The Stock Market

[iyoni]

Is anyone involved in the stock market? How do you trade? Can you recommend a good tutorial reviewing the basics, common strategies and technical analysis tools?

[NatureForever]

In America, you buy, invest, wait for the value to increase, sell. I'm not sure how it works over there in Canaan (lol).

[closetnudist]

if you want to play in the stock market. You need to ensure that the money you will be investing is only your extra. Meaning that its ok for you to wait decades until it grew. You also need to have a broker for this.

[Stephen]

Well, it all depends, which stock market?

There are heaps of books about the stock market, especially from Jim Cramer (and sometimes Ben Stein).

It is not too complicated if you are good with math, patterns, and up to date on current events (economic and political).

The main trick is buy low, sell high, obviously. Many companies have easy tell patterns as to when they are about to jump. A lot of nubs will do the cheap, "penny-stock" the decrease loss, but if it is a sure thing, go for it. Logic beat instinct in stocks... just like casino gambling, you have better odds counting cards (logic) than just luck (instinct), the only difference is, counting cards is not illegal in stocks, you can do your math.

My best idea for practice, is to keep track of the stock on paper or a virtual stock market and pretend you are trading. In other words, do a little research on some stock, pick one and an amount you would invest in it, chart its growth or losses, and decide when to sell, then further monitor that stock; and then you know how well you can read the market.

[ToneBender]

Absolutely! Have done for years.

Common sense goes a long way.

Don't try to 'time' the market as in try to pinpoint peaks and valleys - if you buy a good stock at a discount and it goes lower so what? Same if you sell a stock and it goes higher - oops - just be happy with the money you make and don't kick yourself if you don't time it perfectly. Nobody can.

If you buy a stock and it tanks - such is life. Good stocks will come back given time and if it's a shitty stock cut your losses and put it in something that has a chance at appreciating to get some of your money back.

Stay away from mutual funds - they're pretty much a scam once you look at the mechanics of how they work - a better bet would be hedge funds as they are managed by serious, competent investors who have a certain (quite high) percentage of their own money in the fund (this is called 'skin in the game') which means if you lose they lose and they hate losing.

Watch interest rates and pay attention to the business cycle. Typically stocks do well when interest rates are low unless you're in an actual recession (companies can borrow more easily to grow their businesses) whereas bonds may be a better bet when interest rates move higher.

Also one study pitted a group of monkeys trading stocks randomly against a group of trained investors and the monkeys won. There is a lot of chance involved - more than anyone, particularly 'technical traders' will ever admit.

The S&P index always seems to do well over the long term (look up index fund). Warren Buffet has made it his goal or rather that of Berkshire Hathaway to beat the S&P index and he usually wins but one share of Berkshire is something like 30 Gs.

Personally I tend to stay away from IPOs as well and I never trade on margin or play the short selling game.

One trick I've used in the past is to follow a company that I know is doing well (in my case it was Apple) and find out when their earnings release was and buy them just before and sell them just after. Stocks always seem to go up on positive earnings. That's no guarantee and there is always room for surprizes so I don't do it very often but it can work.

Another interesting strategy is to look at stocks that the analysts are excited about for appreciation but that also pay very high dividends (like 4 or 5 percent) that way you get two different opportunities to make money on the same stock.

A few good reads:
The Intelligent Investor – by Ben Graham (Classic, and arguably best go to investment book.)
Quality of Earnings by Thornton O’Glove (good financial analysis book)
The Warren Buffet Way - by Robert G. Hagstrom (a study of Warren Buffet)

Lastly I trade two ways:
1) Online - direct investing through RBC (similar to e-trade) not sure if you have to be Canadian or not to use them but you get access to TSX/DOW/NASDAQ - no other markets that I know of and no access to commodities. No advice is provided but they offer research material and trading in near real-time with a fee per transaction.

2) A brokerage - the one I'm with are more limited in their market access and options across various account types but they make really good money for their clients. Advice is provided and fees are a percentage of your portfolio.

Hope that helps.

Don't be afraid of it and how much you put in (as a percentage) is up to you. At your age you could probably lose everything (depending on how much you've got) and it wouldn't be a huge deal to have to start over again. There will be painful lessons.

Also another study showed that trading stocks is a losing game (happiness-wise) simply because we feel losses more keenly than gains so any money we make we tend to take for granted and any we lose we rue deeply.

[closetnudist]

@ToneBender: You nailed it!

[NudieDaniel]

Also invest in companies you're familiar with and you know for sure how it makes money, lastly, maybe not a bottom line you should like what the company does.

[ToneBender]

Also invest in companies you're familiar with and you know for sure how it makes money, lastly, maybe not a bottom line you should like what the company does.

That's another important point.

As a shareholder you are a co-owner and thus are actively supporting the company's activities therefor there may be companies that you morally can't support.

For me cigarette companies, Monsanto, some big pharma and the like are simply off the table because I want nothing to do with their activities and frankly would rather see them FOAD.

[Shiden Kai]

Excellent post ToneBender.  Thanks for taking the time to lay out a basic 'foundation'. 

[iyoni]

Thanks for your detailed answers - I really appreciate it!

Stay away from mutual funds - they're pretty much a scam once you look at the mechanics of how they work.

I don't understand why mutual funds are a scam - can you explain?
Also, what about day trading? Is that something you would consider, rather than long-term investments? Do you know any good online sources for strategies in this field?

Many companies have easy tell patterns as to when they are about to jump. A lot of nubs will do the cheap, "penny-stock" the decrease loss, but if it is a sure thing, go for it.

Can you give some examples of such easy tell patterns or provide me with a good online source that explains them and the logic behind them? and what is the cheap, "penny-stock" the decrease loss?

[ToneBender]

I don't know why mutual funds still exist or that more people aren't pissed off about them.

There are different ways in which the fund managers take their fees and I can't remember exactly how it works but they get paid to actively manage the fund which means the more trades they make the more money they make whether it's in the best interests of the fund holders or not. Also the rates they charge are fairly high compared to what most funds earn so by the time you take inflation into account mutual funds barely hold their value. My opinion.

Hold a stock for as long as is appropriate whether it's a few hours or years or what have you. I have held stocks for very short periods including less than a day but I'm not a day trader. Every time you sell a stock in Canada you pay tax on the gain (unless you realize a loss) plus the fee for the trade so unless a stock's value goes up a lot it typically makes more sense to hold them for longer periods and realize long term growth of your money rather than paying fees and capital gains continuously by playing on day-to-day volatility.

[biobruin89]

Also invest in companies you're familiar with and you know for sure how it makes money, lastly, maybe not a bottom line you should like what the company does.

That's another important point.

As a shareholder you are a co-owner and thus are actively supporting the company's activities therefor there may be companies that you morally can't support.

For me cigarette companies, Monsanto, some big pharma and the like are simply off the table because I want nothing to do with their activities and frankly would rather see them FOAD.

It's always nice to hear there are investors with consciences out there.

Iyoni, I recently got started with investing. A couple of sites I found to be really helpful are:

Investopedia.com: Great simple explanations of concepts and lingo
Seekingalpha.com: good for keeping up to date with what is going on in the market. Also good for getting opinions on stocks, but be careful and remember that opinions are just that.
Options house.com: my current favored online broker, low rates of $4/trade.

Good luck!