Newbie wants to learn the game

[rdale]

I am considering starting to invest in the stock market with part of my poker bankroll. I intend on sticking a good chunk in index funds, but want to learn to wisely buy and sell individual stocks as well with a smaller chunk of my stock market bankroll.
What would be some good starting points to wising me up, recommended sites and literature, etc? Are there play money stock market games to practice with online, that charge the trading fees and accurately represent real world trading conditions? I'm sure there is a bunch of technical terms and concepts that I need to study before throwing money at the market, but need to know where to start my education.

[Non_Comformist]

I strongly recommend The Intelligent Investor by Benjamin Graham.

As for an index fund I like the S&P 500 ETF, it has much lower fees than standard mutual funds.

[rdale]

Thanks, do you post as Blade at UPF? Seems like I recall seeing similiar posts to yours there.

[Non_Comformist]

/images/graemlins/smile.gif

[JTrue]

I was also thinking about investing part of my bankroll in an index mutual fund, but nothing too volatile as I don't have that much risk tolerance. I had a quick question though, seeing as right now I do not have 1,000 to put straight into a fund is there anyway I could put around $500.00 in one and then pay every month until I get to the minimum that has to be invested. Or should I just save up the 1000.00 and drop it in in one lump sum? If this can be done what financial institutions offer this?

[Non_Comformist]

Many funds will let you forego the initial minimum amount and instead invest as little as $50 every month.

[JTrue]

Ok, Thanks

[BadBoyBenny]

JTrue,

What is the estimated time period you plan on keep your money in the proposed investment?

If less than 3 years and you really have a low risk tolerance, SPY (or any equity fund) might not be for you. If more than 10 years it most likely is your best bet. Anything else and you probably need to provide more info.

If you clarify your definition of not much risk tolerance and holding period, there are several people here who could give you much more customized advice.

By clarifying risk tolerance I mean something like

I would lose my stomach and think of getting out investing if...

1.)My investment was down after 3 months from buying it...
2.)My investment was down more than 10% at some point after buying it
3.)My investment was down more than 10% 2-3 years after buying it or down 25% one year after buying it.
4.)Never - Those Wall Street guys and CEO's are so smart they're guaranteed to make me money in the long run. (joking)

[schroedy]

I would never be down 10% from any price my investment had ever been at during my hold. Period.

It is sorta like Annie Duke's 30 big bet rule (actually Howard's rule). If the stock is 10% less than what it once was its time to sell. Something is going on that I don't understand.

[Non_Comformist]

I'm not sure investing in the market would be right for you then. Don't take this as a critism either, everyone has a different tolerance but even the most diversified and least risky market investments could lose 10% without being sell worthy. Besides using this logic will most likey result in you buying high and selling low. I look at decreased as reasons to buy and I don't think I am alone.

[schroedy]

I do OK. I just don't get married to my judgment.

Also, I am a swing trader, not an investor. My time frames are short. You are about to give me a lecture about not being able to time the market. Thanks.

[Non_Comformist]

That is a completely differnt ball game and one i know nothing about. With that my thoughts

From what I understand many make money trading in a bull market and most lose money in a bear market.

I read a article which based on a study concluded that during the day trading freazy of dot com era many traders showed a profit on the trading alone, however the overwhelming majority where grossly unable to overcome the commissions. I suspect this is similar to marginally good players and the rake.

I would love to hear more about what exactly you do. Investing/trading in general fasicnates me

[BadBoyBenny]

I was under the assumption that JTrue would not be trading in and out but buying and holding. Also that he would be buying a mutual fund or ETF, not individual stocks. Any market average can go down 10% even 25% in a year. Some people would say that a big price drop makes an index a better buy than something you should be running away from.

[adios]

Originally you wrote:

[ QUOTE ]
I would never be down 10% from any price my investment had ever been at during my hold. Period.

[/ QUOTE ]

and then:

[ QUOTE ]
Also, I am a swing trader, not an investor.

[/ QUOTE ]

Perhaps in the first sentence I quoted you should have substituted the word "trade" for "investment."

[RocketManJames]

I also swing trade, but with a very small portion of my portfolio.

When you say you'll NEVER be caught down 10% in any of your positions, I'm surprised. Do you mean to say that if you hit a loss of 10% or more, you exit (which often means you exit at a 10+% loss)? I know that IBD recommends the 6% loss rule.

Unless you trade around earnings events, 10% hits will happen. No one bats a thousand, and every so often you're holding onto some stock in a company that just announced bad earnings. That often leads to greater than 10% drop. And when that happens, I often will wait for the dead-cat bounce before I exit. Not always, but often enough.

As for investing for the long-term, 10% happens OFTEN. As long as you stay diversified, and scale into your positions carefully, no big deal.

My thoughts anyway.

-RMJ

[Non_Comformist]

/images/graemlins/cool.gif

[schroedy]

A swing trade is a short term play on technical indicators. I am not married to closing out all my positions at the end of each day. But I expect most positions to reach their potential within 2-5 trading days. If I am in a winning position, I often re-evaluate and hold (again using a mental stop against ANY retracement). I use MACD, Relative Strength Indicators and historical price turning points as support/resistance.

But I honestly believe that it really does not matter where or why I put on a position. Where I make money, or avoid losing it, is in how I react to what happens after the position is opened ("Let your winners run, cut short your losses"). Two paradoxical statements rule my philosophy: 1) "The market is always right." For whatever reason, the last seller saw fit to sell at the last price and the last buyer saw fit to buy at the last price. That is the value for that instant. 2) "So long as there is a market, the market is always wrong." Whatever the last trade was made at, at some point in the future a trade will occur at a higher or lower (or both) level. The seller could have waited and got more, the buyer could have waited and paid less. There is a mystical quality to operating between these two contradictory absolute truths (again, somewhat akin to poker).

I have no problem whatsoever taking a 10% loss on a trade. I got to this state by taking a complete loss of my bankroll (twice -- both times after running it up over 5 times multiple) because I did not want to "take a loss." Losses are a part of the game and have to be managed with everything else. I actually am something of an IBD disciple, so I start thinking about getting out at -6%, like they say. But I am stone cold committed to not taking any 10% losses.

And yes I should have said "trade" not "investment." I was using investment in the sense that a poker player invests in pocket 9's or similar. Something good could happen, but not always.

Right now, I am long LEXR @ 9.30 on what I thought would be a temporary retracement after a MACD crossover buy signal on the daily chart. So 8.37 is the absolute max limit to my pain. But I am already wondering if I am beat here. I probably should have taken my loss when it broke today off a flat at 9.30 (where I bought) and downward. Already the hand is developing in a different manner than I expected (hoped?).

We will see.

One interesting thing about trading contrasted with poker. In poker, you must physically put more chips in play to compound the loss. Total passivity ends the loss at prior bet amounts. In trading you must actively terminate the position or your losses will automatically compound. This makes trading a very difficult profession for most people, and near suicide for those who are highly reluctant to have the word lose apply to ANY of their activities.

OK -- enough now. It's not like I am Warren Buffett or even Bill O'Neill. I make approximately as much trading as I do playing poker and together that is a little more than half as much as I make at my "real job."

My long term (retirement) funds are in actively managed (by me) distressed real estate secured debt assets (tax liens, charged off credit accounts of homeowners, defaulted mortgage notes, etc.). Enough about me, what do you think about me? /images/graemlins/tongue.gif

You really have to do what suits your style.

[Non_Comformist]

very interesting. Definently not for me but good luck in the future. Thanks for the education

[adios]

Thanks for the elaboration. I always enjoy reading other people's perspectives and styles.

[BadBoyBenny]

I could never do what you do, but am fascinated by it.

I especially like this part

1) "The market is always right." For whatever reason, the last seller saw fit to sell at the last price and the last buyer saw fit to buy at the last price. That is the value for that instant.

2) "So long as there is a market, the market is always wrong." Whatever the last trade was made at, at some point in the future a trade will occur at a higher or lower (or both) level. The seller could have waited and got more, the buyer could have waited and paid less.

It's a very profound (I say that because it's short and sweet but simplifies a lot of various concepts). It's hard to see how the market is so liquid when each of the billions of trades in the various markets in the market involve one person thinking there is no better place I can find for this money I am investing than in this security, and another is thinking that there are som many better places for my money that I am willing to pay trading fees to no longer own this security.

Of course this is a gross oversimplification of the myriad of reasons for buying and selling stocks, but in most liquid companies, my guess is that many of the buys are not for something like diversification or done by an index fund, and most of the sells are not from retirement withdrawls or some other personal reason that ignores valuation. I think an investor can avoid a lot of mistakes by taking several hours to seriously consider the sell or short position of a company they are buying. Almost every stock is sold short by someone.

I also like your poker references and think it would be real interesting to see a type of game where someone could offer to cash out of a pot for a fraction of what they paid into it when they knew they were behind. It would be a lot more like the markets.

For the record my style is an attempt to buy something for 80 cents or less on the dollar (my percieved dollar of course) and hold it until its worth at least $1.10. This is also risky as I need the arrogance to believe that I can perceive value better than the average stockpicker (who is most likely a professional).

[JTrue]

[ QUOTE ]
What is the estimated time period you plan on keep your money in the proposed investment?

If less than 3 years and you really have a low risk tolerance, SPY (or any equity fund) might not be for you. If more than 10 years it most likely is your best bet. Anything else and you probably need to provide more info.

If you clarify your definition of not much risk tolerance and holding period, there are several people here who could give you much more customized advice.


[/ QUOTE ]
I would hold for as long as possible(1-10yrs), when I say not much risk tolerance I pretty much meant I don't want to put money in a sector fund or equity fund with high volatility, I was thinking about a fund that replicates the S&P 500. Thanks

[BadBoyBenny]

By the way RDALE, the thread kind of got off subject of what you orignally asked for...

The question of what to read has been asked and responded to many times before. Search the archives for a longer list. Here is my idea of where to start.

1. A Random Walk Down Wall Street - Read this before making the decision to jump into individual securities. If you still think that the market may be inefficient and you may be able to exploit it go on.

2. The Intelligent Investor - Already recommended by Non-Conformist, but worth repeating. My version has in its appendixes an essay by Warren Buffet that is a very compelling arugement against the efficient market theory. If you want to get into heavier Benjamin Graham after reading this one, Securities Analysis is a more thorough and sepcific book on individual stock analysis.

3. Common Stocks Uncommon Profits. In this classic, Philip Fisher lays out the other half of the modern day value investor's mindset. A good compliment to Graham and a more business less price focused read on investing.

4. One Up On Wall Street by Peter Lynch. Another classic, teaches you how to turn info you already know about businesses or products into successful investing ideas.

5. Warren Buffet's shareholder letters. They are candid, insightful and free. It doesn't get much better than that.

http://www.berkshirehathaway.com/letters/letters.html

If you are looking for info on technical analysis you'll have to hope someone else responds.

[winchem21]

Another excellent read is Robert Shiller's "Irrational Exuberance"

There are routinely differences between what a stock is worth and what people are willing to pay. Identifying these, buying and holding 1-3 years is a proven advantage play that also minimizes taxes.

Day trading appears to be less of an advantage play for retail investors; it is difficult to compete with those who do this for a living. The tax system rake on trading profits is much greater than those for long-term investments.

Holding equities in a margin account provides necessary cash for playing requirements and allows bankroll equity to remain continuously invested. Average investment returns of 15% are very doable as Benjamin Graham has shown. It does not make sense to sell stocks for playing capital; better to remain invested and to take advantage of the after-tax margin interest of 3% currently available.

Sizing playing bankroll to 20% of equity margin prevents margin calls even during down markets where 50% price decreases can occur. Winnings are used to purchase more equities or to repay earlier losses that required drawing on margin.

Due diligence in picking equities can result in higher than 15% returns; there is pleny of available info that can be sifted through to find values. In today's market--particularly for the biotech sector--there are a number of very overvalued and undervalued stocks.

Patience and understanding that stock price swings are often significantly influenced by psychological factors help in dealing with market fluctuations. Investing for high returns comes with it a high degree of portfolio value fluctuation.

wc21