The Stock Market.

[AWMorris1]

As the sun sets on my 25th year, it has occurred to me that I may need to start thinking about my future. Since graduating I haven had mostly temp and contract work. Which is fine and dandy - any work is better than none - but it doesn't provide much in the way of savings.

So I'm looking to take 1000 of what I do have and do some investing with the goal of adding more when I can and building up a solid nest egg or rainy day fund.

So, have any of my fellow nerds gone down this path before me? Are there any success stories\tales of woe to share? Is anyone else thinking of dabbling?

Share your thoughts here! Ill log my progress once I get started!

[msuroo]

Taking 1000 dollars and investing speculatively isn't much different than walking into a casino.  Both are fun things to do with your expendable income, but neither are good plans for your future.  Rather than scraping 1000 dollars together now with the plan of adding more at some undefined future point, set aside that money to be your "rainy day" or "emergency fund" now.  Then commit to taking 5-10% of your income and setting it aside for retirement.  Start right now, and don't stop ever.  Put it in a Roth IRA in a low-fee target date fund (with as far away a target date as you can find) and just contribute a little bit every paycheck.  No, you won't have big returns to report back in this thread.  And no, it's not sexy.  But you know what is sexy?  Sipping mai-tais on a beach in Hawaii when you retire instead of working until you shrivel up and die.

 

It may seem like you don't make enough money to save for retirement now, but that's always a lie.  Someone out there is getting by on less than you.  And the one thing you have on your side now that you can't ever get back later is time.  Never underestimate the power of compounding interest.

[bigm141414]

Single stock picking is really risky. Depends on how much your heart and mind can handle. If you are not actively interested in stocks then mutual funds are the way to go.

 

 I've taken the easy route and invested in mutual funds that track the S&P500, the total bond market, and some foreign indexes. But that's because I am a Markowitz type investor (e.g in the long run no one can out do the market) 

 

Rates of return are decent, low risk, and I really don't have to worry about it. 

 

Also, 401k and IRAs should be had as well for long term planning. 

[Jakob Kopfeld]

Always depends on the amoung you've got saved up versus the amount that you plan to invest. If the 1k is a big deal for you I'd find something safer than the stock market. Best of luck though if you decide to go risky!

[Georges]

Much like every other question out there, the first answer is: It depends.  What are your goals?

 

You mentioned a nest egg and a rainy day fund, but those aren't exactly technical terms.  If by "nest egg" you mean retirement fund, and by "rainy day fund" you mean emergency savings, than those are two very different goals.  (I'm just guessing at those meanings, by the way.  While that's what I think of those terms meaning, they might not to you.)

 

So, what are your goals?

[Zorch]

Single stock picking is really risky. Depends on how much your heart and mind can handle. If you are not actively interested in stocks then mutual funds are the way to go.

 

 I've taken the easy route and invested in mutual funds that track the S&P500, the total bond market, and some foreign indexes. But that's because I am a Markowitz type investor (e.g in the long run no one can out do the market) 

This is largely my philosophy as well.  I stay away from actively-managed funds with hefty fees like the plague, and am primarily spread around several funds that track various indicies, industries, etc.  I don't believe most of the funds that charge 2% per year for active management are actually good enough at what they do to be better than the market once their fees are subtracted out.

 

There's a very, very small list of folks that I would actually let actively manage my money.  And that's because I know them personally, and I KNOW that they are extremely smart and knowledgeable about what they are doing.  Otherwise I'll trust myself and my own research and judgement.

[Oogiem]

Agree on the decide on goals first.

 

But for me I'd  start saving 10-15% of your paycheck until you have 6 months to a year of expenses saved in an interest bearing account somewhere. That's your rainy day fund, the SHTF fund and so on. Don't use t until you have to and keep it topped up as your expenses change.

 

Once you have the emergency cash fund covered then put as much as you can possibly afford up to the limits allowed by law into a ROTH IRA or 401K and leave it alone, just adding to it as you go.  Your time horizon for retirement is long so you can afford to be a bit risky with it but you shouldn't do stock picking yourself. I'd find a nice medium risk fund and invest in it for the long term. Target funds can be a good choice. 

 

If you don't have one yet find a decent accountant and ask them their opinions. Stay away from ones who get paid by the investments they suggest. 

[sylkamaru]

Hi,

 

a few pieces of advice I learnt the hard way (investing, and losing)

 

- short term investment is like gambling as the market is not always rational

- do not trust anyone except yourself, even your bank, or a brilliant trader you know : because they give advices, but none of them will pay for your loss and take responsability on a wrong advice they had given

- that means : do not enter anything on which you don't have real knowledge. Otherwise it will mean you would take positions based on luck or gossip, which is doom to fail. It also means if you're not ready to commit yourself to a lot of learning. There are 2 types of people who win : lucky ones, and hardworker (which includes professional). Everyone else lose. There is no such thing as easy money.

- every position have to be include a strategy (objective, step of accumlation...) to avoid psychologic parameters. If you cannot handle a losing position peacefully, it's over, it's the time where poor decisions are made

 

I may seems a little harsch but the market is harsch

But it totally worth it, specially if you like economy.

 

If you want a "must read" about stock market : The Intelligent Investor of Benjamin Graham (who were actually the mentor of Warren Buffet)

It is so brilliant it is almost enough.

 

If you're interested I could post next more details about my experience which led to these rules

[manav95]

Stock investing if done properly is not gambling. You have to really research and understand what you are investing in. Do that and you'll will likely achieve nice returns.

[CJJR]

Nice post sylkamaru. Just picked up The Intelligent Investor of Benjamin Graham from Amazon.

 

If you're interested I could post next more details about my experience which led to these rules

 

I'd be interested in hearing about your experiences.

[sylkamaru]

Actually my experiences follow a sadly common pattern. I just tried to understand why, how, and mostly how to solve it

 

I got to the stock market because I didn't understand why funds with a 6% reward is considered a very good fund, when stock can make 2% in a day

 

So I tried, I invest without any knowledge, getting advices from bank advisor (not investment bank but my bank agency) who, like every other bank advisor, do not know a cr*p about stock investment... or from friends, sites, newletters...

Good trend, I was gaining a little money, considering myself like a great investor, who gained 10% in a month when a fund gained 4% in a year

Trend returns, I wasn't prepared for it, I paniqued, made shi**y decisions, end up losing money (my chance was I decided to put only money I didn't need)

Then I tried understand and discovered THE MOST IMPORTANT THING when investing : money management

This is simple : you cannot gain, if you cannot survive

you can make 100 positives trades, if 1 losing trade gets you down, it's over ! And it is what happened : I made a few little gains : 10% here, 10% here, that I reinvested... got a losing position : ended up making -50% (and little mathematic reminder : when you do -50%, you need 100% after to get you even)

 

Although I lose money, I did really enjoy the domain (economy, markets...) and work in finance next (in corporate investment bank, as software developer)

Actually it helps a little for personal investment but not that much... a corporation invest waaaaaaayyyyyyyyyyyy differently than somebody

And even with working in an investment bank I made some big mistakes making me still lose

Mostly psychological, because in the end I would have end up winning. (for example, in 2002, I remind getting a position a Louis Vuitton - french market luxury - because a feeling on chinese market. got it at 55€... bad trend, goes to 40€, paniqued I sold. Today it's worth 141€. I don't regrets about the missed opportunites, I just regret that I did things back then that I didn't know a sh*t about)

There come the other ultimate rule : do not let psychology guides you, and the only thing that can guarantee that is a bullet proof knowledge, and a well and predefined strategy

 

At that time I heard a bit about Warren Buffet and saw some of my mistakes in what he explains in his books

(do not enter if you're 100% sure, do not go short term, financial health of the corporation is more important that the price and the charts...)

 

Hope it would help, but it totally worth it, even for just the knowledge...

It do not guarantee success but will definitely help you achieve it

[CJJR]

Thanks, great insight. I've been looking into getting into the stock market recently, but want to go slowly to start, so I'm starting by learning as much as I can before actually investing . I've been reading a lot of different sources, and having a long term objective strategy is the one thing that seems key, just like you mentioned.

 

I'll report back here once I've actually gotten my feet wet!

[sylkamaru]

Sure, keep us in touch.

 

In Intelligent Investor, it'll give you insights to evaluate the fundamentals of a corporation.

With lots of calculation, but most of them are easy to understand

example :

- price earning ratio (PER) : share value / revenue : gives a valuation of current share price

- debt / revenue : weight of the debt

- cash : do the corporation have money

and many little indicators like these which you'll have to take into account to chose your share. For example a very low PER and with a biiiiiig weight of debt, could be dangerous because it means the share is cheap, but it won't be able to face a little gap in its revenue...

[18ck]

I have some retirement savings in shares (stocks... I live in the uk) and they have done pretty well with a couple of exceptions. What I have learned from my mixed career can be summed up as:

You're not as clever as you think you are, and def not as well informed as the big boys, so dont try to play the market like a game

Don't invest in stuff people are excited about - it will go out of fashion and you will lose your shirt.

Trading has costs so high trading =low profits almost certainly. Long term buy and hold is best.

Whatever else you do, never make any panic decisions.

Funds can be good if you have the right fund manager (I trade through Hargreaves lansdown who have a list of good funds which I have always found very reliable).

My best option seems to be stable boring blue chips with high dividends like Glaxo and Vodafone. It's safer than most options and has a good chance of a decent return.

Meanwhile, look for sites that let you build a virtual portfolio to play with to get a sense of how to trade successfully. It's not a perfect method of learning though - if the market crashes while you have a vitual portfolio you will be interested, while the real money investor will shit kittens and be tempted to sell everything at the bottom of the market. Emotionally, it's a different world!

There are audio books that can help. Try googling a book called "monkey with a pin". It's a bit pessimistic but will at least alert you to some of the worst pitfalls and immunise you against noob mistakes.

[18ck]

(Probably shouldn't have named 2 stocks there - I'm not advocating either so do your own research obvs. FWIW, I own shares in one of the two but not both)

[crosenblum]

I would highly recommend avoiding stocks and bonds like the plague.

 

I am sure there are plenty of successful people out there, but they are the minority.

 

I think a far better way to make money, is to have an automatic savings plan, into a high rate savings account.

 

Or invest into an annuity or cd.

 

But I think keep it simple, save, save, save, and you will have far better results, and with no chance of losing money.

[PNH]

I won't specifically come in and cut anyone down, but some of the advice here is not good. I only have one suggestion:

 

Find a place that you like to read, and educate yourself on etfs(my preference for long term investing)/stocks/bonds/etc. Don't expect to become an expert, you will NEVER need to know a huge amount of the information that can get thrown at you for the type of investments you want to make. Here are two suggestions for reading. The first is purely a series on what investing is and the basics. The second is from a well respected investment professional and is specific to people in their 20s and 30s who want to start building a retirement portfolio. 

 

Without knowing almost anything about you, I assure you that if you are serious about learning, you can become a perfectly passable long term investor(not day trader or market professional) in less than a week.

 

 

http://www.investopedia.com/university/beginner/

http://seekingalpha.com/instablog/1004518-regarded-solutions/852981-a-list-of-articles-for-the-beginner-investor-with-long-time-horizons

[Sam Ashen]

Necro!

 

Are there any success stories\tales of woe to share?

 

Back in 2000, I was looking though the paper for the "Dogs of the Dow" and what they were yielding.  Those would be the ten highest yielding stocks among the Dow 30 Industrials.  The Dow was making highs.  The Nasdaq was at the height of the dot-com boom.  Philip Morris was beaten up so badly because the tobacco industry was getting hit with class-action lawsuits - It was yielding an astonishing 10%!  So I bit and it worked out brilliantly and my family still thinks I am a genius for some reason.  The lucky fool theory applies.  

 

Made bone-headed plays in 2007-2008.  I thought the banking thing was way overblown.  Saw astonishing amounts of money evaporate.  Also bought a house because I thought I would be geographically more stable and the price seemed okay.  I moved five years ago and I still own that house.

 

Doing fine right now, but trying to think of a place for a bunch of cash.  Oil and Copper are beaten up pretty badly, but I don't like it.

 

Did you end up doing anything?