Re:
The general public averages, AVERAGES, under 3% on their stock investments.
Why?
They don't know what they're doing.
When they seek the counsel of an advisor, they chase returns and not diversification.
They pay more attention to planning a vacation than they do their finances.
The best advice I WOULD give, is to pick 1 class you like and go for it. Pick 1 asset class and dive right in. You can't erase ALL risk, but with risk, generally comes return.
Sure, a market DOES and WILL go down, but if you're SHORTING the market, you're profiting, so it isn't about GOING up all the time, or guarantees, it's about YOU, the investor knowing and trusting and evalutating risk and return.
I don't view the market as risky. I don't. We all see risk out there. There's lots of guys who come in as AFC's and emerge as a PUA, confident to approach women, when they formerly viewed it as 'risky.'
There are ways to limit losses on stocks.
[] Set a stop limit, so if the stock plummets, you have an order to prevent the super-plunge, assuming it is TASR, or Enron selling off. In fast dumping markets, ALL investors lose. Unless you're shorting it.
[]Buy a put option. Acts like insurance for a few hundred or thousand dollars, so that IF the market or your stock dumps, you profit by the downswing.
[]Sell a call option on a declining stock. Premium might be low, but you can profit by taking the premium on the option, and awaiting the expiration of the option. If the stock goes north, then you keep premium, but lose the stock, assuming they exercise.
[] Learn, learn, learn. And buy quality stocks, not high-fliers.
I won't assume you want ultimate wealth, but I would read much more to be educated and realize, if you invest in ANYTHING, the rate of return you get is inline with risk. You diminish personal risk, through education, which helps in life, with women, or investing and your career. The better you are, the more confident and the more selective you can be.
I've done stock picking since Hs/College, with fun money, and later with real money. I've had losers, but overall, with little effort, I've averaged 20%, through an up and down market. That was knowing WHAT to buy, and keeping an open mind to sell.
Resources:
[]Turtletrader.com
[]Warren Buffet
[]Benjamin Graham
[]The Millionaire Mind
[]Richest Man in babylon
[]Jesse Livermore
[]Stock Market Wizards and Market Wizards
[]William J Oneil - IBD
This assumes you want to be in the market.
The biggest misconception I find with people is wanting RETURN with NO RISK, but the best, and perhaps only way to control risk is through you personally, then taking added risk measures WHEN you invest. Those who lose, dump tons of money into penny stocks, making their first investment ever and then hope it goes up. Few investors have a plan, an exit strategy.
Buffett has one: He holds MOST stocks forever, because he RUNS the company. But if you aren't afforded that kind of control and visibility, then as an individual investor you need plans that might not go as far as Buffett's.
Sure, if I was buying a NewsPaper company, or a Football Franchise, I'd hold for as long as I want to be in on it, but I'd make sure I ran it so well, that when I sell my investment, I've doubled, tripled and so forth.
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A risk return scenario.
A building RIGHT near my home, formerly owned by Wang, an early computer company sold at a distressed price of $525,000. This building was BIG. But so was the operation of just OWNING it, and the electric bill, and the taxes, so you had to be an investor that had some access to cash.
In 1998, the owners were seeking to sell 1/3 of their share to raise cash for other projects. Know How much?
$34.5 million. Total Value in 1998 = $100,000,000.
Current Value in 2005 = Over $300,000,000.
That $525,000 with some hefty overhead expenses, corresponds into a RIDICULOUS rate of return. I can lost the link to the building, but I remember when the business was going down hill. PERFECT LOCATION. Even 1,000,000 would have been fair, given how big it is. 3 towers. Right near a cinema. Right off the highway. Plenty of parking lots. And restaurants, and very pleasing looking as a building. Even had a helicopter landing pad!
So risk return.
Guys will say...well I couldn't do that. Maybe not now, being broke, bad credit/no credit. But if you save/invest, learn, parlay cash, make connections, you COULD have been a partner in on that, or the orchestrater of it. Couldn't you? Imagine, do, be.
I GET what you're saying, but the biggest misconception is that bonds are NOT risky. The return or COUPON you get is the ONLY guarantee and that alone is guaranteed by the credit worthiness of the company. So it's not a guarantee. The type of guarantee that's near firm, comes from gov. debt, which has VERY lot rates of return.
The bond itself will fluctuate in value quite a bit, too.
+ 30 year bond, highest rate of return, because of long-term holding. fluctuates the most because of long-holding period. money available in open markets.
+ Shorter bonds are more liquid, but offer lower rates of return. They fluctuate less, too.
The happy medium here is to LEARN about investing in bonds, so you can OWN all maturities, all sectors, all industries, that diversifies risk, but kills your ROR.
Buffett always disliked excessive diversification, because if you're supposed to be a PRO, then you shouldn't require SO many different stocks or bonds, that make you look like the MARKET itself, though you spend so much on SELECTING stocks or bonds.
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What I will say works, to an extent, but you have to discover what you want. With broads strokes, you can employ such things, but those in desire of wealth and riches pay heed.
[] Work on you. Find something you enjoy that provides REAL rates of return. Not just 8-10%, but 50, 100%. It's possible. There's guys I knew who worked @ Raytheon and did R/E part-time. Now he owns MANY apartments. He's been doing it for 30 years. How would you like to live in 30 years? Will you still NAYSAY real estate that it can't work? That you can't do and learn something like a PRO over 30 years!!!!
[]Begin a savings plan NOW. Even if you're planning or saving for a business TO COME, you should get the HABIT formed. 1 thing I did was break out everything into EASY spread sheets on excel, then set up bank accounts, trading accounts, and retirement accounts based on these. I follow it like I would a health plan. They're my controlling documents and I view my financial and professional life as if it were, and IS a business.
[]Learn to ROLL and PYRAMID profits forward. This goes for guys with 401k's and IRA's. Sure, $100 a month might sound low, but at $1000, and $2000, you can get into better mutual funds, REITS, or if you're confident with stocks, invest in stocks efficiently. At $100 or $50, you can only buy 1 share or so of GOOD stocks, or risk low crap stocks like Pennies. The commissions alone kill you, even on Scottrade. At $25,000 or $50,000, you can upgrade to accounts that the BIG BOYs get into, and above $100,000 and $500,000, you get into wealthier fields.
[]Become an accredited investor, OVER TIME. Normally requires by fed. law, $300,000 income (married), $200,000 income (single), or a $1,000,000 net worth (normally excludes primary residence). My figures might not be adjusted for inflation, but an accredited investor IS up there. You gain access and FEDERAL approval to invest in MORE SELECT investments that the general public can't. This doesn't diminish risk, but it does mean if you're CAPABLE you get wealthier faster. I met a guy running a REAL ESTATE INVESTMENT TRUST (REIT) and he required accredited investors to join. The rates of return were high, on average, for having not to do anything. Above 20% per annum, for instance, plus cash flows.
[]Look at ALL expenses as the LOST opportunity cost of COMPOUNDING. That's what drove BUFFETT to what he did. He came from a family of ONLY modest means, but because he saw expenditures as the LOST opportunity cost of compounding, he was FRUGAL, to begin with, then amassed a fortune in his 30's and 40's. Even then, he could have stopped, but he genuinely loved investing and managing assets. Guys here don't want to be TOO FRUGAL, but the alternative is, passing through the 20's and 30's having a great boozing time, but of owning nothing. The opportunity is there, seize it.
[]From a poster here, set up 4 bank accounts. Instead of trying separate accounting WITHIN your 1 account, learn to manage your financial life like a business life. Separate bank cards, checks, and so forth. You'll be LESS likely to spend money when it is spread out and you can account for expenses BETTER when it's separated. Plus, if you stuff 5k into 1 bank account, hoping to INVEST some, SPEND SOME, and pay bills with it, you'll FEEL like you have more, therefore you can SPEND more. Not True. If you spread it out, that 1 account looks like less, so you're LESS, psychologically, likely to spend like you would have, though it's the same 5k spread out.
[]Have a plan for your money. Money should NEVER be stagnant. Even inside 401k's, a new IRS ruling allows you to MOVE the money to an IRA now and invest in whatever you want within the rules of the IRA. Pretty nice, eh? But that's your money, so use it. So often guys get mutual funds and just LEAVE them, HOPING they grow. If you understood HOW mutual funds work, you'd use the appropriate plan until a BETTER opportunity comes up. I monitor my mutual funds and purchase stocks, but I intend to roll some of my mutual fund cash into a REIT or VA, providing DIFFERENT asset class investments and opportunities.
If you found 100 workable R/E deals, or 1000, I guarantee you'd find 1. But so few go that far.
I'm Out
A-Unit
