1 month NOOB INVESTING update

[vindikation]

[ QUOTE ]
Vind-

You should be maxing out your 401K contribution because the gov't is picking up part of the tab.

[/ QUOTE ]

Well if this was money that I didn't want to use in the immediate future I would. But I want to have access to this money (buy a house, reinvest etc) and with the 401K once it goes in, it doesn't come out until I'm 59 (24 years from now). Plus my company doesn't match. If they matched, then I'd max it out because of the "free" money.

[midas]

You seem to have some excess funds around and unless you've got a great pension plan (rare) you need to start maxing out the 401K. A great time to make this adjustment is when you get a raise, suck it up and allocate it all to the 401K. After a while you won't notice the impact and you'll be building a large tax deferred retirement portfolio.

[vindikation]

I need to save my money to buy my first home, retirement is second on my list of things right now. I'm just happy I'm throwing something in there every year. After I get a home then I'll start thinking about putting more money in the 401K & ROTH IRA.

I sold DELL, SNE and OSI today. A total loss of $250 leaving me $4750 to dump into my 3.5% money market account (with the $38,000 currently sitting in there). The 7-8% loss rule from "How to Make Money in Stocks" came in very handy. It's a great book, I'm reading it through a second time right now. I'm going to wait a while before I jump into the stock market, though. The market seems to be a little crazy now, plus I don't know wtf I'm doing anyway. Man, I have a lot to learn...

[DesertCat]

[ QUOTE ]
I need to save my money to buy my first home, retirement is second on my list of things right now. I'm just happy I'm throwing something in there every year. After I get a home then I'll start thinking about putting more money in the 401K & ROTH IRA.

I sold DELL, SNE and OSI today. A total loss of $250 leaving me $4750 to dump into my 3.5% money market account (with the $38,000 currently sitting in there). The 7-8% loss rule from "How to Make Money in Stocks" came in very handy. It's a great book, I'm reading it through a second time right now. I'm going to wait a while before I jump into the stock market, though. The market seems to be a little crazy now, plus I don't know wtf I'm doing anyway. Man, I have a lot to learn...

[/ QUOTE ]

True. You should read "The Intelligent Investor" by Ben Graham. He would only classify some of what you are doing as "investing" (the mutual funds & money market). Your stock purchases and following the silly 7-8% rule is "speculating".

[Ed Miller]

[ QUOTE ]
[ QUOTE ]
I need to save my money to buy my first home, retirement is second on my list of things right now. I'm just happy I'm throwing something in there every year. After I get a home then I'll start thinking about putting more money in the 401K & ROTH IRA.

I sold DELL, SNE and OSI today. A total loss of $250 leaving me $4750 to dump into my 3.5% money market account (with the $38,000 currently sitting in there). The 7-8% loss rule from "How to Make Money in Stocks" came in very handy. It's a great book, I'm reading it through a second time right now. I'm going to wait a while before I jump into the stock market, though. The market seems to be a little crazy now, plus I don't know wtf I'm doing anyway. Man, I have a lot to learn...

[/ QUOTE ]

True. You should read "The Intelligent Investor" by Ben Graham. He would only classify some of what you are doing as "investing" (the mutual funds & money market). Your stock purchases and following the silly 7-8% rule is "speculating".

[/ QUOTE ]

I don't know exactly what the 7-8% rule is, but could you think of an equivalent 7-8% rule for poker that would be sound? If not, I urge you to question it for securities as well.

[squiffy]

I don't believe in the 7-8% loss rule. And I can give you specific examples from past purchases, that first went down, then way up.

ODP, MCD, HD, NOK

Buffett has some specific quotes on how sometimes you have to be willing to watch a stock drop a lot, before it goes back up.

[Sniper]

[ QUOTE ]
I don't know exactly what the 7-8% rule is, but could you think of an equivalent 7-8% rule for poker that would be sound? If not, I urge you to question it for securities as well.

[/ QUOTE ]

Ed,

With all due respect, this is bad advice for stock market traders/investors. (Unless you are advocating a smaller stop loss) You must have a stop loss, if you hope to make any money long term from the market.

The 7-8% rule, to cut your losses short, comes from William O'neill. "The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you're wrong."

FWIW, as an active trader, I use a 1-2% stop loss rule! This is a very common rule for traders.

As for Poker... You must know when to fold 'em!!! It's all a matter of discipline and patience.

[Sniper]

Borrowing a bit more from William O'neil (How to make money in stocks 3rd ed - p96-97)...

Are you a Speculator or an Investor?

There are two often misunderstood words to describe the kind of people who participate in the stock market: speculator and investor.

When you think of the word "speculator", you might think of someone who takes big risks, gambling on the future success of a stock. Conversely, when you think of the word "investor", you might think of someone who approaches the stock market in a sensible and rational manner. According to these conventional definitions, you may think it's smarter to be an "investor".

But Baruch defines "speculator" as follows: "The word speculator comes from the Latin 'speculari', which means to spy and observe. A speculator, therefore, is a person who observes and acts before [the future] occurs." This is precisely what you should be doing; you should watch the market and individual stocks to analyze what they're doing now, and then act upon that information. Jesse Livermore, another stock market legend, defined "investor" this way: "Investors are the big gamblers. They make a bet, stay with it, and if it goes wrong, they lose it all." After reading this far, you should already know that this is not the proper way to invest. There is no such thing as a long-term investment once a stock drops into the loss columns and you're down 8% below your cost.

These definitions are a bit different from those you'll read in Webster's Dictionary, but they are far more accurate. Keep in mind that Baruch and Livermore at many times made millions of dollars in the stock market. I'm not sure about lexicographers.

[midas]

I'll throw my definitions in:

Speculators/Traders - short term (< 1 year) profit takers using limited amounts of information that will be relevant in their time frame.

Investors - long-term (>1 year) profit takers who do complete analysis using all available information of an opportunity before making a decision.

Suckers (99% of the population) - Anyone who plays the grey area between speculation and investing.

[DesertCat]

[ QUOTE ]


Ed,

With all due respect, this is bad advice for stock market traders/investors. (Unless you are advocating a smaller stop loss) You must have a stop loss, if you hope to make any money long term from the market.


[/ QUOTE ]

It may be bad advice for traders, but it's good advice for investors who understand value.

Fundamental analysis tells you what a stock is really worth. You will only buy it at a substantial discount to that value (Graham's "margin of safety"). If the stock gets cheaper after you buy it, why would you sell it? You will either hold or buy more.

The only exception is if you recognize a mistake in your fundamental analysis. If you suddenly realize your stock is actually worth less than the current price, well of course you sell it. You would do that whether it's gone up or down, though.

If you understand fundamental analysis well, and use it properly, stop losses are just a way to get traded out of your best positions during brief periods of price weakness.

If you don't understand the true value of what you are investing in, a stop loss is only partially protecting you from yourself. The only full protection is an index fund, cause you shouldn't be buying individual stocks.