Any stock traders?

[GrobbeeTrull]

You guys hear about how Congress is allowed to trade with insider trading?? :-p

Quick, someone get elected and hire us as aides! We're immune to that law!

[Lyrical]

Originally Posted by Eomer

There's no "feasible" way to make large amounts of cash with little to no risk, otherwise everyone would be doing it. There's no magic bullets.

If you want guaranteed returns with little risk, they're called bonds and GIC's, and they return next to nothing.

Right. One of the most basic rules in Finance is that risk and return are somewhat proportional. So the more risk that you take, the more return you should expect. Not all risk will increase your returns, so the trick is to take on as much healthy risk that you can stand while cutting out the non-beneficial risk. So its going to be pretty hard to make decent profits with little to no risk.

Anybody telling you that you are going to make 15% a week when you buy their program (when if you made 15% a year you would be doing better that the majority of investors out there) is scamming you.

The truth is that 99% of us investors will not get rich over night, but can do so with two or three decades of discipline.

Not many people in the US want to hear this, but it is reality. In today's modern world of flipping people off that cut us off in traffic, or yelling at the microwave to hurry up, we seem to think that we can put $100 in the next get rich quick scam and wake up in a week with Bill Gates' money. This is why so many people are losing their life savings. The crooks appeal to our innate sense of greed. And by telling us the biggest lies they can, they make themselves more believable.

[James]

Originally Posted by Eomer

There's no "feasible" way to make large amounts of cash with little to no risk, otherwise everyone would be doing it. There's no magic bullets.

If you want guaranteed returns with little risk, they're called bonds and GIC's, and they return next to nothing.

Yeah yeah, I understand that, which is why I said 'too much' risk. I mean, is this something that people do a lot, or are the market differences generally so little that it could really go either way at the drop of the hat. Are there taxes or something that might discourage it? Basically just wanted to know more about it.

[xeg_IS]

Penny stocks are fun if you have some loose change lying around. Another alternative would be trading on margin. With margin you can mimic the return of penny stocks, but with more stable securities. The big drawback is that you are trading with money that isn't yours and you can potentially lose more cash than you have invested which is why you always MUST open a stop loss order right after you purchase your shares.

[Eomer]

Yeah yeah, I understand that, which is why I said 'too much' risk. I mean, is this something that people do a lot, or are the market differences generally so little that it could really go either way at the drop of the hat. Are there taxes or something that might discourage it? Basically just wanted to know more about it.

No idea, that's over my head. To me an investment that will return nicely without "too much" risk are various mutual funds. Depending on which, the risk and return go up and down. You won't lose all your money overnight, but neither will you make ridiculous returns. Buying the right mutual funds at the right time can easily net you 10-15% a year with little risk, in good stock market years. Problem is, at this moment (IMO anyway), that was from late 2002 to about now. The NYSE and TSX have both gone up a buttload in those years, but I don't see them continuing at that pace. Of course, since people are dumbasses, most clueless people doing their own investing have been dumping money into mutual funds in the past 6 months, at least in Canada, breaking records. When the market may well be at it's peak.

For example, someone (me) investing in a TSX index mutual fund (basically a fund that buys the stocks that make up the index) in late 2002 would have doubled their money in about 3.5 years: http://www.cbc.ca/business/stockChar....TSXCI&lang=EN

Not quite the same return on the Dow, since the TSX is far more heavily weight on various resource stocks: http://www.cbc.ca/business/stockChar...r=.DJI&lang=EN

Now, couple the doubling of the TSX with the huge appreciation of the Canadian dollar vs. the USD, and an American who invested in Canadian stocks with American funds back in 2002 would probably have tripled their money if they pulled it all out now in American funds.

[EnigmaticParadigm]

Here is an honest question, as I have no real experience with stocks myself:

Let's say that you invest in a company with documented success; say Microsoft. You buy a 100 block share at (let's pretend) $1000 - i.e., they are going for $10 a share.

Over the next few years, the share value goes up to $50. So, you have made $4000 on your original investment of $1000.

In the next few months, lets say that something wacky happens with Microsoft and their stock falls to $5 a share. Now, as the smart investor do you:

A. Sell off what you have and wash your hands of it before you lose even more money.
B. Hang on to the stock because with Microsoft's track record, you assume the value will climb back up.
C. See this as an awesome opportunity and buy all the stock you can at such a low price; because you know that the stocks will eventually regain their value and you'll be even better off.

or D. Fuck stocks, I'll stick with no-load mutual funds, thanks.

[Eomer]

I'd say it completely depends on the fundamentals of the company (why did the stock price tank, what are the chances of it going back up again?), whether the money is "play" money to you, or you need it to retire in 6 months, so on and so forth. There's no simple answer.

[EnigmaticParadigm]

I love this subject, but wish I wasn't so ignorant about it. I'll definately have to read up some.

The whole concept of diversifying is interesting as well, but tricky. It's not as if saving is hard enough, but putting your saved funds in several different places to maximize growth and minimize catastrophe seems daunting.

What do most of the people here save in a given month? 10% of takehome? 30%? 20% pretax? Then where do you put that percentage? Stocks, bonds, mutal funds, CDs, gold, foreign markets, real estate, futures, etc?

[Eomer]

For me personally, I've been maxing my RRSP contribution each year since I was working full time (so 2005's contribution was my 5th year). The max contribution for a year is 18% of your previous year's gross income. So already I've got a fair chunk of change squirrelled away. 2005 was the first year I had to borrow to max the contribution; I just took out what I was short on my line of credit, put it into the RRSP, and then when I got back my tax return used that to pay the line back. I was putting in regular monthly contributions prior to moving out and buying my first condo 2.5 years ago, but haven't been since (was short on cash for awhile). Instead I just kind of let my bank account climb up for a few months, then skim off the top and throw it into the RRSP.

For me personally, as of this moment about 90% of my cash is in a TSX index fund (TSX just hit another all time high today, wee), 5% in a dividend fund (banks, financials etc), and the other 5% in three stocks. Or two now I guess, with the proceeds from the sale of that penny stock sitting looking for a home. The other two stocks are a Canadian clothing chain (West 49) and a small cap financial company.

In the next six months I'm going to do a bunch of reading on this type of stuff, and move a good portion of my money out of the TSX index fund, starting to get nervous that there may be a correction coming.

[Lyrical]

Originally Posted by EnigmaticParadigm

Here is an honest question, as I have no real experience with stocks myself:

Let's say that you invest in a company with documented success; say Microsoft. You buy a 100 block share at (let's pretend) $1000 - i.e., they are going for $10 a share.

Over the next few years, the share value goes up to $50. So, you have made $4000 on your original investment of $1000.

In the next few months, lets say that something wacky happens with Microsoft and their stock falls to $5 a share. Now, as the smart investor do you:

A. Sell off what you have and wash your hands of it before you lose even more money.
B. Hang on to the stock because with Microsoft's track record, you assume the value will climb back up.
C. See this as an awesome opportunity and buy all the stock you can at such a low price; because you know that the stocks will eventually regain their value and you'll be even better off.

or D. Fuck stocks, I'll stick with no-load mutual funds, thanks.

How about E?

E. You should have had a rational target price, as well as a floor price for the stock based on the dividend discount model. Remember that the value of any stock is rationally based on the present value of all of the firm's future cash flows. So if the price even dropped to $40, you should have gone and reanalyzed your estimated present value. If the price drops below your estimate of the present value, sell. When you have this price range in place, that should guide you in when to buy and sell. That's the advice my Prof. who was the Mutual Fund Manager gave me. I can pick good stocks, but I never know when to take a loss. He says that any good Mutual Fund Manager will have a rational range that guides them when to buy and sell.

Rational investing based on fundamentals has the highest correlation of making you profits in the market. Like Warren Buffett says, he makes his profits off of people with weak hands who sell anytime they read a negative article on a company or who buy and sell based off rumors. He calls this "Mr. Market."

[Lyrical]

Originally Posted by EnigmaticParadigm

I love this subject, but wish I wasn't so ignorant about it. I'll definately have to read up some.

The whole concept of diversifying is interesting as well, but tricky. It's not as if saving is hard enough, but putting your saved funds in several different places to maximize growth and minimize catastrophe seems daunting.

What do most of the people here save in a given month? 10% of takehome? 30%? 20% pretax? Then where do you put that percentage? Stocks, bonds, mutal funds, CDs, gold, foreign markets, real estate, futures, etc?

54% pretax. I am proud of that considering the average US household hovers around 0% or -1% (by using credit cards). My wife and I spent the first few years of our marriage paying down our debts, and this has made for some extra room in our budget. When you have your credit cards and cars paid off, it really frees up more cash for investing and fun stuff. Those books I listed earlier really helped us get in this situation. I took what the books said and applied most of the principles to our everyday lives.

Anyway, 15% of pretax goes in the 401k, the rest in a bank account as I think we'll be moving on the job any week now. After the move, I will put most of the 39% in mutual funds on the side. I am considering either using the side money right now to fund my retirement or buy an existing business for additional income (alongside my job).

Not many people look at funding their retirement right now, but if you can scrape up $150 to 200k all at once and invest it until you retire, that alone should be enough to meet most of your retirement needs.

[Zaniel]

As a financial planner I rarely invest in direct stocks myself personally. I have to cover a tonne of different areas such as tax, entity structures, estate planning, insurance, debt and so on. Even though I'm in the market every day I still don't feel I have enough time and expertise to trade directly and hence use mutual funds (managed funds here in Australia). If my clients specifically want to trade direct or their situation calls for it I send them to a specialist investment adviser or a trusted private stock broker.

You need to understand the various different types of risk involved and how to diversify them away. For example a mutual fund pretty much completely obliterates stock specific risk because your average fund is usually in anywhere between 50 to 200 shares or in the case of index funds, the whole basket. However, you've then got manager risk and manager style to worry about, is the manager passive, active, value, growth, index oriented etc etc etc.

You've then got market sectors to consider (local vs international, property etc etc) and one of the most important factors of all, your time horizon.

Me personally I tend to use a wrap style account and split my money around between 3-5 funds. Having worked though the years of the tech crash and other not so fun market events I REALLY heavily subscribe to one of Warren Buffet's precepts that it's not so important when you sell but when you buy is critical. One of the biggest factors I have seen that knocks portfolios around is buying too high, most usually done to get in on a rush. IMO buying overvalued stocks is one of the most critical errors, the price has to match the fundamentals of the company or you are assuming a really big risk. If you buy a stock whose price matches its cashflow then you have already taken a big step to insulating yourself.

There are a lot of techniques and theories in the market place and practical experience will show you that each has something to offer if taken with a grain of salt. Ivory tower academics will preach purist portfolio theory and market cowboys will preach pure technical analysis. They're both blinded however. There are dozens of little pieces of wisdom to accumulate that will allow you to say "OK theory XYZ applies 90% of the time but here is the 10% of the time I need to keep XYZ in mind but also apply theory ABC".

For example one of the fundamentals of international mutual funds is that they will rarely hedge international currencies (for various reasons not important here). When I'm sitting there and the AUS$ is 48c vs the US$ I'm going to ignore conventional wisdom and make sure my client's international monies are in a fully hedged fund. I did this a few years ago and got to laugh at the conventional wisdom when the AUS$ bounced back to 78c and everyone else ate -30% losses and my clients got +50% returns.

If you really want to invest directly I would strongly suggest learning a bit of economics and market theory first before you start worrying about which shares to buy. Remember it's more important to avoid large mistakes than it is to try for large potential gains, you've got to be informed and have patience.

Not to mention if you haven't mastered planning, saving, debt management, budgeting and generally "living below your means" then you probably haven't mastered the level of maturity and patience need to be a direct share investor.

One last thing, please don't pay any attention to the hot stories. In a market place as big as today's current world it's possible for Johnny Retard to luck his way into a big score but what you don't hear about is how Johnny went on to lose his house and fortune two years later. It's also possible for Gerry Genius to pull in big recurring returns. Just remember that the ratio of one to the other is really really high and that your next move is quite likely to be the JR not GG maneuvre.

[Zaniel]

As for saving it varies per person but if you can't afford to put away 10% of pretax in retirement savings and 10-15% of post tax in current savings then you have to look at being in trouble. After doing many many hundreds of budgets for retail clients including people from barely above the poverty line to wealthy business owners I can guarantee you that anyone who was spending more than 10-15% of their pre-tax income on "the good life" ie luxuries, holidays and such was not accumulating wealth at the rate they should. This didn't matter how relatively wealthy the person was, it applied just as readily to the 500k a year doctor as the 25k a year starter.

As a single person with a good income I put around 25% pretax in the Australian version of a 401k and save about 30% of my post tax savings in current investments. Our tax laws are different to the US however and I'm a somewhat extreme example.

Even if you're not an investor, and only on $25k a year saving just $200 / month will put you in a more comfortable, stress free life than most idiots. You'll live a life that doesn't consist of counting your coins to see if you can afford a night out.

[Lyrical]

Originally Posted by James

*Screeeech*



What's all this about? It's from a thread in the MMO general section, but I thought it more fitting for here. Is this a feasible way to make cash without too much risk?

James, this would be an example of arbitrage.

http://www.fohguild.org/forums/mmorp...-dont-ban.html

Too bad that, like in the real world, a government (or in this case a dev team) can ruin a good thing. This guy had very little risk (other than losing his account).

[Ashes Emberblade]

Arbitrage is a difficult way to make profit. You need a large amount of capital and a broker who allows the necessary transactions. With the advent of computerized trading systems, automated arbitrage programs have brought disparate markets into near synchronicity.