OT-The Stock Market

Tommy D

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I have been out since early October. Took a bit of a hit in the early mess of the downturn, but saw the problems coming up and got out completely. I have been paper trading for the last 2 months learning new strategies.
 

rhythmace

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Playing the market with fake money. No realized gains or losses. Its all "on paper". It gives you a chance to test new strategies that you may not be good at without risking any real money.
OIC. Yes, that is an excellent thing to do. I have found that when I have an impulse to buy....... hold on a few days at least. The stock usually goes down. Laugh! Ace
 

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A lot of people do well paper trading and find it difficult with real money. Emotions make it hard to stick to your plan when real money is involved.
 

Tommy D

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A lot of people do well paper trading and find it difficult with real money. Emotions make it hard to stick to your plan when real money is involved.
Well, you have to make paper trading as realistic as possible. You can't just create an account with $1M and watch it go down and down and not care. If you only have $10K in real money you need to create an account with $10K and make trades like you would make with the real cash. No one wants to lose and when you make the trading as real as possible, emotion does come in to it even with fake money.
 

Rick

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A lot of people do well paper trading and find it difficult with real money. Emotions make it hard to stick to your plan when real money is involved.
This is very true! I mentioned the Snider Method earlier in this thread. Here's something I copied from their website that I think is interesting and along these lines:

Emotionless Investing
The more emotional an event is, the less sensible people are. -Dr. Daniel Kahneman, 2002 Nobel Prize Winner for Economics

Few things make us as emotional as the prospect of losing money. As humans, we are hardwired to seek out predators and react to warning signals. While this innate behavior may have helped keep our ancestors alive, it also makes it almost impossible to make good investment decisions. That’s why investing is a continual struggle between logic and emotion.

As you see depicted below, in the 20 year period ending in 2015, the S&P 500 had a return of 8.19%. However, the average investor only got 4.67%, underperforming their investment by a margin of more than 3.5%. It’s not just equity investors that fall behind. As you can see, fixed income investors trailed Barclay’s by an even greater distance.


Discipline is the best strategy for avoiding paying the high cost of following your emotions. Follow a rule-based system that is designed to address the human condition. The Snider Investment Method never relies on emotions or gut feelings to determine when to buy or sell. It works because it is a set of firm rules and steps, repeated deliberately and systematically month-to-month.
 

rhythmace

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With the crash of 10 years ago it's hard to look at those returns objectively. I heard a long time ago that 85% if fund managers underperform the market. That's why an index fund is the way to go in the long run. Ace
 

Tommy D

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Well, an index follows the index so if the index, or the market in general, is tanking you are going down with the ship. An index fund is really no different than a mutual fund, just with lower premiums. Its a mildly diversified fund made up of stocks in a certain niche of the market. I was invested in VIOO, IVOO, VOO, PSCH and a few others but when October hit, there was no hiding from a crashing market, even with index funds. You think you are diversified so if something bad happens you are safe, but hell no you aren't safe. The safest position is cash. Get in when the gettin' is good, get out when it's bad.
 

Rick

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The safest position is cash. Get in when the gettin' is good, get out when it's bad.
And good luck trying to time that correctly. That's probably a big part of the reason why, in the chart I posted above, the average equity investor got 4.67% versus the S&P's 8.19%.

I'm not trying to be critical. Just pointing out there are other ways to go about this that don't involve a crystal ball.
 

Tommy D

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And good luck trying to time that correctly. That's probably a big part of the reason why, in the chart I posted above, the average equity investor got 4.67% versus the S&P's 8.19%.

I'm not trying to be critical. Just pointing out there are other ways to go about this that don't involve a crystal ball.
It just takes educating yourself on the patterns stocks have and using that to your advantage while trading. Putting in the time and effort in understanding these trends, watching stocks for weeks on end for the right time to make your entry, and executing a solid plan (not only for entry, but for exit and contingency if the trade doesn't go your way) will lead to gains that equity investors could only dream about. Those guys are ecstatic if they make 10% on their investment. If I don't make 10% on a trade I'm disappointed.

Like I said, I'm paper trading right now. And I'm doing it while I do my research and education because I would prefer to get a good grasp of this trading style before I put my actual money in to it. My strategy is not for everyone, in fact it's probably for less than 1% of people who want to get in to the stock market, but I can't sit with my money in the stock market making a measly 10% on the year (or 0% in the case of 2018 ). At that rate, I'll retire when I'm 150 years old. I need to be more aggressive than that.
 

AaronLatos

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Man, all this stock market stuff stresses me out.

Real estate is my thing. Figure out how to make the numbers work and invest for passive, not value speculation. Then the gamble is very low. If I strike it rich and one of my properties balloons in value, great! I'll sell it and dump the money back into another investment after the market dips again. If the market tanks, and I'm stuck with a bunch of underwater mortgages? I'll be just fine: because the numbers still work, and I'm still paying the mortgage and making my passive. No big deal.

As a touring musician, it also works great for my income stream and time style: on the off-season, I can huddle up near home and put some of my own time into renovation myself, bring down costs.

And right now, as the market is softening and everyone's getting nervous... I'm grinning and about to pull a HELOC to get another couple properties if the real estate market tanks. Market low? Buy. Market high? Do the math and find a property where you can get a loan to make it work. There's never a bad market for real estate investment, only bad individual properties/strategies.

And the other thing that's great, is getting into it in my late 20s and early 30s is that when all the mortgages for this first round of properties my wife and I are getting into are paid off in 20-30 years... then the cashflow balloons. Perfect timing for retirement. I love it.


[/end money equivalent of "but I'm more comfortable with Yamaha wingnuts!" on a thread discussing DW hardware. :) ]
 
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Rick

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Man, all this stock market stuff stresses me out.

Real estate is my thing. Figure out how to make the numbers work and invest for passive, not value speculation. Then the gamble is very low. If I strike it rich and one of my properties balloons in value, great! I'll sell it and dump the money back into another investment after the market dips again. If the market tanks, and I'm stuck with a bunch of underwater mortgages? I'll be just fine: because the numbers still work, and I'm still paying the mortgage and making my passive. No big deal.

As a touring musician, it also works great for my income stream and time style: on the off-season, I can huddle up near home and put some of my own time into renovation myself, bring down costs.

And right now, as the market is softening and everyone's getting nervous... I'm grinning and about to pull a HELOC to get another couple properties if the real estate market tanks. Market low? Buy. Market high? Do the math and find a property where you can get a loan to make it work. There's never a bad market for real estate investment, only bad individual properties/strategies.

And the other thing that's great, is getting into it in my late 20s and early 30s is that when all the mortgages for this first round of properties my wife and I are getting into are paid off in 20-30 years... then the cashflow balloons. Perfect timing for retirement. I love it.


[/end money equivalent of "but I'm more comfortable with Yamaha wingnuts!" on a thread discussing DW hardware. :) ]
You make a great point about cash flow investing (passive income) versus capital appreciation. And your description of what you do with real estate actually, believe it or not, is a good description of what I do with stocks. It’s a bit unconventional to think of doing that sort of thing with stocks but it actually can be done... and it’s not that hard and doesn’t take much time. I like the concept you and I are using a lot and feel it’s a lower risk, more consistent way to invest.
 

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Well, an index follows the index so if the index, or the market in general, is tanking you are going down with the ship. An index fund is really no different than a mutual fund, just with lower premiums. Its a mildly diversified fund made up of stocks in a certain niche of the market. I was invested in VIOO, IVOO, VOO, PSCH and a few others but when October hit, there was no hiding from a crashing market, even with index funds. You think you are diversified so if something bad happens you are safe, but hell no you aren't safe. The safest position is cash. Get in when the gettin' is good, get out when it's bad.

But as Rick's chart shows - that is neither the safest, nor most profitable course of action. From a long term perspective, cash isn't the safest position as over time inflation will eat away at a cash investment's value.

Long term investing is not about avoiding the ups and downs of the market, as trying to avoid them is ultimately more costly than simply riding through them. That's is the lesson of the first two columns of Rick's chart - the first column represents those that simply parked money in the S&P 500 for 20 years - no ins, no outs - just let it sit... 8.10% a year!!!
Column two is the average of all of the "market timers" - "in win it's good, out when it's bad" - the average of everyone trying all of their various tweaked strategies, tip sheets, chart analysis and whatever other rabbit's feet and four leaf clovers they use to time the market - they're return over those same 20 years - 4.675!!!! A bit more than half...

And I read books 20 years ago that touted those same performance ratios - and have seen charts that go back 200 years that support the same.

Fact is the stock market averages close to 10% a year - but along that path there can be significant deviations - but looking back most decades still hit pretty close to that average. The market can hit bumps, but it has always produced these types of positive gains.... but only long term.

Study after study show that "timers" never sustainably "beat the market" - even at the highest pro levels.

So while there may seem like great savings are made when getting out in time to miss a downturn - the cost of mis-timing getting back in leaves way more money on the table - again... 8.10% to 4.67%.
 

dcrigger

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With the crash of 10 years ago it's hard to look at those returns objectively. I heard a long time ago that 85% if fund managers underperform the market. That's why an index fund is the way to go in the long run. Ace
Why is it hard to look at those numbers objectively? They are what they are.

In 2008, I knew the best time to buy is when prices are low... so as things crashed, prices were low, but I was already fully invested. And without a crystal ball, I had know way of knowing when to get out without risking getting out way too early. And again there's that pesky 8.10% to 4.67% factoid - so I just rode through it - and promptly corrected back up - and was fully invested to enjoy every bit of the ensuing recovery.
 
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kb

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I'm with dcrigger on this. If you can, ie, because you don't need the money right away, Long Term investing is the best strategy. Sure, my portfolio took a dive in 2008, but I just stayed in and everything has rebounded. I'm in better shape now, even after the recent drops.

But I do also agree that real estate is a great investment too. Even if the market tanks, you've still got something tangible, that is real, not just paper. Just be careful with Adjustable rate mortgages, make sure you understand them! We re-fied our home with a fixed rate of
3.5% some years ago, so we're in great shape now.

Of course, if you don't have much money, or you need it to be liquid, it's tough to do either of these things....as always, the more money you have, the easier it is to make money....

I needed to get some cash, to fund our IRA's and to have a cushion for up-coming medical expenses. My broker (Edward Jones Co, I highly recommend them) identified a stock fund that is down, so yesterday we sold some of it. No commission, and we will get a capital loss for taxes....
 

rhythmace

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I don't like it when people say cash is bad because of inflation. Seems to me that if inflation is high, interest rates are soon to follow. Even if inflation is higher, that depends on what you buy. Heck, I consider CDs and money markets as cash. Ace
 

Tommy D

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But as Rick's chart shows - that is neither the safest, nor most profitable course of action. From a long term perspective, cash isn't the safest position as over time inflation will eat away at a cash investment's value.

Long term investing is not about avoiding the ups and downs of the market, as trying to avoid them is ultimately more costly than simply riding through them. That's is the lesson of the first two columns of Rick's chart - the first column represents those that simply parked money in the S&P 500 for 20 years - no ins, no outs - just let it sit... 8.10% a year!!!
Column two is the average of all of the "market timers" - "in win it's good, out when it's bad" - the average of everyone trying all of their various tweaked strategies, tip sheets, chart analysis and whatever other rabbit's feet and four leaf clovers they use to time the market - they're return over those same 20 years - 4.675!!!! A bit more than half...

And I read books 20 years ago that touted those same performance ratios - and have seen charts that go back 200 years that support the same.

Fact is the stock market averages close to 10% a year - but along that path there can be significant deviations - but looking back most decades still hit pretty close to that average. The market can hit bumps, but it has always produced these types of positive gains.... but only long term.

Study after study show that "timers" never sustainably "beat the market" - even at the highest pro levels.

So while there may seem like great savings are made when getting out in time to miss a downturn - the cost of mis-timing getting back in leaves way more money on the table - again... 8.10% to 4.67%.
The problem with most people who invest in the market is that they don't pay attention. They don't want to learn how it works. They just want to put money in and look at it once or twice a year hoping it's growing enough for them to retire one day.

In my last 20 years of investing I've done mutual funds, I've had money managers, I've done index funds. Back in '99 I had made 500% on my original investment due to the tech bubble. A year later I lost it all because the money manager did nothing to protect my money. I was out of the market back in '08 and lost nothing. My last broker had my money invested in their most aggressive portfolio and after 3.5 years they had made me 9% on my original investment. I paid taxes on all their trades and paid them 1% of my money for their management. So, essentially I made about 6% over 3 years. Pathetic. And just like in '99, if I had not pulled my money out they would gladly have let it drop to zero.

As I mentioned earlier, my method is not for everyone. Not even for 1% of people, but even if I make 10% per year investing like a regular person it will get me nowhere on retiring.

Where I may have not had "time" in the past to do the work to learn the stock market (or rather, a small niche of the market) I no longer have time to wait to learn this.

Just like people spending hours practicing their drums to learn how to be a better drummers, I am spending time to be a better and smarter trader.

If your system works for you, that's fantastic. Stick with it. Im going to do my system and in the future we should both achieve our goals
 

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As I touched on very early in the thread, I'm a mutual fund guy.
I look at it kind of like I look at Vegas, etc. If you enjoy the frequent trading and timing the market and can afford the risk, then more power to you. Some people seem to have a knack for it and it's fun for them. To those of you who have done well with that - I honestly enjoy hearing of your successes. I say the same thing about going to casinos - if you're getting entertainment out of it and can afford the loss as a cost of that entertainment then no harm done and you may end up with some profit.
I personally get more pleasure out of leaving my money in carefully selected mutual funds and ignoring the market altogether. About 2/3 of my money is invested in real estate as well. I've done it basically that way for 14 years and I can honestly say I haven't lost a penny but have done well. I tried for about 1 1/2 years to play around with the market, and even signed up with a well-known service to help me research stock picks, but the stress of it was a distraction from my work and that money didn't do as well as the money I had left in my mutual funds during the same time period. Lesson learned. I also learned to stay out of casinos.
 
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rhythmace

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I just love the freedom of trading stocks online with $5.00 trades. Also, the corporate and economic information available is great. I marvel at all the experts that totally disagree. What is not being said is that it's easy to pick winners in a bull market. Finding them in a bear market seems next to impossible. Amgen is one that is supposed to do well in a bear market. I have a rule about bottom fishing also. "A dollar stock can easily go to $0.50. GE can be tempting, but only because of its past. I have been in real estate, but it seems to me that the property taxes have become punitive. Millenials are not buying houses like previous generations. They don't like beer or golf or guitars either, as much. I love owning a house outright and medicare and social security are great. It's money that I paid in, so I deserve it. Is anyone else noticing more Subaru cars and SUVs on the road? I think it's the all wheel drive. I am watching that stock. Ace
 

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