Starting Out

[tommy2]

I am just out of grad school and able to put a couple hundred bucks aside each month. I have been buying Berkshire Hathaway B in $250 increments through Sharebuilder.com I am doing this after tax since I am not eligible for our 401K for another 6 months. I am in real estate development, but don't really follow the public markets too much. I figure that this is a good way to get started. I don't have any need for this money any time soon. Thoughts?

[Evan]

What thoughts are you looking for? Berkshire is a good company (did anyone not know that? In case you didn't, it is). Do you want tips on how to become involved in public markets?

[AceHigh]

Buy a couple shares of ebay each month.

[laserboy]

Open a Roth IRA. Contributions to a Roth IRA are made after tax, but earnings in the account grow tax free. Earnings cannot be withdrawn until you are 59 without penalty, but you can withdraw your CONTRIBUTIONS at any time penalty free. You can also withdraw money for certain expenses like education and a down payment for a house. However, because of the tremendous tax advantages, you should probably view it as a retirement account and leave as much money in there as possible.

The contributions limits for the Roth IRA are $3000 for 2004 and $4000 for 2005. You have until April 2005 to make the contributions for 2004. You can open one at most brokerages.

Another thing... at $250 per transaction, it is very difficult to outperform the market purchasing stocks when taking transaction fees into account. If it costs $10 to buy and $10 to sell, that is already a signicant percentage of your capital that you need to make up for. Investing that amount of money, I would consider purchasing no-load index funds. This has the added benefit of diversifying your portfolio as well. Look for funds with low expense ratios such as Vanguard. If you insist on investing in stocks, consider saving up more capital and purchasing in blocks of $1000 or more.

I would be very conservative about what you invest your money in right now. FWIW I think Berkshire Hathaway is a fine investment.

[AceHigh]

[ QUOTE ]
I would be very conservative about what you invest your money in right now.

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Why would you be conservative? Wouldn't someone just starting out want to be aggressive?

[GeorgeF]

These are funds you should consider that invest large amounts in BRK.

Mutual fund:
Sequoia (SEQUX): http://finance.yahoo.com/q/hl?s=SEQUX
Weitz: http://finance.yahoo.com/q/hl?s=WVALX
Contra: http://finance.yahoo.com/q/hl?s=FCNTX

http://www.lionshares.com/details.cfm?SEARCH=mutual&cusip=084670108&SID=DSUD 001%204018205659012122004150001%20%20%20%20%200XXX XXA0D61418E8A8C584E1EBF77F29DB5897&PID=

Exchange traded: BTF BIF
http://www.cefa.com/scripts/fundstat.asp?id=BIF&d=1
http://www.cefa.com/scripts/fundstat.asp?id=BTF&d=1

If you choose to buy BTF or BIF go to www.cefa.com (http://www.cefa.com) and educate your self about closed end funds and what 'discount/premium' is. No matter what you buy go to www.sec.gov (http://www.sec.gov) and look at disclosures (last annual statement). Make sure you know what the fund expenses are and the effect on investment returns.

Given the large number of working years you have ahead of yourself, investing in yourself and ways of increasing your earned income would be your best bet. Spending $250 on cloths or drinks after work with the 'right' people might turn to have the best return on investment.

I personally am not impressed with the sharebuilder concept and would avoid it. consider www.freetrade.com (http://www.freetrade.com) if commisions are an issue.

[laserboy]

Honestly? My advice is based on my views of the US economy and stock market, not on his investment horizon. Stocks are grossly overvalued right now by just about any historical measure. The economic "recovery" is being fueled by a massive consumer credit bubble and short-sighted monetary policies that are, in the long run, unsustainable. I wouldn't invest a lot of money in the stock market right now unless I really knew what I was doing.

I give the original poster a lot of credit for acknowledging that he is not yet a master investor, and instead delegating that responsibility to someone else (Warren Buffett) until a time when he does become more knowledgable.

[AceHigh]

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My advice is based on my views of the US economy and stock market

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The US economy is doing pretty well isn't it? GDP rose 3.9% for the 3rd quarter. The Fed has been raising the interest rates because they feel the economy is recovering.

[tommy2]

First of all, thanks to all who commented--there were some good ideas generated. I will open a Roth IRA this year and put my money into it. That should eliminate some of my tax concerns.

As to transaction costs hurting my returns: I hear ya. My thought is that this ends up being more like a forced savings program for me. I set it up and am able to put this money in without thinking about it too much. I like the Sharebuilder concept personally, it allows me to buy into BRK without having $2,700 + transaction costs. Maybe there is something wrong with that thought process, but there is some psychological gain for me to know that I am able to put my meager money in the hands of one of the best managers around. GeorgeF I would like to hear what your specific concerns are with this concept. Maybe I am missing something.

Finally, I do spend a good amount of money on myself and my career. This is just extra dough that I would blow on eating out or other such nonesense that I would rather save.

PS At what point do I have enough money to start talking to a FA?

[GeorgeF]

If you need 10 transactions (at the basic level) to get a B share you end up paying $40 or 1% of the investment. I personally would not choose a broker that charged that kind of money. I think you are better off going with freetrade.com and saving up the $4000, then buy the BRK B share. If you need to sell the commision at sharebuilder is $16.

I personally feel that you would be better off choosing a different investment until you had the money for a B share.

[siriusradio]

save up your money.... open up an online margin account when you get 2k.

[laserboy]

[ QUOTE ]

The US economy is doing pretty well isn't it? GDP rose 3.9% for the 3rd quarter. The Fed has been raising the interest rates because they feel the economy is recovering.

[/ QUOTE ]

1) Growth in "GDP" is not the product of increased wealth or productivity. Economic activity is being propped up by massive consumer spending (which makes up most of the GDP) fueled by credit card debt and home equity financing, which will die down as interest rates rise and more high paying jobs are moved offshore.

2) 3.9% growth in GDP by itself (or whatever doctored statistic they are putting out) is meaningless if your currency is being devalued at a rate faster than that.

3) Rising interest rates serve to slow down economic activity, not speed it up (this is a very fundamental concept by the way). Particularly when you are coming down from the biggest debt bubble in the history of the United States.

4) I don't have a very high opinion of the federal reserve or what they have to say about the economy. I prefer to rely on my own research and analysis.

This is a very complicated topic and I can't really do justice to it in a few paragraphs. The short answer is - no, the US economy is not alright. There are certainly other countries in the world doing much better and growing at a much faster rate.

[adios]

[ QUOTE ]
1) Growth in "GDP" is not the product of increased wealth or productivity. Economic activity is being propped up by massive consumer spending (which makes up most of the GDP) fueled by credit card debt and home equity financing, which will die down as interest rates rise and more high paying jobs are moved offshore.

[/ QUOTE ]

Of course economic activity has everything to do with consumption. Again the long end of the yield curve is actually lower in yield now than at the start of 2004. My understanding is that the net loss of jobs outsourcing is more or less insignificant.

[ QUOTE ]
2) 3.9% growth in GDP by itself (or whatever doctored statistic they are putting out) is meaningless if your currency is being devalued at a rate faster than that.


[/ QUOTE ]

Exchange rates fluctuate. The Fed has adopted a more restrictive monetary policy and the US $ index, the DXY, is right at multi year lows which would suggest to me that at least a short term bounce in the US $ is immenent. Fundamental factors affecting the US $ such as the current account deficit are problematic though. I've noticed that the price of a barrel of oil has fallen a lot from it's highs which would indicate that indeed a more restrictive monetary policy from the Fed is being accepted by the markets.

[ QUOTE ]
3) Rising interest rates serve to slow down economic activity, not speed it up (this is a very fundamental concept by the way). Particularly when you are coming down from the biggest debt bubble in the history of the United States.

[/ QUOTE ]

To be sure about interest rates. As far as debt bubble let's define that in quantitative terms and I'm not sure what you mean by coming down. Do you mean the bubble is subsiding?

[ QUOTE ]
4) I don't have a very high opinion of the federal reserve or what they have to say about the economy. I prefer to rely on my own research and analysis.

[/ QUOTE ]

Parsing Greenspeak is always problematic /images/graemlins/smile.gif.

You make some good points but I'd say that extreme doom and gloom outcomes are low probability events and that using a crystal ball to predict markets is something that is dicey at best.

[Ray Zee]

open a brokerage account with fidelity or vangard. put money into money market account until you find a stock you like. then buy that and hold it until you find a reason to sell. dont put alot into berk. as its future will depend on the life of an old man. get as much a year as you can into ira type things. as you get older the vast amount of investments will act as its own mutual fund and you will be diversified on your own. dont buy anthing with fees attached. just buy the stocks yourself generally.
but your best investment will be your home and what you know best.

[laserboy]

There are a lot of things wrong with the US economy right now, but my basic premise is this:

The economic "recovery" has been fueled by a massive consumer debt bubble. The federal reserve has inflated this bubble further by continuing to lend money at artificially low interest rates (they have been lending money at negative interest rates in real terms for several years now). Look at this graph for a second...

Credit Market Debt as % of GDP (http://www.pimco.com/NR/rdonlyres/72E4EAA9-0BA2-4880-9A29-2D4F0D8142B7/1162/total.gif)

This type of economic "growth" is unsustainable. Even with interest rates at historical lows, bankruptcies, forclosures, and missed mortgage payments are at all time highs. These trends will only accelerate as interest rates continue to rise and wages continue to decline. When consumer spending collapses, so too will the US economy.

I cannot state my case any clearer than that.

Like another poster said, when it comes to investing, I only play AA. And the US as a whole is certainly no AA.

That's not to say you won't be able to make money in stocks. I think debt collectors and predatory paycheck loan shops will make out like bandits...

[AceHigh]

[ QUOTE ]
3) Rising interest rates serve to slow down economic activity

[/ QUOTE ]

Exactly, and Greenspan is willing to risk slowing down the economy by raising rates. He wouldn't raise rates in a recession, because he wouldn't risk slowing down the economy further.

[laserboy]

[ QUOTE ]

Exactly, and Greenspan is willing to risk slowing down the economy by raising rates. He wouldn't raise rates in a recession, because he wouldn't risk slowing down the economy further.

[/ QUOTE ]

I hate to be the one to break this to you, but Greenspan is an idiot. Giving away money to "fix" the economy as he has done is a short term solution to a long term problem.

If you think our economy is built on solid foundations and that rising interest rates are bullish for stocks, then I will just have to respectfully disagree. /images/graemlins/grin.gif

[AceHigh]

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If you think our economy is built on solid foundations and that rising interest rates are bullish for stocks,

[/ QUOTE ]

Interest rates are still low, home mortgage rates are low, and the Fed rate is still low.

You don't think the world's largest ecomony is built on a solid foundation?

Also, you talk about credit debt - do you realize those figures include any credit card debt? That means credit card debt that gets wiped clean every month shows the same as long term credit debt, like mortgages and car loans.

Who pays cash for anything anymore, doesn't everyone put the bill on there card? So this number should be much higher than it's historically been because most items are paid for on credit. Hopefully you can understand how that radically changes the value of this metric.