell in them. nt

[Major Nikon]

52. The largest single day loss on the Dow is 22.61%

http://en.wikipedia.org/wiki/Black_Monday_%281987%29

However, let's say you put your money in the Dow exactly one year before Black Monday and took it out exactly one year after. You'd have netted a 16.5% return over those two years. So you really have to put stock market crashes into the context of the time period in which they occurred.

[dmallind]

26. Dunno - I can't. Neither can any sane investor. nt

[sarcasmo]

37. The casino :) .

[lumberjack_jeff]

14. Form a drug cartel? n/t

[dmallind]

30. Thought about that, but the near-certain violent death part put me off a bit. nt

[DocMac]

43. But this is capitalism

and if selling crack means you are an entrapanuer...so be it.

We want people to be creative about supply and demand and people will follow this path.

Yeah, they might go to jail, but many bankers should as well.

[SOS]

24. Assuming you bought in 2008 and sold in 2011

Profit doesn't exist until you sell.
Most American homeowners are aware of this fact now.

You need a crystal ball to consistently buy low and sell high.

Where else can you lose 50% of your money in eleven years?

Nasdaq:

March 2000: 5048
October 2011: 2632

[dmallind]

25. Yes - and I'm sure you rush to correct similar claims of losses, right?

I've been investing since the DJIA was 3300 and the NASDAQ was three figures - I've made more gains than any drop from cherry-picked highs can wipe out - even ignoring the matching and tax benefits, so why begrudge me one tiny counyerexample from the thousands on DU who focus on examples like...well, yours?

[SOS]

32. Wouldn't "a 50% gain in three years"

also be an example of cherry picking?

The last time the Dow was 3300 was back in 1993.
In 20 years it has gone up 250%.

You are fortunate.

Would you advise a young person getting in today that the Dow will be 40,000 in 18 years?

Or are the days of long term gains over?

Over the past 10 years, all three major indexes seem sorta maxed out.

[dmallind]

34. Absolutely it's cherry picking - but much more likely true

The "big loss" cherry picking always assumes people put all their money into srocks at one time at its peak and then need to sell all of it at the trough. In reality most laymen investors, me very much included, keep buying during troughs and peaks and withdraw steadily over time. So only a catastrophically stupid and unlucky sap bought all his NASDAQ holdings at once in 2001 and sold them all in, say, 2008 at once suffered your cherry-picked loss, but millions of people bought mutual funds when the indexes were 50% lower than now, and still have them, and my cherry-picked gains, right now. It's selective sure, but it's much more common than the selective doom scenario.

Would I tell an 18 yr old to dollar cost average now? Absolutely! Remember it's not just the share price, but the dividends (you can buy preferred stock in AT&T right now that pays 6.375% and where the base price has not varied by more than 10% in over a decade - where can you get that safety and return outside "the casino"?), the likely employer match, and the likely tax benefits. Unless you think economic activity will cease or that a US communist rebellion will succeed, there will be businesses that continue to make money, and both those and new ones that will take advantage of opportunities in the life of that 18 yr old we cannot imagine. When I was 18 maybe a couple hundred people had heard of Microsoft and nobody had heard of Amazon.com or Google. Who the heck can tell if that 18 year old (or more likely his fund managers) will buy an IPO for the next one - NanoSoft or FusionTech or whatever? But if he keeps putting in money he's got a damn sight better chance of doing that than the "casino"-averse folks whole rely on 2% bonds and 0.5% savings accounts.

[WinkyDink]

46. I have 20% less than I had in 2008.

[CountAllVotes]

59. I have not lost anything since 2008

In fact, I have realized steady gains every month.

I'm invested in some CDs (coming due soon many of them) and I have a batch of some old series I savings bonds (now paying 7.67% :D ).

I never worry about what money I have being it is all in insured instruments.

I came from a family that never played the stock market after 1929. Nope.

:dem:

[sarcasmo]

36. +1

[Coyote_Bandit]

3. another rule

The broker makes his commission by getting you to buy and sell. He doesn't make much if you buy and hold for long-term return. He does better to get you to buy a high flyer, then get to to sell it and buy the next one. He'll try to make sure you earn a little bit of money. But he'll make more. And you are the one paying him.

[dawg]

5. Very good advice.

This site, of course, is rife with anti-market sentiment. And I'm sympathetic with that to a point. But there are good investments to be made.

I don't have a problem with corporations so long as they are playing by the rules. Even if the rules suck.

[tuckessee]

7. Rule #1 is that it is not an investment but a gamble.

Betting on the ponies is as much an "investment" as is betting on companies.

[dawg]

8. Only if you choose to gamble.

Individual investors mostly do gamble in the stock market. That's because reading balance sheets and income statements is boring and confusing, and it's much more fun to just bet on the next big thing that you heard about from Jim Cramer or the guy at the water cooler.

But it doesn't have to be that way. Guys like Warren Buffett did not make their money by gambling. True, you do have to take some risks. But they are caluclated risks, and you only put your money on the line when the odds are in your favor.

[rdking647]

12. nope

over the long run stocks win..

[still_one]

10. Ever since programed trading followed by Dark Pools and quant funds, the market is rigged. There is

a reason why people distrust wall street

Yes, buying good quality stocks that pay good dividends most likely will pay off, however, there was a time when banks and financials were NOT considered the latest fad, obviously that is no longer the case

[SharonAnn]

19. Yes, it's a casino. You're betting on future price swings, not company performance.

And in a casino, the "house" always wins.

[dmallind]

31. preferred stocks do exist you know. nt

[edhopper]

11. Actually

the way the market has evolved with hedge funds and computer trading.(And manipulation by the likes of GS) Buy and hold is not a very good strategy. Depending on when you buy, you don't always make money in the long term. When will we see Nasdaq 5000 or Dow 14000 again. Taking your profit and waiting for a dip to buy again is a better way these days.
BTW the #1 rule is "It is about risk, not reward."

[lumberjack_jeff]

13. In the long run we're all dead. n/t

[abelenkpe]

20. We should not have to gamble with our life savings in order to be able to retire

The majority of workers have Lost money over the past ten years you know why? They weren't trained and don't have the time to learn how to gamble successfully in the stock market. It is a seriously fucked up society that expects cooks, teachers, firemen to learn to do that or have to work until they die. Seriously fucked up!

[dmallind]

33. You don't have to be "trained" - 30 seconds tells you all you need.

30 seconds doing ANY of the following:

Reading any finance newspaper column
Listening to any radio finance show
Watching any TV finance show
Showing up to any 401k meeting at work
Asking HR for help when signing up for benefits
Talking to any single person who has spent this 30 seconds previously
Reading any thread like this

will teach you the three things you need to know, because all of them repeat the same mantra, over and over and over and have for at least the last quarter century..

1)Diversify investments - broad based funds are best for passive investing
2)Keep buying at the highest rate you can afford (at the very least max any match - free money!) and don't withdraw until retirement or truly desperate need (in which case pay it back ASAP)
3)Shift from stocks to bonds gradually as you near retirement.

If anybody can claim never to have heard that kind of basic advice (which hardly constitutes skilled gambling) then they are being wilfully and spectacularly negligent with their own futures. It takes HUNDREDS of times the time and effort to put together a reasonable fantasy football team, learn how to play darts worth a crap, or keep up with the goings on in the latest reality show, and your poor hapless victims all manage to do things like that. Is their retirement really that unimportant to them in comparison?

[Major Nikon]

40. And many would have still lost had they followed your advice

Consider someone who started investing 10 years ago with 30 years to retirement. Obviously the way to start out is with stocks. A person who invested in the S&P500 10 years ago would have earned an average annual rate of return of only 1.1% over the last 10 years. Inflation has averaged about 2.7% over the last 10 years. So this person effectively lost 1.6% per year, and this assumes they paid no administrative fees (unlikely). So maybe they might make this up over the next 20 years, but they could also continue to go the other way as well.

So yes, the stock market is an investment, but it's an investment that does carry risk, even over the long term.

[rdking647]

49. but he still has 20 years left to reitrment.

look at how he would have done if he invested 20 years ago

[grahamhgreen]

21. Actually, only one company in the original DOW remains. It's a crap shoot, not an investment.

[rdking647]

35. lets say you put 100 in every dow stock 100 years ago

lets say you bought 1 share of every dow stock in 1896 when the dow began..

there where only 12 stocks.. ge was one of them
ge has split over 4000x1 since then.
so your ge stock is worth 75k alone
here are the other 11 components

American Cotton Oil (now part of bestfoods) Distilling & Cattle Feeding (still around) North American (broken up by the SEC,many pieces still around including pacific gas) American Sugar (still around as amstar inc) Tennessee Coal, Iron and Railroad (now part of us steel) American Tobacco (now part of fortune brands) Laclede Gas (still around) U.S. Leather (Preferred) (liquidated in 1952) Chicago Gas (now peoples gas) National Lead (now nl industries ) U.S. Rubber (now the uniroyal division of michelin)

so out of 12 companies only 1 is gone.. the other 11 you would own varying parts of other companies and would be quite weathy

[A HERETIC I AM]

44. Nicely done.

I have read that canard on DU many times over the years.

Your post proves it is bollocks.

Thanks for the research and putting up the post.

[tomp]

45. in 1896 who could afford $1200? nt

[rdking647]

47. if you put $10 in every dow stock you still would have a lot of money

[CountAllVotes]

61. the answer is no one for the most part

In 1905, $500.00 was how much the average person made per year. If they made $1200.00 in 1897, that would be like making about $100,000.00 a year almost!

The facts are simple: You hire a broker and your money gets invested into some fund that charges fees. You pay these fees and you will never get them back after the initial investment.

If all goes well, you'll have taxes to pay on the dividends you made during the year. If all goes not well, you lose and you can write off part (and only part) of your losses on your tax returns for the next two years. Oh lucky you ... writing off loses that you paid some broker to invest into while you have nothing to show for it except for the necessity of having to file a semi-complex tax return. What a scam! Turbo Tax basic is a whole lot simpler and far more cost-effective than having to hire an accountant to figure out your now complex tax return. I don't need it.

The stock market is for gamblers; always has been and always will be and if you win you win and if you lose, you lose.

If people want to play this game with their hard earned money, well let them.

I'd rather go to Las Vegas personally! ;)

[SoCalDem]

39. It all boils down to how the economy is doing when YOU need to "cash out"

"Over the long term" is great, as long as your statements show you are doing fine, BUT if the whole thing collapses 3 years before YOU need to retire, you are screwed with no time to recoup..

It's gambling

I see the whole 401-k thing as a clever plan to 86 pensions, in favor of a long term slush fund of money put in weekly..for the wunderkinds to play around with.. They took their commissions & bonuses all along the way.... for gambling with money that could not be touched for decades..and since the boomer generation was so huge, they all knew there would be a day of reckoning, when that "statement" money would have to be made "real".. they got all they could before that happened, and then crashed the whole thing into the ditch just as they were to start paying it out..

You could be playing a slot machine and have it run up to $1k, but if you keep playing it until the money is all played out, you still lose..,

[rdking647]

48. your assuming you cash everything out at once

as you age you put more into constant income vehicles. you never dump everything out of stocks

[spanone]

42. that pretty much says it.

[dawg]

58. The stock market is like playing blackjack.

In my example, the dealer only gets to use one deck. If you know how to count cards, you have a statistical advantage. You could still lose, but the odds are in your favor.

If you don't know how to count cards, the dealer has the advantage. Although statistically it's 50-50, his experience and skill will beat you more times than not.

It's also true that the dealer sometimes cheats. But since this is a crime that affects the 1%, you can count on the government to police securities fraud pretty tightly. All those banskers who ripped-off homeowners with bad mortgages walk free, but Bernie Madoff will rot in jail.

[mnhtnbb]

60. I would say rule #1 is buy low, sell high.

[taught_me_patience]

62. This is good advice in a sea of bad financial advice surrounding DU recently

Many people don't seem to understand that asset allocation and diversification is key to long run returns. Also, saving only cash is very risky... if inflation heats up can melt away your savings just as fast as stock market declines.

[CountAllVotes]

64. Buy some series I-bonds

If you buy before October 31, 2011 they will be paying 4.6% for the next 6 months (October included) and they'll be resetting at 3.06% in April of 2012. You can cash them after holding them for one year with a 3 month penalty, or no penalty if you hold them for five years. Not a bad investment these days IMO. :)