Stock market question

[widebody911]

Let's be honest - when it comes right down to it - isn't the Stock Market™ really just thinly-veiled institutionalized gambling? When you buy n shares of a stock, you're not really investing in the company; you're betting that eventually someone else will pay you more for those shares than you paid. It seems the only reason a company would have the incentive have their stock valued more highly is because the executives and the BOD possess a certain amount of stock, and so their personal fortunes are at stake.

Yeah, this seems cynical, but after you read enough about various scandals, automated/programmed trading and the other various shenanigans - legal or otherwise - it looks like it's all just a big game and it's not rigged in our favor.

[Deschodt]

It's not all gambling. There is also a fair bit of insider trading ;-)

[biosurfer1]

I would agree for 99% of the stocks out there, but the other 1% of stocks I don't think this necessarily applies. One that comes to mind if Berkshire. I really truly believe Buffet operates in the best interest of the company, and making money for shareholders is a side benefit. Obviously being a billionaire affords him that luxury but there are companies out there with management who run it how they want, stock be damned. Facebook is another, Zuckerberg runs it how he wants, and only went public because they were forced to. He could really care less about stocks, or money for that matter...again, easy to do when you have it

[Cannonball996]

I think most people have the wrong idea about the stock market, its not what it was a generation ago, the days of buy and hold are over. these days, long term positions only work if you own a large chunk of a company, for everyone else its a traders market. I am a very active trader, I trade only for myself, I only play a couple of stocks and ETFs, and I rarely hold a position over night. Always have an exit strategy before buying into a position, know what you are going to sell your position for before you buy. Plan and pay attention.

[Bill Douglas]

I'm a stock market investor rather than a stock market trader. I see it as a better (although I have been proved wrong) place than the bank to store money.

[Aragorn]

When it comes down to it, it depends on your investment horizon as to how much "gambling" you are doing in the stock market. If you need more return sooner, you generally have to go with a more "risky" stock to make that return. Most good investors know to invest in good companies that provide a good stable return over the long haul. I don't consider that "gambling." Do your research and invest in good companies and you will get a stable return over the long haul. This does not apply to day traders who are generally looking for the most return in the shortest time period. I would think that most of the last generation of day traders were gambling and not doing the research themselves.

[Aggie93]

I agree with Cannonball in that buy and hold for years strategy has changed. It can still be a good strategy, but you really need to know the company and not be influenced by the amount of noise. Some of the best funds out there are still able to be successful with turnover in the low teens.

Hedge funds now account for half, if not more of the volume. The fact that they move stocks causes everyone else to follow suit. Most of these guys know the companies very well. The wannabes have mostly been shut down. The big funds survived 2008 and now all the money is flowing to the big funds. Most hedge funds play for an event and typically unwind the position after it happens or fails to happen. They also can short. I think very few do even a decent job. It is a totally different strategy. This strategy also causes a lot of volatility in the stocks that are “crowded shorts.”

The amount of information available in the market place is staggering. Also the speed at which news impacts stocks is almost instantaneous. Most of it is noise and to be successful you have to have a very good filter and also know what is already “priced in.”

Individual investors that are trading are at a significant disadvantage. I’m able to have conversations with trades/analysts/portfolio managers and know how other investors are positioned and what their expectations are. Additionally, I get messages and phone calls all day from trading desks letting me know their large orders. One example, I just got hit that someone has 500k GLW to sell, a quick call yields that they were a large seller last week. Not earth shattering, but nice to know if you are involved in the name.

[VincentVega]

Same here. Companies sell stock to generate capital, not all stock is used to create the golden parachute. My outlook is long term, I dont look everyday and surely dont trade that often. Exit strategy is key no matter your time horizon, that's sound planning.

[Bill Verburg]

Originally Posted by widebody911

Let's be honest - when it comes right down to it - isn't the Stock Market™ really just thinly-veiled institutionalized gambling? When you buy n shares of a stock, you're not really investing in the company; you're betting that eventually someone else will pay you more for those shares than you paid. It seems the only reason a company would have the incentive have their stock valued more highly is because the executives and the BOD possess a certain amount of stock, and so their personal fortunes are at stake.

Yeah, this seems cynical, but after you read enough about various scandals, automated/programmed trading and the other various shenanigans - legal or otherwise - it looks like it's all just a big game and it's not rigged in our favor.

Ben Graham(my guru) wrote that the owner of equity stocks should regard them first and foremost as conferring part ownership of a business. With that perspective in mind, the stock owner should not be too concerned with erratic fluctuations in stock prices, since in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine (i.e. its true value will in the long run be reflected in its stock price). Graham distinguished between the passive and the active investor. The passive investor, often referred to as a defensive investor, invests cautiously, looks for value stocks, and buys for the long term. The active investor, on the other hand, is one who has more time, interest, and possibly more specialized knowledge to seek out exceptional buys in the market.[5] Graham recommended that investors spend time and effort to analyze the financial state of companies. When a company is available on the market at a price which is at a discount to its intrinsic value, a "margin of safety" exists, which makes it suitable for investment.

[sailchef]

+1 on what Bill Verburg said.

Making money in the market requires discipline, and Passion. If you are doing it on your own it’s a full time job. In the 90’s, on my days off I was a part time day trader. Back then you could throw a dart at the stock page of the NY Times and whatever it landed on you could pretty much be confident it would make you money. You could get in and out within a few days. Those days are gone. You need to be more selective, but more importantly you really need to know all you can about the stocks you are purchasing. At the same time you should pick a Sector, or two, or three. Know the area you are investing in. I don’t do financial stocks or medical stocks, even though they are “the hot topic” for 2013. I don’t know enough about the individual companies in those sectors to do well and there are hundreds of them. I do like Visa (V). You would think it’s a financial stock but it is more closely related to the retail industry.
I have several strategies that work for me depending on the amount of free time I have to devote to the stock, whether it be doing research or just babysitting once I’ve made a buy. I generally have a “hold” window of anywhere from 3 - 4 weeks to 3-4 months, some stocks I’ve held for more than a year and have done well. One of my strategies these days is more of an opportunistic approach. Remember the BP disaster in the gulf. The stock went from @40 to 20. I bought in at 25. Recently the Donald (Trump) came on TV and said he had bought “a position”in Facebook (FB) @19. I bought it at 20 the next day. Another strategy is looking at little known stocks that no one talks about. 3-D Systems (DDD) for example. I liked the whole idea and bought in @20 it’s at 60 now. I had read about DDD’s technology years ago in some type of a DIY publication and I knew that it was going to catch on. Remember Crocks shoes (CROX), I hated them but everyone was wearing them. I bought in @ 24 and sold a few months after the split. SBUX and CAT have been stocks that I have been “IN and OUT of” several times over the last few years. They go up, and down, and then they go up again. Know the stocks you are getting involved with.
If you want to let someone else do the work while you sit back and watch then be prepared to pay for the privilege and make your 5-10 percent? If you want to make the big percentages you really need to sit in front of a computer with an online trading platform and be willing to spend 8 hours a day babysitting your cash while CNBC is constantly playing in the background. It’s a full time job. I have done pretty well over the last 12 months, but after being unemployed for 15 months I will be going back to a real job in the next few weeks. My portfolio will be shortened to only a few stocks and they will not need as much looking after, at least not more than an hour or two a day.
If you want to learn about stocks, turn on CNBC and start watching for 6-8 hours a day. I’m not a professional, I do this as a hobby and I get up at 7:30 AM EST to begin my trading day. I’m unemployed and have nothing better to do. I’m not married, don’t have any kids, and don’t owe anything to the banks or Mortgage Company. I don’t trade every day and can go for weeks on end without actually trading but I am still sitting in front of my computer watching my portfolio. But when I do hit the BUY button I have seen 25%- 100% gains. Your “life” doesn’t start until after the market closes. For the guys on the west coast that still leaves a whole lot of daylight.
As a sidebar: it doesn’t hurt to have a supply of antianxiety meds, and something to cure an upset stomach for when it all goes wrong.
You really need to do your homework and be involved every day.
Past performance is not a guarantee of future results.
This is my opinion and in no way a recommendation, or meant as a how to article.

Ding, Ding, Ding,…………It’s Four O’ Clock, do you know where your money’s at?

[RWebb]

Intelligent Investor: A Book of Practical Counsel: Benjamin Graham, Jason Zweig: Amazon.com: Books

add John Bogle to your list also

[lukeh]

In over 30 years of equity investing I've found that over the long haul the vast majority of investors do better buying consistently highly rated mutual funds instead of trading stocks.

[recycled sixtie]

Originally Posted by lukeh

In over 30 years of equity investing I've found that over the long haul the vast majority of investors do better buying consistently highly rated mutual funds instead of trading stocks.

+1 on this strategy. If I can't do as well as the professionals then I pay them to do it for me. This is the case for good mutual funds. My tendency with individual stocks is to sell them too soon. Diversification is key too.

[on2wheels52]

I'll be contrary on the buy and hold strategy. I own about 35 individual equities, they were up 10.5% last year, and 23.5% from two years ago. And I incurred no commission or account fees in that period.
That said, 60% of my account is in mutual funds, and they performed about the same. But I've held a number of the individuals for over 20 years.
Jim

[lukeh]

Originally Posted by on2wheels52

I'll be contrary on the buy and hold strategy. I own about 35 individual equities, they were up 10.5% last year, and 23.5% from two years ago. And I incurred no commission or account fees in that period.
That said, 60% of my account is in mutual funds, and they performed about the same. But I've held a number of the individuals for over 20 years.
Jim

It's not about the fees and commissions...it's about what you make.

You well underperformed last year if you were up only 10.5%. Big boring mutual funds like New Perspective, New Economy and Growth Fund of America were up 20%. I'm not trying to come at you just using you as an example of why most people do better in funds. You seem happy with 10% but in truth you did much worse than average. If your funds also made 10% last year you may want to revisit them if they are growth funds. You don't want to be making half of what you should be making.

Nothing wrong with buy and hold as long as what you hold is better than average.