I'm looking at the possibility of buying some stock since I've been recently coming out ahead each month (fancy that, economy goes to crap and I've got money to burn) and have a bit I could put into the market. I know this could be a long term investment before I see any major returns, but are there any stocks out there that are on the cheap and stand a good chance to rise? Any advice from the market players?
Unless you're really smart and willing to put major amounts of time into research, you're not going to beat the market, i.e. your best bet is to buy and index-tracking fund. Given the current situation, it's questionable how good an idea equities are but if you're willing to just wait until the situation improves, now probably isn't the worst time ever. Market timing is near impossible and while stocks are reasonably cheap already, they might fall quite a bit more - or they might not. Obviously, the cheapest thing right now are probably financials - they've fallen so far. However, they're also highly influenced by government fuckery and might just go bust. Morgan Stanley and Goldman Sachs should be safe - and as a consequence aren't cheap either. There are some fairly recession proof companies in industries such as health care, utilities and basic consumer goods - they shouldn't lose too much value but obviously don't offer that much upside either. Giving you concrete advise is fairly hard without knowing what kinds of risks you're willing to take etc. From the top of my head I'd ask these questions: - What do you want from your investments? e.g. "as high a return as possible"? - How much money can you invest? - How much are you willing to lose/can you afford to lose? - Any other considerations (e.g. "no tobacco stocks")?
I'd think of it as a temporary investment that could potentially pay off- high yield would be ideal, but not absolutely necessary. I'd be willing to hold on to the stocks for a few years if it meant a better return. I can potentially invest a few hundred, more possibly if some inheritance issues pan out. I can afford to lose every dollar I put in, because I'm going to only use excess funds to buy, I wouldn't want to lose the money, but that is the way the game works right? No other considerations, really, I have no qualms with giving money to companies that club baby seals.
Well, there's two basic approaches to investing - either the "building castles in the sky" approach or the "fundamental value" approach. In the long run, the fundamental value approach will work out (i.e. stocks are worth what they're worth and the market gets it right) - basically, markets are efficient. Invest in an index-tracking fund and you'll get your average annual return of around 8% or whatever. Of course, you'll also lose 35% occasionally or gain 25%. Diversify properly, don't just invest in equities and you've got your basic sensible retirement strategy (of course, this is somewhat questionable if you consider how long you're working life is going to be and what the world looked like the same number of years ago - there's just plain no guarantee that you won't get completely wiped out by a socialist revolution or something). The second approach sounds more like what you're looking for - i.e. a zero sum game where you just hope not to be the idiot left holding the stocks once they crash. It's obviously more high risk than the other strategy and it's pretty hard work if you're looking to "beat the market". Just check your basic crackpot out there and what they're doing (e.g. Tim Sykes - he's pretty reasonable for a crackpot ). They'll have their own get-rich-quick scheme, be it technical analysis (looking at graphs and then reaching conclusions from that) or short selling (that's Sykes). All of them require lotsa work. Additionally, for you it's going to be even harder since the amounts you're looking at investing are going to make the fees hurt real bad. Plus, day trading is probably out of the picture (if Sykes can be trusted on this and there is an SEC rule making it impossible for investors with less than 25k). Just check stocks that fell really low and then think about whether or not you think they're going to go bankrupt or not. For example, look at Citigroup - they're not going to go bust but the question is whether or not the government will wipe out shareholders. If not, you can buy the shares at an incredible price. Citigroup is currently valued at a market cap of about 16bn. Yes, 16bn. It's a massive company with God knows how many employees and Assets under Management that would make quite a few other banks envious etc etc etc. Basic message: the company is worth a lot more but it's unclear whether or not current stockholders will get to participate in that. An explanatory calculation could go something like this: UBS is worth almost 30 bn right now, Credit Suisse close to 40, Deutsche around 26 or so (they all have a similar business model even though they're smaller than Citigroup and they all suffer from similar discounts due to uncertainty) - so it's fairly certain that Citigroup is worth at least twice the current price, more likely three times its current price. It dropped around 90% over the last year (from almost 28$) so if you're willing to take that bet and say "I believe the worst is over/it's not going to get fundamentally worse, I believe that Obama won't wipe out shareholders and I believe he won't let Citigroup go bankrupt" - well, then you could invest and if you're right the market will come around to your estimation as well and you'll have yourself a wonderful 200% or whatever return. Let's say the real value of C is $9 but the market assumes there's only a one third likelihood that they won't get nationalised - 1/3*$9 = $3 and you've got your share price. The same thing can be done for many of the other financials. If Geithner succeeds in fixing the financial industry, they'll rise back a lot and you stand to gain a lot - or lose a lot if he fails. Companies like General Electric or Coca Cola offer less upside potential but also less likelihood of being a complete loss.
I probably can't help you, given the money you have on hand and the strategy you'd like to pursue. My general advice is: No-load indexed fund; dollar-cost averaging. First off, you're not going to outperform the market. It just isn't going to happen (unless you have insider information and even then it isn't that likely). There are people who have been investing for decades out there. If there really were some great deal out there, don't you think they'd quickly buy it up, causing the price to increase to the point where it isn't a bargain any more? Second, you need to hedge. You can hedge against volatility using time, diversification, or both. Say, for example, you think General Motors is a good deal. In the short term they could get some bad news. If you panic and sell your stock, you lose money. Then they get good news and you buy it back--but you lose some more money because you missed the gains that happened. This is, in essence, what happens when you try and "time the market". Conversely, if you buy your General Motors stock and plan to hold it for at least seven years (that's just my general rule of thumb), the stock may fluctuate, but in the long run it will make money. That is, unless General Motors goes bankrupt. Which brings me to diversification. In stead of putting all your eggs in one basket, you want to hold lots of stocks. And you want to pick them so they are in alternating industries. I can't come up with a good example using General Motors again, so lets say you have stock in--I dunno--Morton's Steakhouse. That might be a good investment when the economy is chugging along, because they probably make pretty good margins on fine dining. But if the economy tanks and no one is going out to dinner, you're hosed. So you get stock in McDonalds or Safeway or something--because people still got to eat, but they'll look for more economical things to eat. That way when one of your stocks is doing poorly another one is doing well (generally speaking). The way a lot of people will diversify is by buying a mutual fund. That's where a lot of people pool their money to buy a "portfolio" of stocks. And since it is very hard to pick winners--even for the pros--the way to go, IMO, is an "index fund". It will pick a benchmark, say the S&P 500, and buy the stocks from that benchmark. That way, you'll do as well as the market does. Actually I like Vanguard's funds. I use the Life Strategy Growth Fund. It doesn't charge a fee and it is further hedged by holding bonds as well as stocks. I don't think that's going to work for you right now, because it takes $3 grand to get started and I think they charge a service charge until you get invested above $10 grand. But anyway, on to dollar-cost averaging. Dollar-cost averaging is the one surefire way to "beat the market". And the beauty is it requires absolutely no thought. It only requires that you have a long-term outlook on investing and have some extra money to invest every month. So what you do is every month you send $50 or $100 or whatever--the same amount every month (or whatever period you're investing for). That way, when the market is down, your $50 buys a lot more stock than when the market is up. You aren't "buying low, selling high", you're buying more low and buying less high. Over time this, along with reinvesting your dividends will help you build wealth. Of course if you look at the charts for the Vanguard fund I referenced, I've probably lost money during over the long haul right now. And since I don't have any income to spare I'm not able to buy shares while the price is low. So when the market recovers I'll have missed out on a great opportunity. Well, that took a lot longer than I'd planned. Gotta get back to work.
Buy oil stock. Seriously though, I paid a pretty penny for oil stocks when the price of oil was down around $30/bbl. It has since gone to $50/bbl, and I expect it to go up to $70-80/bbl in the summer. Good money. If you play your cards right.
I think with the Obama administration, and Democrats in general, being more hostile to business, it might be a good idea to invest in 'green' companies. They are all the rage these days, and, treehugging and granola eating aside, environmentalism is becoming big business. Even if some things are shams, the fact is companies will pay big bucks to have the public view them as eco-friendly. For companies that are in the eco-friendly industry, this could mean solid growth, even in recessionary times. Azure, how much has Vestas stock gone up or down? I imagine you're still busy, even with the recession.
No idea, actually. About the stock I mean. Never really looked into it. Most of the work we do are from purchases that were made 2 years ago.
