Nobody likes to be called a dummy by a dummy.

Stock thoughts

Random thread for commenting on stocks - anyone doing anything cool?

I'm looking to make some long-term investments in wind turbines and solar panels (both manufacturing and research/new products). I figure over the next twenty years they've got to appreciate to some degree.

Philo
Permalink Philo 
January 22nd, 2006
I've got options. :)
Permalink Flasher T 
January 22nd, 2006
My strategy for stocks is simply to buy companies I know who's stock has been underpriced by hype. The price should be around the 52-week low, but the company still needs good fundamentals. For example, if some rumor came out that Google were to make a linux OS, the price of Redhat drops dramatically...then maybe they miss earnings estimates by like 1 penny, and it plummits again. The company is still pretty solid, and the revenue is growing, but the price has been pushed down to $11 from it's 52-week high of 20. I wager that positive hype will at a minimum of $15. 

I've been using this strategy for two years, and have not lost on a single stock yet (broke even on a few). A lot of people make the mistake the a stock's price is somehow based on the actual performance of the company...maybe somewhat if you're in it for the long term, but its much easier to make money on small jumps.  And I never buy into companies or industries i'm not familiar with, the "tips" from friends that some bioscience company will go through the roof is the type of thing that makes people lose their shirts.
Permalink Phil 
January 22nd, 2006
My country is home to the world leader in wind power technology (wind mills). Their stock has been plummeting for years. Couldn't say if that has anything to do with the sector as a whole though.
Permalink jz 
January 22nd, 2006
Where do people get stock ideas? Some website....?
Permalink Kasey 
January 22nd, 2006
Wasn't there a story about stock market professionals competing against a group of monkeys and the randomly selected stocks the monkeys picked won?

The only relatively safe system is some kind of index tracking fund. Low growth but you are best insulated from fluctuations.
Permalink ActivelyDisengaged 
January 22nd, 2006
Which index? small cap, sp500, total market, emerging markets, pacfic rim, etc. ...
Permalink Kasey 
January 22nd, 2006
"Wasn't there a story about stock market professionals competing against a group of monkeys and the randomly selected stocks the monkeys picked won?"

How long was the study? Anything less than five years and it's kind of silly. (and a stock picker that would participate in a study shorter than five years probably isn't that good)

I prefer to buy and hold on the core business and fundamentals - growth of the company, not flavor of the day.

Philo
Permalink Philo 
January 22nd, 2006
I invest everything in real estate. I'm not really shrewd, it just seems to be a guaranteed good investment (medium to long term).
Permalink jz 
January 22nd, 2006
I don't pick individual stocks, I stick with the funds. It's easier to monitor. Here's my contribution breakdown though:

10% income
22.5% aggressive growth
22.5% blue chips
22.5% medium growth
22.5% tech

I need to reallocate soon as I haven't done it in about 15 months and I know the actual values have changed. There is *some* overlap between the different funds but I've made a point of minimizing that.
Permalink KC 
January 22nd, 2006
I'm a fundie.
Permalink sharkfish 
January 22nd, 2006
The reason you do "long term buy and hold" is that you pay transaction costs whenever you trade. You pay capital gains taxes. You pay your commissions. You pay the bid/ask spread (difference between the price the market maker is willing to buy and the price he is willing to sell). You really can't beat a professional trader when it comes to short-term trading.

For indexes, in the very long run, it really doesn't matter which one you choose. The S&P 500 index fund is the most popular one. Once you get assets over $50,000, only then is it time to start thinking about buying individual stocks. You could just go through the list of companies in the S&P 500 and pick off companies you like.

For an S&P 500 index fund, I recommend Vanguard. They're the biggest and oldest. I also use them for my brokerage account. They aren't the cheapest on commissions, but their money market fund is better than their competitors, and their customer service has been very good.

Also, when buying, suppose I'm willing to make a $10,000 investment in a stock. I first buy only $5,000, and then if it goes down, buy more. If it goes up, then I look around for another pick. But you only repeat this twice, so you don't keep sinking money into a stock as it goes broke. The reason it doesn't really pay to invest in increments smaller than $5,000 is the effect of commisions. With a $25 commission, that's 0.5% of a $5000 transaction, 0.25% of a $10,000 transaction. With smaller trades, the commission is a larger % of the trade.
Permalink Anonymous 
January 22nd, 2006
Philo:
I can see the solar panels since they are just about to make sense and because once the breakthrough comes, the markup can be fantastic. Wind turbines I don't know. They are not going to be big profit items, and the higher risk of that investment I'm not sure correlates to the potential upswing. Me, I take no risks. Kraft, JNJ, MS, that sort of thing.
Permalink Art Wilkins 
January 22nd, 2006
jz, real estate is actually a poor investment long term, one of the worst. Short term, it's good if you develop it and/or know the micromarket really well because of your connections.
Permalink Art Wilkins 
January 22nd, 2006
Anonymous

Good advice. Thanks. I'm wondering if buy and hold is still they way to go based on lower costs. The spread is approximately 1 cent on most nasdaq stocks. I'm certainly not paying 25$ commissions about $5.  Buy and Hold is nice, but re-think it in light of how cheap trading has gotten. I'm buy and hold because I don't know when a stock will go up or down, not because of costs.
Permalink  
January 22nd, 2006
"The reason you do "long term buy and hold" is that you pay transaction costs whenever you trade."

Wow, that's new.

I've always believed in "buy and hold" because if you're betting on a company's line of business and funamentals you need to hold long term to even out the bull/bear markets and market-timers. In other words, you're investing in capital appreciation, not "will people think this stock is worth more next week," which is mind-reading.

As for wind turbines, I'm hoping (speculating!) that they'll hit a tipping point in about 3-5 years. And yes, it's a speculative investment - gotta buy a lottery ticket once in a while. :)

Philo
Permalink Philo 
January 22nd, 2006
What company makes wind turbines or solar cells?
Permalink Kasey 
January 22nd, 2006
WHat do people think of putting more percentag into emerging markets? If you look at standard recommendations they'll say 5-10% in these highly volatile but possibly lucrative markets. (The Ghanna stock market jumped somthing like 150% in 2005, but in general the stock markets of the devloping world have been outperforming say the S&P for the last fifteen years.)

The Economist had a special about emerging markets - how by one measure (GDP at PPP, if you must know), developing countries have caught up to the developed countries, ie, half the income generated in 2005 was in the developing world rather the West (plus Japan). And since emerging markets are slated to grow *faster* than developed world (around 6% compared to 3% GNP growth) for some time, it seems this could be a better place to invest for the long haul (*).

I always love a magazine that shows financial info going back to the year 1000, btw.

(*) Big footnote her is that companies in the developed countries *do* invest in the developing world, thru foreign direct investment. So maybe one can get a bit of that emerging world mojo by investing in heavily FDI'd companies like Coca-Cola and Addidas/Soloman/Reebok.
Permalink Spinoza 
January 22nd, 2006
Buy and Hold still makes sense for lower-priced stocks.

You can't just say "1 cent spread". You also have to look at quantity. If it's a 1 cent spread, but only good for 100 or 200 shares, that doesn't do you any good if you're looking to trade 1000 or 2000 shares. Your order will still affect the market price.

Also, 2 cents on a $4 stock is 0.5%, a hefty transaction fee. Plus, if you're buying a $4 stock, the volume may be thin, you're probably buying a lot of shares, so your order is going to move the price. If you check with your online broker, commission rates are higher on cheaper stocks!

Trust me: The market makers always get their cut. Transaction costs are down nowadays, but not zero.

Plus, capital gains taxes are 20%. Suppose you buy a stock for $4 and it's now at $20. The market has to be mispricing the stock by more than 20% for you to benefit from selling. Do you really think the market is mispricing a stock by 20%? If yes, BUY OPTIONS (call or put). You'll definitely clean up if you're that sure the market is wrong!

Plus, the more you are trading, the more likely you are trading on sentiment or momentum (i.e., trading wrongly).
Permalink Anonymous 
January 22nd, 2006
I'm not the one to ask. I have a talent for picking stocks that are at their all-time highs.
:-(

So, I'm with sharkfish, and I pay the fund manager to keep up on what's good to own.
Permalink example 
January 22nd, 2006
The problem I have with stock advice is that nobody ever tells you how much money they have in the market, and how much money they have made. I had a roommate in college who was obsessed with the stock market, and spent about 5 hours a day on the "Motley Fool" investment forums. People lauded his amazing insight and took his stock picks seriously. He ended up with the Motley Fool investment forum equivalent of a green checkmark. What the other forum members didn't know was that he probably had about $4000 total invested into the stock market. When he said "buy Apple" it is because he personally bought 10 shares of Apple and made $100 from it. If you don't have about a year's salary to mess around with in the market, I hardly see how picking and choosing stocks is a worthwhile expenditure of time.
Permalink _ 
January 22nd, 2006
Some might say that starting out with small amounts is a good way to learn, especially for a college student.
Permalink Art Wilkins 
January 23rd, 2006
> real estate is actually a poor investment long term, one of the worst. Short term, it's good if you develop it and/or know the micromarket really well because of your connections.

Can you explain this? I've seen incredible appreciation of real estate in all the markets I've followed over the last ten years. I don't know how this holds up historically, but it just seems like an up-and-up curve. Note that I am talking about high value and high demand property.

I'm not questioning your wisdom (since I'm a bumbling idiot investment wise) but I'd like you to elaborate your comment.
Permalink jz 
January 23rd, 2006
My parents bought their house for around $20k in the 70's and sold it for well over a quarter of a million a few years ago. That sounds like a decent investment to me, even if they ended up paying $40k for it because of their 30 year mortgage. This, of course, could be market dependant.

Emerging markets are always going to perform better than mature markets, but they're more volatile. It's really little different from small cap vs. large cap stocks. A company with $1 million in holdings takes less time to double their value than a Microsoft, but if Microsoft lost $1 million you'd barely notice the difference, whereas the other company would be gone.

As for speculating, just look at whatever you think is going to be hot in the next 5 years that isn't obvious to every other investor in the world. Buy it like you would buy a product - see what has the best features, but isn't on everyone's lips.

A few years ago, I went studio monitor (professional speakers) shopping, and came home with a brand called M-Audio. The reviews for the product were so-so, but I thought they sounded great, and their price was half the nearest competitor. They also had a line of keyboards & digital controllers.

Fast forward to today, they were bought by Avid, which is one of the biggest names in the industry (Star Wars was probably cut on an Avid), and their products integrate with ProTools, which is the top brand for digital recoding studios.

Similarly, a friend of mine was big into this recording program called Cool Edit Pro. I tried it out and I liked it a lot, it didn't integrate with all the big name programs, but was focused on accuracy in a way the other software wasn't (they were all still trying to emulate a hardware/analog interface). I also heard they were the program used by Clearchannel, the largest radio station owner in the country.

Flash forward again, and they were bought up by Adobe and the product now goes by the name of Adobe Audition. It's the same as it was before, but now it integrates with all those programs I was just talking about. (I'm still waiting for them to ruin it with bloat.)

Or the recording studio in Brooklyn that was the only place you could buy Red Bull in 1998...

It's that kind of personal experience you should be looking for in your speculation. An underdog that you believe makes a quality product that's missing very few ingredients (mostly reputation) before it can play with the big boys.
Permalink MarkTAW 
January 23rd, 2006
Buy Under Armour (UARM)
Permalink Yo! 
January 23rd, 2006

This topic was orginally posted to the off-topic forum of the
Joel on Software discussion board.

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