Help me invest

[J_V]

Hey guys. I am going to invest 15K. I am 23 years old, the money is not chump change to me, but if I lost every penny of it, it wouldn't change my lifestyle.

I think this means I should be pretty aggressive. I have time to build it up. I guess it's a little like taking a poker "shot."

I am a newbie investor. I did graduate in Finance, but they haven't taught me much I could use. I never quite understood how to gain an edge (without inside info). Seems to me that most investors think like this...."I'll buy the com Nissan cause the Z is selling well." Well duh, that's alright factored into the price. Or, "I'll buy the company that is going to produce "Lord of the Rings" cause thats gonna gross a lot." Hmmm....doesn't seem like that's an edge. It violates one of the Sklansky rules for making a bet too (information asymmetry). Ok....does anyone have a decent blueprint for me to get started or some individual securities to buy? I don't have the time or knowledge to pine over financial statements yet. And some of you are incredibly versed in the financial markets. Figured one of you would be nice enough to give me some free consulting.

Thanks guys!!!

[Mark Heide]

J V,

For some free investment information about stocks, bonds, and others, go to www.quicken.com (http://www.quicken.com) for information. They have investment strategies and systems to use. I like the Robert Hagstrom's "The Warren Buffet Way" here's a link to there stock picks:

http://www.quicken.com/investments/strategyexperts/?strongpicks=hagstrom

For bonds and other capital preservation investments I rely on my financial consultant for some advice at Smith Barney.

Good Luck

Mark

[palm3535]

Buy the Exchange Traded Fund - Nasdaq 100 - Symbol QQQ
You don't have to worry about bad news on a specific corporation because its a basket of the top 100 companies in the US (mostly but not all in HI TECH).

You should also look into writing covered calls once you
buy the stock. If you don't know what covered calls are
put the money in a mutual fund! GOOD LUCK!

[adios]

"Hey guys. I am going to invest 15K. I am 23 years old, the money is not chump change to me, but if I lost every penny of it, it wouldn't change my lifestyle. "

That's certainly investable money. A lot of people would say 15k isn't that much but with online brokers today, commissions are fairly low so I think 15k is fine. Scottrade for instance does market orders for $7 a trade. Even if you bought a $1000 position $7 isn't that bad.

"I think this means I should be pretty aggressive. I have time to build it up. I guess it's a little like taking a poker "shot."

I think so too.

"I am a newbie investor. I did graduate in Finance, but they haven't taught me much I could use."

Probably can use some of it. I've found knowledge of accounting and economics very useful.

"Seems to me that most investors think like this...."I'll buy the com Nissan cause the Z is selling well." Well duh, that's alright factored into the price. Or, "I'll buy the company that is going to produce "Lord of the Rings" cause thats gonna gross a lot." Hmmm....doesn't seem like that's an edge. It violates one of the Sklansky rules for making a bet too (information asymmetry)."

Yep hard to argue with that. One thing Ray has pointed out many times is that there are many stocks that don't have a lot of analyst coverage and these present opportunties because they aren't widely followed. I started a thread about the "neglect effect" where a study was done on performance vs. analyst coverage. The study found that the performance of a stock was inversly related to the amount analyst coverage it had. Stocks with no analyst coverage performed the best. Many argue that the stock market is totally effecient but I don't buy it. I think inefficiencies do occur and some persist for quite some time. I believe that some repeat themselves fairly consistently as well. You have to be kind of a market junkie though to take advantage of them but I do know people who do.

"Ok....does anyone have a decent blueprint for me to get started or some individual securities to buy? I don't have the time or knowledge to pine over financial statements yet. And some of you are incredibly versed in the financial markets. Figured one of you would be nice enough to give me some free consulting."

I like stock screens and a "shot gun" approach as opposed to a bottom up, "rifle" approach most of the time. A shot gun approach would involve spreading my bets out among many that fit my criteria after doing some not too exhaustive analysis of the individual issues. Better make sure you're screening for the right things. I've been harping and cheap stocks with decent yields. I did screens on say stocks yielding 8% or greater trading at 1.2 times tangible book value or less. I've posted many picks using this approach including a model portfolio. One caution though is that now these aren't nearly as cheap as the used to be /forums/images/icons/grin.gif. A few other things to keep in mind IMO,

1. Have some sort of idea what a good entry and exit point should be.

2. Realize that many stocks are very volatile in price. So volatile you can't really imagine how volatile. This kind of volatility is not that unusual especially in small cap tech stocks. The name of the company is First Wave Technologies, symbol FSTW. I originally bought it at $15. After buying it it promply went to about $9.25 in a week. I bought some more at $10. In a month it hit an all time high of $20 and change. I bailed before reaching it's high at $17. Yesterday it did it's quarterly earnings report. Basically came inline with expectations on revenue but missed the earnings number the one analyst had posted. Stock went down to $13 yesterday from $20. Today it touched $12 and finishised at around $13.50. Now this has happened in a matter of about 5 weeks. The message to me is that you will need a lot of confidence in the company's business model and their future prospects to put up with owning it on a buy and hold basis. So I'd recommend trying to get a handle on how well you do handle volatility and if you don't handle particularly well (it's hard to handle if your not very knowledgable about a company) look for low beta stocks. beta is a measure of volatility.

3. Be willing to form your own ideas and use them even if you don't get confirmation from other investors and traders.

4. Try to get insight from other traders. One of the best places I know of is the TEI message board on Yahoo.

5. One personal insight is that I've found that financially related stocks present decent opportunities but it's hard, at least for me, to understand their business models (I've received a great deal of help on the Yahoo TEI board) but once you understand it if the company is in a good niche they make money consistently. Tech stocks like CSCO and MSFT have business models that are fairly easy to understand but making sales forcasts as well as prediciting other economic events is difficult.

Just some thoughts, hope it helps.

[sizeup]

Hi JV, I'm a professional equity trader and have been a full-time market pro since 91. A few comments for you-
1. Its good that you are thinking about your risk tolerance, time frame, and performance goals. That is a big step in steering your portfolio towards asset classes that make sense, higher vs lower risk, equities vs bonds, etc.
2. In my experience, it is hard to get an edge without considerable time and hard work. If you don't have the time or inclination to do that at this point, I would not recommend individual stocks. Instead, for your equity allocation, choose mutual funds or exchange-traded funds like SPY, QQQ, etc. Of course you can make or lose money based on luck/fluctuations, but if you want to have +EV that is hard to do without a lot of work. So you can choose a mutual fund manager that you think has an edge, or look to achieve the market return with an exchange-traded fund. If you decide to look at mutual funds you can research them at morningstar's web site.
Good luck!

[MaxPower]

J_V

Let me suggest that you take $3000 of that money and put it into a Roth IRA (If you are in the US, that is). First check to make sure that you are eligible to contribute to a Roth IRA, if not you can put it in a traditional IRA.

With the Roth IRA you will never have to pay capital gains taxes on your investments. You cannot take the money out until you are around 59 years old. However, you can take the money out without penalty if you are buying your first home.

Since you don't know much about investing right now, I would suggest you put your money into either a no-load index fund or a spider that tracks the Nasdaq or S&P 500. Then go out an try to learn as much as you can about investing. When you are ready to begin buying individual stocks, you can take you money out of the index funds.

There are some excellent books on investing and many bad ones. For someone who is just beggining to learn, I would recommend "A Random Walk Down Wall Street" by Burton Malkiel or any of Peter Lynch's books.

[adios]

There are more than a few people who feel that the QQQ, SPY and DIA (symbols for Nasdaq 100, S&P 500, and Dow Jones Industrials exchange traded funds respectively) are way overvalued so perhaps you might consider selling them short (half kidding). I know the replies will be that the long term bias to the stock market is up but that's over a period of many, many years. If I can get a link to a graph showing the markets long term history and why this might be true i.e. the indexes are overvalued I'll post a link to it. There have been long periods of time where the market moved sideways to down. Also I believe that bonds have outperformed stocks since the late 90's. So I'm kind of at a loss why the blanket advice seems to be buy an index. I particularly wonder about the QQQ where by any measure that I can think of, it's not cheap. With the economic numbers that are coming out (1st qtr GDP and employment) I can't see a big pickup in business investment spending happening anytime soon as this is what it take to drive NASDAQ company earnings higher. I'll concede that companies have done a fair amount of cost cutting in many areas but top line growth seems pretty bad to me. I don't see where they, the indexes, are particularly cheap. That's not the aggressive approach that I believe JV was looking for. Any comments scalf, wildbill, ray, and Mark?

[gunbuster]

$15K is a good amount to invest. First things first, don't invest it all in one shot. Don't time the market, instead, invest it in chunks over the year. This way, if the market drops, you'll take advantage of the dollar cost averaging. If it goes up, well, you've gained anyway.

Real investing happens with measured risk and occurs over a long period of time. Anything else is gambling.

One thing you should consider, if its available to you, is to take advantage of 401k or other retirement plans that are available to you. Especially if the company will match. That's like getting an instant return right there!

[GeorgeF]

I suggest that you get a subscription to the Wall street journal and read "a random walk down wall street" (probably at your library).
also:
www.berkshirehathaway.com (http://www.berkshirehathaway.com) (letters to shareholders)
www.realmoney.com (http://www.realmoney.com) (subscription)
www.andrewtobias.com (http://www.andrewtobias.com)
www.fallstreet.com (http://www.fallstreet.com) (subscription)
www.forbes.com (http://www.forbes.com)
www.fortune.com (http://www.fortune.com)

As to your $15K a no load bond fund from www.vanguard.com (http://www.vanguard.com) might be a good idea for a year or so until you have an idea as to what's going on. I personally have most of my money in bond funds GIM FAX FCO TEI vanguard TIPS. I am betting that the dollar and interest rates will decline. If the economy falls apart and you use your 15k to buy a foreclosed property; you may even make your fortune that way.

Another thing to think about is every hour you spend investing you could be earning money. Trying to turn 15k into a fortune will likely take alot of time that you could have spent earning money and cost you your 15k.

Finally if you are 23 you have many years ahea of you. The best investment may be in yourself. Think about what you would need to get a promotion where you work. Would better clothes/style make you look more promotable? Would buying the right people drinks after work help? How about one of those http://www.dale-carnegie.com/ courses? I don't know, only you do. My guess is that 15k spent in the right ways at 23 could return a million $ over your lifetime easily.

"but if I lost every penny of it, it wouldn't change my lifestyle."

If you really believe that you are either a "trust fund kid" or naive.