# Shares



## daedong

My wife and I have money in a superannuation fund ( managed investments) Anyway I know very little about trading shares but today I put my toes in the water and bought a small number of shares online. The process was easier than I expected. Thats not to say I will  make any profit, as long as I don't lose I will be happy for the time. There must be plenty of folks here that can share some of their knowledge, things to look out for, or things not to do. Any help / advice would be appreciated.


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## fogtender

Buy low, sell high.  Pretty much sums it up!

Having said that, what I do is buy "Some" shares in a company, if it goes up, I sell it.  If it goes down, I buy more, if it goes down more, I buy a bit more.  

I look for a company that has stock that "bounces" around a lot, nobody really knows the high and lows of a stock, they just guess and try to map the history.

When the stock that I keep buying in small amounts hits bottom, it starts to rise, as it passes a certian point past where I bought it, the lower priced stock is up, so I sell that batch, as it goes higher I sell the next level and so forth.  If it takes another dive, I buy more.

Most people will buy a whole bunch of one stock at a time, when it dives, they panic and sell it, when it rises, they get greedy and hold on hoping it will go higher, then it tanks (again) and they panic and sell for a loss.

You need to have a plan for what you want to do and stick with it.  Set the rules up and follow them like a religion.  There are times when a company just turns bad, you need to realize that and just get out of it.  If you pick about five or six companies and stick with those ones that go up and down alot, you will do well.


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## Melensdad

fogtender said:


> Most people will buy a whole bunch of one stock at a time, when it dives, they panic and sell it, when it rises, they get greedy and hold on hoping it will go higher, then it tanks (again) and they panic and sell for a loss.
> 
> You need to have a plan for what you want to do and stick with it.  *Set the rules up and follow them like a religion.*  There are times when a company just turns bad, you need to realize that and just get out of it.  If you pick about five or six companies and stick with those ones that go up and down alot, you will do well.



Vin is an atheist so some of that advice may not work out to well 

But I agree with your points.  I would add a couple more things.  One is that its a good idea to diversify your investments into different areas of the economy (and the world).  Owning stocks via mutual funds can do this for you, and there are some good funds out there.  But when investing in individual stocks, which is more to the point of this thread, don't buy too many companies.  Find a handful of companies, research those companies, learn what they really do.  Or, subscribe to a couple of financial newsletters that you are comfortable with and read the research they provide, then follow up their research with a bit more of your own.  Track the success of the newsletter, or track your own success, by building a 'mock portfolio' on line.  Yahoo! lets you do this and you can invest in and track your stocks without it costing you a penny. 

Also, consider how you allocate your risk.  If you have a pool of $10,000 to invest you must consider your risk tolerance.  Are you willing to risk $1000 of it on pure speculation?  Or is that whole $10,000 your nestegg that must, above all, be preserved?  Or is the whole $10,000 your play money that can be put up for risk?  How much you can, or are willing to, risk, is what will determine your overall strategy in investment.


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## DaveNay

Vin,

I would look into following some of the advise given by professional analysts.  Read some web sites, and perhaps subscribe to a newsletter if you find one with a philosophy you like.  I (and at least one other FF member I know of) subscribe to the Personal Finance Newsletter, and find their advise to be sound.

To try to "go it alone" in today's market is very tough.  I will pick a few of my investments on my own, but the majority are chosen after reading and researching various recommendations.  One thing to be aware of is the "pump and dump" scam.  Once you start investing, you will likely end up receiving spam email about *a great new stock that is about to make you thousands of dollars*.  Many of these are a scam where some large investor convinces everyone to buy (the pump) and then they sell a large number of shares (the dump).  This causes the stock price to plummet, and the large investor makes even more money by shorting the stock.

The other thing to keep in mind is _you will lose money!_  The trick is to have a net gain overall and not on every single investment.  If you are intent on making every single investment profitable, then you will surely ride one into the ground and will never be able to recover your losses (think Enron and Worldcom).


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## Cityboy

My advice is to stick to index funds. I've read that only 1 in 5000 professional portfolio managers consistently beat the market indexes. If that is true, what makes an individual investor think he or she can beat the market?

Here's the synopsis of the article below:


*"The bottom line is this: The best course for the average investor is to buy and hold an index fund for the long term. Even if you think you have compelling reasons to believe a particular trade could beat the market, the odds are still probably against you." *


Check out Vangard's index funds: 

https://personal.vanguard.com/us/FundsIndexOnly




March 9, 2008
Strategies
*Can You Beat the Market? It’s a $100 Billion Question *

By MARK HULBERT

Correction Appended

INVESTORS collectively spend around $100 billion a year trying to beat the stock market. That’s the finding of a rigorous effort to measure the total costs of Americans’ efforts to surpass the returns they would have received by simply holding a stock index fund. The huge price tag helps explain why beating a buy-and-hold strategy is so difficult.

The study, “The Cost of Active Investing,” began circulating earlier this year as an academic working paper. Its author is Kenneth R. French, a finance professor at Dartmouth; he is known for his collaboration with Eugene F. Fama, a finance professor at the University of Chicago, in creating the Fama-French model that is widely used to calculate risk-adjusted performance.

In his new study, Professor French tried to make his estimate of investment costs as comprehensive as possible. He took into account the fees and expenses of domestic equity mutual funds (both open- and closed-end, including exchange-traded funds), the investment management costs paid by institutions (both public and private), the fees paid to hedge funds, and the transactions costs paid by all traders (including commissions and bid-asked spreads). If a fund or institution was only partly allocated to the domestic equity market, he counted only that portion in computing its investment costs. 

Professor French then deducted what domestic equity investors collectively would have paid if they instead had simply bought and held an index fund benchmarked to the overall stock market, like the Vanguard Total Stock Market Index fund, whose retail version currently has an annual expense ratio of 0.15 percent. 

The difference between those amounts, Professor French says, is what investors as a group pay to try to beat the market. 

In 2006, the last year for which he has comprehensive data, this total came to $99.2 billion. Assuming that it grew in 2007 at the average rate of the last two decades, the amount for last year was more than $100 billion. Such a total is noteworthy for its sheer size and its growth over the years — in 1980, for example, the comparable total was just $7 billion, according to Professor French.

The growth occurred despite many developments that greatly reduced the cost of trading, like deeply discounted brokerage commissions, a narrowing in bid-asked spreads, and a big reduction in front-end loads, or sales charges, paid to mutual fund companies. 

These factors notwithstanding, Professor French found that the portion of stocks’ aggregate market capitalization spent on trying to beat the market has stayed remarkably constant, near 0.67 percent. That means the investment industry has found new revenue sources in direct proportion to the reductions caused by these factors.

What are the investment implications of his findings? One is that a typical investor can increase his annual return by just shifting to an index fund and eliminating the expenses involved in trying to beat the market. Professor French emphasizes that this typical investor is an average of everyone aiming to outperform the market — including the supposedly best and brightest who run hedge funds.

Professor French’s study can also be used to show just how different the investment arena is from a so-called zero-sum game. In such a game, of course, any one individual’s gains must be matched by equal losses by other players, and vice versa. Investing would be a zero-sum game if no costs were associated with trying to beat the market. But with the costs of that effort totaling around $100 billion a year, active investing is a significantly negative-sum game. The very act of playing reduces the size of the pie that is divided among the various players.

Even that, however, underestimates the difficulties of beating an index fund. Professor French notes that while the total cost of trying to beat the market has grown over the years, the percentage of individuals who bear this cost has declined — precisely because of the growing popularity of index funds. 

From 1986 to 2006, according to his calculations, the proportion of the aggregate market cap that is invested in index funds more than doubled, to 17.9 percent. As a result, the negative-sum game played by active investors has grown ever more negative. 

*The bottom line is this: The best course for the average investor is to buy and hold an index fund for the long term. Even if you think you have compelling reasons to believe a particular trade could beat the market, the odds are still probably against you. *


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## Melensdad

Cityboy said:


> My advice is to stick to index funds. I've read that only 1 in 5000 professional portfolio managers consistently beat the market indexes. If that is true, what makes an individual investor think he or she can beat the market?


I did that for years and while it is not a bad strategy, I don't believe it is the best choice for all your funds.  I generally believe you can invest a good portion in the best index funds, but you can also, IF YOU ACTIVELY manage your stocks, do better than the index funds by a very good margin. Over the long haul, IF YOU ACTIVELY trade, you can do better than the index funds.

* _Disclaimer, I do hold several different Vanguard index funds and believe them to be good funds that have proven themselves over time._


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## Cityboy

B_Skurka said:


> I did that for years and while it is not a bad strategy, I don't believe it is the best choice for all your funds. I generally believe you can invest a good portion in the best index funds, but you can also, IF YOU ACTIVELY manage your stocks, do better than the index funds by a very good margin. Over the long haul, IF YOU ACTIVELY trade, you can do better than the index funds.
> 
> * _Disclaimer, I do hold several different Vanguard index funds and believe them to be good funds that have proven themselves over time._


 
Are you saying that you *consistently* beat the market, a feat only 1/5000th of professional portfolio managers achieve?


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## Cityboy

Here's some more indexing info. Some good news for Vin is in the first chart concerning Australian managed funds for one given time period:




The common sense truth about managed funds

There are two types of managed fund. One type, the traditional "active" managed fund has the goal of producing returns superior to an appropriate benchmark index, and they attempt to meet this goal with a combination of stock picking, market timing and asset allocation decisions. The other type of fund is called a "passive" or "index" fund. These funds don't try to beat the index, they just try to match it as closely as possible. The main object of an index fund is to produce returns in line with that of the asset class, minus their very small fees. 

It is obvious why active funds are so popular. It is hard to bring yourself to accept average returns. Why settle for average returns when you could be above average? It seems when you look at a list of managed funds, the great majority seem to have beaten the index, a testimonial to the triumph of professional management over the deliberate mediocrity of index funds, or so it seems. 

Now a bombshell, "mediocre" index funds have on average, in a wide variety of markets, over very long periods of time, with great consistency, outperformed roughly three quarters of all active managers after fees. Some index funds appear to be harder to beat than others, for example in the United States the main benchmark index is the Standard and Poors 500 index, and this has beaten virtually every managed fund in America bar only a few for decades. *Australian share funds do seem to have had some success, here index funds beat the majority, but apparently not a large majority of active funds.* 

Over the period of March 1995 - March 2002, most retail funds underperformed their benchmark indexes in most asset classes. *Possibly Australian share funds are an exception, but if so they are the only one.* 




(Source: Vanguard, using data provided by ASSIRT) 
The median performance data over the same period shows the underperformance of active funds compared to indexes: 




(Source: Vanguard, using data provided by ASSIRT) 
When you plot the performance of every managed fund vs the index, the message is particularly dramatic. Here is the performance of every US large cap fund with a 15 year history vs the S&P500 and CRSP 1-10 indexes over the 15 Years ending 31 December 2001 (285 Funds). As you can see, while a small number of funds did outperform, they didn't outperform by very much. On the other hand most funds lagged by a very substantial amount. The success of the winners did not compensate for the failures of the losers. A diversified portfolio of active funds underperformed the S&P500 index by about 3%pa.: 




(Source: http://www.tamasset.com, picture originally by Dimensional Fund Advisors) 
Active funds don't seem to be capable of reducing risk either. Even if they can't perform any better surely one would think active fund managers would be able to avoid the risky stocks. Index funds may hold hundreds or even thousands of stocks, but most active funds would hold about 50. As a group, active funds are actually more volatile than index funds. 




(Source: TAM Asset Management, Inc "Investment Policy Guidelines & Strategies Within the Context of The Prudent Investor Rule", "average active fund" = average of 7125 US domestic equity mutual funds in the Morningstar Principia Pro Database July 1991 - July 2001.) 

It may seem strange, that all those highly paid portfolio managers as a group don't seem to be able to display any consistent ability to perform better than a diversified portfolio of stocks chosen on the basis of nothing more than their size, but all of this is exactly as it ought to be. 

Active funds vs probability theory
First I will state something that may appear obvious, but it lies at the heart of a very successful investment strategy: it is mathematically impossible for everyone to be above average. No matter what the average is, there must always be a distribution such that half of all people (or in the case of investing, the managers of half of all invested dollars) would be below average. 


There are two ways that an active investor may seek above average returns:

Active investors may hold superior stocks or other securities, that perform better than average.
Active traders may time the market, moving in and out at the right moment, riding the upswings and missing the falls.
And of course that is just what most investors are trying to do. There is a nagging problem with this though that investors as a group need to be aware of. If you want to sell a stock, someone has to buy it off you. Another glib truism, but if you'll bear with me this is going somewhere. 
If you want to sell right at the top, someone is going to have to buy right at the top. You will perform much better than average, and whoever buys that stock off you will have below average performance as a result. The same goes with inherently "superior" and "inferior" stocks, for you to choose a portfolio containing only the best issues, someone else must be left holding the bad ones. Clearly as a group, investors are all going to have average performance, it is impossible for any amount of trading or stock selection to improve on that. 

Now in investment, the average is measured with an index. Most indexes are market value weighted, meaning the total value of the company on the market accounts for the weighting that company is given in the index. This is sensible because clearly market value weighted indexes are the best (though not necessarily perfect) way of tracking the performance of all investors. 

If an index is the average, then like it or not half of all investors are going to do worse than the index, before costs, and there isn't a thing that can be done about it. Of course half will do better, but no amount of trading or research will stop half of all investors failing to beat the index. 

Today's markets are better researched and more "efficient" than at any time in history. The dominant players, accounting for most of the dollars flowing around the markets are institutional investors. Whatever your opinion on managed funds, one thing you cannot deny is that they do try very hard to improve their investment performance, if only so as to impress customers and gain more funds (and hence fees) to manage. Managed funds employ the brightest and best graduates in economics and finance, and will pay huge salaries to retain good quality analysts and traders. 

The industry is highly competitive, if one managed fund is going to pay top money to get the top staff, then they all will. While undoubtedly some management teams may be superior to others, widespread head-hunting makes these competitive advantages difficult to keep up. The fact is, these highly talented individuals make investment a dynamic profession, and make it difficult for less informed investors to secure any kind of "edge". As clever as these analysts are though, the laws of probability can't be overcome by wits alone: half of all these teams of dedicated and hardworking analysts and portfolio managers are going to underperform the index. 

To use an analogy, no matter how hard the athletes train, and how good they are, even at the Olympics somebody has to lose. Half the athletes will come in the second half of the field. It makes no difference at all if the athletes as a group are superb, terrible or somewhere in between, the actual ratio of winners to losers was fixed all along. Investment is the same. 

So you might presume that you have about a 50/50 chance of choosing a manager that will beat the index, but you'd be wrong. One thing we haven't considered so far is costs. There are a variety of expenses in investment, there are those big analyst salaries for a start, but they are nothing compared to the costs of buying and selling shares on the market. The costs of trading include brokerage, the buy/sell spread, stamp duty and more. As well as the costs of research, marketing, tax reporting and compliance and distribution for managed funds, it simply costs money to buy and sell shares. The Plexus Group, a US based investment research house estimates that it costs about 0.8% for institutions to buy or sell stock, on average, so a manager that turns over 100% of the portfolio each year will lose around 1.6% in costs. 

What is the average turnover of managed funds? At the low end of the scale, there are funds that turn over around 20% of the portfolio each year. At the high end, several hundred percent. It is hard to find local data on what constitutes average, though American funds average around 80%pa. 

Remember that while trading can be profitable, it comes at the expense of the inferior trader. If funds are just trading with one another then the costs of this activity are going to drag down the performance of the whole group. The better traders may incur a marginal advantage, but the majority of managers are equally talented, and it is hard to find one that is so good that any long term advantage can be gained from their high turnover strategy, eventually the laws of averages catch up with managers and high costs overwhelm trading activity. 

In fact managed funds researcher Morningstar, in a review of 3,560 American stock funds, found that funds with low turnover ratios generate superior long term returns to funds with a high turnover. Over a ten year period, funds with an annual turnover below 20% outperformed funds with an annual turnover above 100% by a margin of 1.58%pa - exactly what you'd expect it to be given the Plexus estimate that 100% turnover costs 1.6%pa! This has been confirmed by many other studies, fund managers as a group do not gain anything from market timing and trading, the highest turnover funds perform worse than the buy and hold funds. 

Similarly, fund managers seem to be unable to gain an advantage over their rivals through stock selection. There are only a very small number of funds that have demonstrated a significant degree of success as stock pickers, and even then rarely for extended periods of time. Remember, managed funds all have great stock pickers on staff, professional managers compete with each other and as a result competitive forces (and lucrative head-hunting bonuses) keep the very best stock pickers well distributed around the industry. 

Academic studies have found little evidence that superior stock picking stays in any one managed fund. Last year's hero fund manager, with the colossal outperformance of the index is barely any more likely to do well this year than any randomly picked fund. Past performance, despite the massive attention it gets, is practically useless in predicting future results. 
The following two pictures tell the story pretty well. In the first picture, based on a study by Frank Russell Australia using Morningstar data, you can see the subsequent performance of all the funds from the top quartile (top 25%) in 1997. Few of them were top quartile again the next year, none in the two years following. 




The second graph shows the performance of 1999's top quartile funds. As you can see, top quartile funds did worse in the year before and the year after than random chance alone would suggest. I don't recommend blind "contrarianism" (picking last year's loser just because it was a loser and you think it will bounce), but statistically that is a better strategy than choosing last year's winner. 




Studies have in fact found that there is some reliability in longer term data, but it seems to be best employed as a purely negative filter. Really poor performance seems to persist, untalented stock pickers with high costs and sloppy trading don't seem to get any better with time, though good performance isn't as persistent. 

Studies of the effectiveness of fund ratings systems such as those used by Morningstar have shown that the systems are reasonably good at identifying very poor funds but not as good at identifying very good ones. Out of the 5 star systems so commonly employed, the 1 and 2 star funds are often dogs, and often continue to be dogs, but there is little evidence that a 5 star fund will do better than a 4 star fund or a 3 star fund. If anything, there is a little bit of evidence at least that 3 and 4 star funds outperform the 5 star funds! 

There is one factor that has been shown to have a major impact on results, and by now you may have guessed what it is. Researchers looking for the holy grail of managed fund picking have found that one factor seems to explain most of a fund's long term performance advantage or disadvantage compared to an index: costs. Because everyone incurs costs, the average manager does not outperform the index. The only reliable way to achieve an above average performance is to achieve below average expenses. Passive funds are great for that, lower fees and more tax efficient. 

How to win a "loser's game"
In game theory, there are games called "loser's games" and "winner's games". A loser's game is a game where the outcome is determined by a mistake from the loser. A winner's game is won by the skill of the winner. Good examples of losers games include "noughts and crosses", where it is impossible to beat an opponent unless he or she makes a mistake, and amateur tennis where it makes more sense to play conservatively and not try anything fancy, so you'll let your unskilled opponent whack the ball into the net. 

The opposite of a "loser's game" is of course a "winner's game", where points are won by skill. If amateur tennis is a loser's game, then professional tennis is a winner's game. To beat a professional tennis player you can't rely on waiting for him to make an unforced error, you must be more skilled and hit the ball out of his reach. 

Charles D. Ellis, in a classic book _Winning The Loser's Game_ explained that due to the difficulty of scoring "points" as an investor, that is, outperforming a crowd of hard working and highly skilled investment managers, investment is best played as a Loser's Game. If you want to beat your opponents you could play a winner's game strategy - try to time the market or pick the best stocks, but you are up against some pretty serious competition here. A more reliable strategy would be the strategy of letting the others make the mistakes, and in investment the biggest "mistake" is high costs. Ellis argued that the best way to beat the crowd would be to adopt a low cost investment strategy. 

The great thing about indexing is that it is very cheap indeed. Index funds don't need expensive analysts, they barely lift a finger to sell themselves, incurring practically no expenses in marketing or distribution (ie, when was the last time you saw index funds advertised on TV, and have you ever compared the beautiful glossy brochures of the average managed fund with the spartan black and white printouts most index funds use?). Index funds don't trade much either, so they don't incur the 1.6% cost of buying and selling. 

If all funds could operate completely free of costs, index funds would probably sit right on the 50th percentile, with the successful active funds beating them, and the unsuccessful active funds doing worse. But as I've said over the last few paragraphs, active funds are much more expensive than passive funds, which explains why index funds tend to beat between 60 and 80% of active funds in most markets. 

So to summarise: competitive forces keep the skill levels about equal in almost all managed funds, which explains why it is rare for any one fund manager to perform much better than its peers for any extended period of time, this also makes it practically impossible to pick winners in advance. Also, since index funds are simply a whole lot cheaper than active funds they tend to perform much better than active funds as a group. 

So why do active funds all seem to outperform the indexes?
The above all makes perfect sense, yet if you look at a list of funds it seems the great majority of them outperform the index. What is going on here? 

There are a number of ways that active fund managers have been able to promote the illusion that as a group they are adding investment value. The investment management industry has many tricks to make it appear as if everyone is doing better than average. 

For a start they can load the dice by opening to the public a lot of historically profitable funds. Fund managers introduce _creation bias_ into the equation by starting a lot of aggressive new funds. The way this trick works is they give seed capital to a number of promising young portfolio managers every year. These managers then invest and trade aggressively for the next year or two, establishing a track record. The fund managers that didn't do well get the flick, their money gets plowed into the more successful fund and then the investment company opens the new fund to the public and puts enormous marketing hype behind it. In this way managers can ensure that all new funds (that the public hear about) have excellent track records. 

There are studies that have found that brand new funds often underperform their own track records, and as a group seem to do worse than more established funds, this is probably why. Note that these new funds don't do any better than average following their launch, but they do get to brag about impressive past performance. 

The second trick is to bury the evidence if one of their public funds ever falls behind. _Survivorship bias_ is introduced when fund managers close or merge their less successful funds with more successful ones. By continually weeding out the weaker funds, a fund manager can present a prospectus showing the entire range of investment options being market beaters. Similarly, when a fund is culled it is usually deleted from most databases, so history is rewritten by the winners. Professor Burton Malkiel, author of the excellent book _A Random Walk Down Wall Street_ studied this phenomenon and estimates survivorship bias could add as much as 1.5%pa to the performance of the median fund manager. Investors do not benefit from survivorship bias, real world investors do lose money on funds that are deleted. All that improves is the historical average performance of fund databases. 

Third trick is to throw a lot of hype behind high performing funds. There is little evidence that winning funds are able to sustain their high performance over the long term, so this can only be seen as a cynical marketing exercise, cashing in on last year's luck. Naturally funds that don't perform well don't advertise much, so all you see are ads showing high performance. 

The fourth trick is as scurrilous as the rest, even a very poor fund that has underperformed over the longer term can have a good year or two, so as long as these funds only talk about recent past performance they can avoid the prickly question of longer term past results. Similarly, funds can always brag about past glories, proudly displaying the fund manager of the year ribbon they won 3 years ago on every advertisement, and brag about a high long term performance even if the last few years have been dreadful. 

It is difficult to get hold of data that is free of survivorship bias and these other problems, data by ASSIRT, Morningstar, Investorweb and other commercial researchers are invariably affected by survivorship bias. One way to lessen the effect of survivorship bias would be to look at shorter periods of time, not ten years or more when survivorship bias can be huge. 

TD Waterhouse calculated that in the three years to June 30 2002, only about a third of Australian fund managers beat the ASX200 index. In stark contrast to the chart at the start of this article, here is how Australian actively managed share funds have performed over the last three years: 




Academic researchers, using data that is "clean" (free of survivorship bias), and weighting the performance of funds according to size (so we get a better picture of what the average investor is getting, rather than give equal weighting to large funds with tens of thousands of clients and tiny boutiques with only a dozen) have shown that there is nothing special about Australian fund managers, they have in fact been beaten by the indexes - just as you'd expect them to if you assume that the laws of arithmetic have not changed on our side of the pond. 
And on top of all that, active funds are usually less tax efficient than index funds because of their high portfolio turnover and frequent capital gains distributions. I'll explain this in the next article.


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## Melensdad

Cityboy said:


> Are you saying that you *consistently* beat the market, a feat only 1/5000th of professional portfolio managers achieve?


YES.  

Bear in mind that you are comparing me to FUND MANAGERS and bear in mind that those fund managers have expenses and other things that I don't incur that are factored into their performance against the INDEX FUNDS.  It is not an _apples to apples_ comparison!

Also bear in mind that I am honest enough to admit that I hedge my bets with INDEX FUNDS in case I should make a big mistake.  

But also look at the fact that most actively managed mutual funds own a lot more different stocks than I follow/own, are typically sector funds, etc.  I do own some of those funds as well.

Also, I am not adverse to paying short term capital gains if I get a big run up in value, while that tax penalty has to be factored into my 'performance' it is hard to go broke taking profits.  I do NOT consider myself very risk tolerant, I play things reasonably conservatively, but I have beaten the INDEX 500 funds every year for the past decade even factoring in the higher taxes I incur by selling some of my stocks as short term investments and getting hit with the short term capital gains tax rate.  I use the Vanguard Index 500 Fund as my benchmark.  BTW, I do NOT even consider myself a savvy or experienced investor.


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## daedong

Thanks for your time.

I just want to have some fun at this stage, nothing too serious. I am not going to use my nest egg, I don't want to lose obviously, but I won't cry if I do. Hopefully I will be able to make some gains. I guess it really is just an interest for the time being.

I've been advised to look at the number of sellers versus number of buyers, any truth in that?

I knew nothing at all about the share market 2 weeks ago, at least I now have a basic understanding.


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## fogtender

daedong said:


> Thanks for your time.
> 
> I just want to have some fun at this stage, nothing too serious. I am not going to use my nest egg, I don't want to lose obviously, but I won't cry if I do. Hopefully I will be able to make some gains. I guess it really is just an interest for the time being.
> 
> I've been advised to look at the number of sellers versus number of buyers, any truth in that?
> 
> I knew nothing at all about the share market 2 weeks ago, at least I now have a basic understanding.


 
If you are watching the early rise in a stock and there is a heavy volume, that is a good sign, but if the tread in more than a day or two without some positive news following it, many times it is an Automatic Computer Generated "Buy" cycle that is shortly followed by a Automatic sell off after "Suckers" have bought into it also and then it is sold out from under them.

That is a good tool to watch, but don't us it as you main reason to buy a stock.


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## daedong

Interesting week for a novice. some of the shares that I bought last week were in a small Australian mining company. A day or so later I got home to find on the news that there was a gas explosion on Varanus Island off the coast of Western Australia. you guessed it one of the companies I invested with had an interest in the plant. Bingo the share has price dropped  7.7% since. 
http://www.radioaustralia.net.au/news/stories/200806/s2264388.htm?tab=latest


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## Melensdad

So Vin, any updates on your stocks?  Are you still playing around with investments or did you get a bad taste for it based on the problem with the mine you outlined above?

I did a bit of a study of my holdings today, versus the market averages. 

For the year:  (according to this link)
The Dow is *down* 1,104.52, or 8.33 percent.

The S&P is *down* 117.43, or 8.00 percent.

The Nasdaq is *down* 194.55, or 7.34 percent.​
I have several different portfolios, one of which I personally manage, the others are managed by the 'professional' money managers.  The portfolio that I manage is *up* 9.10% year to date, and I took a heavy realized loss on one of my picks.  I do not consider myself tolerant of too much risk and am happy with reasonably conservative investments.

My wife's retirement portfolio, professionally managed, is *up* just under 2%.

My retirement portfolio, professionally managed, is *up* 4.9%


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## daedong

Bob, 

I have had a disastrous start, I started out and invested in 3 different companies.  Overall I have lost about 9%. One company initially went up, but has taken a dive this week. A second company fell sharply when they announced a takeover bid, but has recovered a bit. The third one, which was the one with the gas explosion, has recovered a lot from last week, but is still down a bit. I will hang on to them all at this point, no need to panic.


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## Melensdad

Vin, none of the stocks or mutual funds I've purchased over the years have only gone up!  All of them take a bumpy ride up one week down the next.  I think some of the way to lower risk is to do some homework prior to investing, read up on the companies you are considering, look at what the analysts are saying and if you can figure out what they are missing then you may be able to find a diamond in the rough, because those do exist, they are simply tough to find.   

DaveNay and I trade many of the same stocks, we have somewhat different views on how to trade some of them, but we follow some of the same analysts.  One newsletter we both follow recommended buying Nucor Steel up to $80.  I had previously purchased that stock in the upper $60s range and sold it when it hit $78.75 a few days ago.  The stock dipped back down and I bought back my shares at $77.20 a share yesterday.  Basically I took $1.55 profit per share and stuffed it in my pocket.  The stock may go down some more, but I ultimately feel the stock will go up again and many of the wall street soothsayers suggest that it is cheap at $80 to $85 per share.  I think Dave probably achieves bigger gains than I do, at somewhat bigger risks.  But he's younger and has a job so he can afford the risk/reward he takes.  I have to give him credit when its due.

I will probably be doing something similar today.  A stock (symbol LINE) was just recommended by a TV broker called Jim Cramer.  He recommended it last night on his TV show.  Usually when he does that the stock skyrockets for a few days.  I hold several thousand shares of that stock, if the stock jumps a dollar or more today then I'll probably unload some of what I have, maybe a few thousand shares and pocket the cash. Historically a week or so after Cramer recommends a stock the price comes back down to a reasonable level so I'll probably buy the stock back.  Again, just like Nucor, it is a stock I believe in so I want to hold it.  The stock closed at $24.50 yesterday.  I see no reason not to sell a few thousand shares it if jumps up a dollar or more.  My general trading philosophy is to then sit on that money until there is an opportunity to buy one of the stocks I watch, I then use the proceeds from the sale to buy even more stock.  In this case I will probably hold that money _(should I actually make a sale)_ to attempt to buy more LINE at some point in the near future.

There are LOTS of ways to play this game.  Get your feet wet and don't lose hope.  I am NOT an expert by any means, but I do find the game fun.


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## DaveNay

DaveNay said:


> The other thing to keep in mind is *you will lose money!*  The trick is to have a net gain overall and not on every single investment.  If you are intent on making every single investment profitable, then you will surely ride one into the ground and will never be able to recover your losses (think Enron and Worldcom).





daedong said:


> I have had a disastrous start, I started out and invested in 3 different companies.  Overall I have lost about 9%.



Told ya so! 

Seriously, investing of this type has a seriously steep learning curve and is very difficult.  I feel like I am playing with fire every time I make a decision on something.


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## daedong

DaveNay said:


> Told ya so!
> 
> Seriously, investing of this type has a seriously steep learning curve and is very difficult.  I feel like I am playing with fire every time I make a decision on something.



Dave I am well aware of the risks I have a sister that lost near everything speculating in stocks. 

The few shares I have bought even if I lose the lot will not break the bank a/c,  but I can live cheap.

Of  the three companies, one had a gas explosion, the other two have announced take over bids, so one would expect some volatility in circumstances like this.  As you say it is a steep learning curve, and I can be a very slow learner.


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## California

Vin, recognize the difference between speculation and investment.

Speculators gamble against one another. It's a short term game. Those with a good sense of where the stock is headed make their money from those who don't. And I would add: the smaller the stock, the more unpredictable its future value will be.

Investment, in contrast, is buying a (small) portion of a business that you expect will do well over time, and benefiting from the increased dividends and share price that its growth provides, over a long period of time. If you have the instinct to recognize the next IBM or Yahoo, great. If not, then solid and historically profitable companies are a better bet. Investors who bet on a pool of the larger stocks (the S&P 500) do better, over time, than 85% of all investors. For me that's all I need to know, I choose to be among that 85%.

Two different games.


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## DAP

daedong said:


> My wife and I have money in a superannuation fund ( managed investments) Anyway I know very little about trading shares but today I put my toes in the water and bought a small number of shares online. The process was easier than I expected. Thats not to say I will  make any profit, as long as I don't lose I will be happy for the time. There must be plenty of folks here that can share some of their knowledge, things to look out for, or things not to do. Any help / advice would be appreciated.



Having worked 18 years on Wall street in a technology role, I suggest you buy a nice new mattress, the kind that can have stuff hidden under it.

My dos centavos


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## fogtender

daedong said:


> Bob,
> 
> I have had a disastrous start, I started out and invested in 3 different companies. Overall I have lost about 9%. One company initially went up, but has taken a dive this week. A second company fell sharply when they announced a takeover bid, but has recovered a bit. The third one, which was the one with the gas explosion, has recovered a lot from last week, but is still down a bit. I will hang on to them all at this point, no need to panic.


 
Vin,

  Before you put more money into the grinder.  Do a bit of homework....

  Look up about three to five stocks that have a lot of ups and downs historically.  Write down the price that you "Pretend" to buy them at, say 100 shares (this should be a small percentage of what you have to spend) of each stock.

  Everyday watch what they do, if they go up, you sell it.  If they go down, buy another 100 share (on paper), if it goes a bit lower, then buy another 100 shares.

  The stocks that go up and down will go back up again shortly and then you are making money on the lowest one you bought (On paper), then as it climbs higher you sell the next one that makes money.  When it tanks and goes back down you buy again..

  You will find that you will be making money on paper, and when you start putting the real stuff on the line, you will have a better feeling of what to expect.

  Many people buy a stock and hold on to it as it goes up, they feel good about it and then when it tanks, they still hold on to it until it is below the purchase price they paid figuring it will climb back up....  Then they panic and sell at a reduced price and feel cheated, when the stock cycles and goes back up past where they were bought at the first time they are really P.O.'d.  It takes some discipline to play with your money like that, but you can get a good handle on it with practice first and it doesn't cost a penny to practice on paper.

Some other bits of advice...

Don't put all your eggs in one basket at a time.

Look at the history of the stock and see what the highs and lows are at and when to ensure that they do in fact have a history of up and down, not up once and down forever....

Good Luck


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## BigAl RIP

I'm kinda late in joining this part of the conversation . I'm a long term player . *Day trading and jumping around ain't for me *. I usually never sale a stock once it is in my folder unless a red flag goes off . Sometimes I have cleaned out a few bad ones that were under preforming but that is only "if" I take a large profit off a stock sale . I am more interested in what the Dividends pays than how much a stock jumps around . 

*What I look for in a stock :*
What is there product or service ?
What is it tied too ? Will the economy make it change ?
Has it been consistant in a dividend pay out ? 
What % dividend has it been paying out ? 
Does the stock price move a lot ?? 
What is it rated at ?
Does it have any tax advanage to me 

Like like to work at a minimun of 8% return or better . May not sound like much .I have a few that are paying at well above that . 

I also do quite a bit of "Triple Net" commerical real estate investment . Thats a very nice way to have a nice little income with none of the headaches usually associated with rental or lease property .

I don't have time to keep watching stocks all day .* My time is worth more than that .* I have a good investment Broker with a top firm that keeps me advised on a "as needed" basis . I may not hear from him for a week or I may talk with him 3 times in one day . 

If your not ready to spend a lot of time watching and studying your Stock folder and knowing when to* Buy,sell or hold* than I would stay with a good broker as your investment advisor .


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