Financial Freedom: Stock trading?

Discussion in 'Indie Related Chat' started by GBGames, Aug 10, 2004.

  1. svero

    Moderator Original Member Indie Author

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    Then put your money where your mouth is. If you know of such a system the answer is very simple. You cash out all your money, take loans do whatever it takes and play that system and you'll be rich.

    However, I've never known of anyone who defends this point of view that does what I've suggested.

    It's always somebody elses system, or they don't have enough cash or some other excuse. There's always an excuse. It's just like psychics who can't perform when a professional magician is around. Suddenly the right vibrations aren't in the air.

    I'm sorry but I can't agree. You're really comparing apples and oranges here. In my view you're suggesting something akin to analyzing dice rolls to predict when the next 6 will come up.

    I've read some of what Tom wrote about stocks on his blog and so on, and I've made money on stocks myself. That being said, I believe he's wrong on this particular subject. He's not the only one in the world who thinks there's something to know about trading. There's obviously a lot of "experts" and books on the subject and so on and I've read many of them. The same could be said about telling your horoscope. You cant tell what kind of a person someone is because he's born a certain day and similarly you can't tell where a stock will go based on a historical graph. If Tom has made money in the market then good for him, but I don't think it's based on clever strategy. I'm sure Enron would have looked like a fine investment based on the information the public had. How can you really know? You can guess. You can say.. I think the work that optimal biometics is doing will be successful in developing a new drug and buy some of their stock. But you can't know with any certainty! And if your strategy is based on charts and historical data and trading strategies then you're really rolling the dice as far as I'm concerned.

    I guess people heavily in the market would like to believe that, but at the end of the day they're vulnerable. You can improve your odds maybe by using some clever strategies, but never so much that you will consistently turn a profit.

    Everyone is an expert when the market is doing well and almost nobody is when it crashes. I spent years working on stock market software of one kind or another for well known wall-street companies so I do know a little about this sort of thing. I'd love to have a good trading strategy, but I think at the end of the day it boils down to luck or knowledge others dont have.

    I stand by my original statement. I won't respond to this subject again, because it's one of those that can lead to endless debate. I'd say that if you believe such trading strategies exist that you can consistently turn a profit then just put your money into it. Most people are a hell of a lot less sure of their trading strategies when it comes to betting everything they have though.
     
  2. Mithril Studios

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    I am.

    Yep, within realistic reason. You need to have cash on hand to eat and pay rent, so it would be foolish to put that money into any investment where you could lose it either due to illiquidity or temporary drawdowns.

    Do I leverage with loans? Yes, as much as I can, but with the whole picture in mind. It doesn't make sense to borrow money at 8% if your system only returns you 5%.

    In a sense, you are. But instead of plopping a wad of cash down that the next roll is going to be a 6, you take many other things into consideration. How much money you have. What the profitability will be if you are right. What the loss will be if you are wrong. It has very little to do with how often you are right or wrong, and much more to do with how you are positioned when you are right or wrong.

    I guess instead of counter-pointing more of your counter-points :) I'll end with this. I'm not saying you are going to be right consistently in the stock market, because you won't be. I am saying you can make money consistently -- and "consistently" can vary depending on the system, whether daily, weekly, monthly, yearly, whatever. You can be wrong, and still make money on a consistent basis.

    ~finis

    Anthony
     
  3. Morphecy

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    Recommended reading:

    RICH DAD, POOR DAD

    Then, continue with the books he suggests.
     
  4. tentons

    Indie Author

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    I do stock transactions through www.buyandhold.com. It's $6.99 per month for two trades ($2.99 for each after that). You can also do automatic buys if you want to be super-disciplined about steady investment. Ie, $20 per month or whatever amount you want directly from your checking account.

    Think of it as an interest-bearing savings account. :)

    Oh, and it's usually wise to only invest in companies who's market you understand (ie, software and technology, in my case).
     
    #24 tentons, Aug 11, 2004
    Last edited: Aug 11, 2004
  5. ggambett

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    I live in a galaxy far, far away, so I have very little knowledge/culture about the stock market (ie normal people just don't trade in this country), but I'm interested in the subject anyway.

    I understand picking a couple of stocks yourself is risky, and if your capital is small, you can pick only a couple of shares. But isn't that the idea of mutual funds? Isn't buying a few shares of a mutual fund equivalent to buing fractions of shares for a much more diversified portfolio, and with experts picking that share subset?
     
  6. svero

    Moderator Original Member Indie Author

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    You're correct that mutual funds were meant as lower priced diverse portfolios supposed to lessen a small investors risk. However the New York Attorney General Eliot Spitzer, investigated mutual funds and described them as a cesspool, and the entire industry has been rocked by scandal since last year. Just type in "mutual fund scandal spitzer" into google and you'll bring up pages of info on this stuff.
     
  7. GBGames

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    The problem with mutual funds these days is that they are consistently underperforming the market.

    It turns out that the people who pick the stocks try to pick stocks in keeping with the market indices. The stock pickers get to keep their jobs because they didn't do much worse than the market, and you're still paying them to do it.

    Mutual funds are in general not a good deal, and contrary to what a lot of people believe, you can lose money in mutual funds. Money market accounts do better in this economy, although interest rates are still fairly low.
     
  8. ggambett

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    OK... so what would be a good low-risk (therefore low-profit) investment? Banks here pay like 3% a year, so anything better than that is a good idea :)
     
  9. Nemesis

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    I started dabbling with stock trading via Etrade a few years back, at the height of the DotCom hype. I was doing quite well initially until the first downturn of September 2000 followed by 11th September a year later, causing Nasdaq amongst other sot plummet way down.

    My mistake was not to let go of lossy stocks in the hope of a recoup.. now I have two stocks in particular (Lucent and Ballard Power Systems) with a loss of 90%!!! I have my doubts if I'll ever manage to recoup at least half the purchase price!

    Anyway.. it was mostly a fad at the the time.. right now I'm too busy with a day job, side job and a life to bother following trends and fundamentals ona daily basis! :)

    I'll eventually stick to the longer-term blue-chips.. but you never know.. with the Nasdaq index so low I'm hoping for an eventual long-term improvement of the market.

    At the moment I feel it's far more likely to get some income from indie game development!
     
  10. svero

    Moderator Original Member Indie Author

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  11. nquijano

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    Flame on if you feel the need to :

    We're all proud to be indies (although, I'm going back to part time indie), and a common leitmotiv is doing things different
    Well, using the stock market to get financial independence is NOT different.
    More so, you're helping to maintain a detrimental status quo, where money keeps being made out of nothing : the stock market is pure artifice and this is made worse and compounded by what svero brought up about insiders and crooks.
    That said, I'm not going to say anyone is bad because they do, etc. :)
    Just food for thought, about double standards and all that.
     
  12. robleong

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    Generally, I think, all those who have dabbled in stocks before have been burnt in the past few years when the dot com bubble burst. I was one of them. But they're now wiser (and I hope I am)! You'll need to know the stock you're investing in really well (not necessarily as an insider yourself, nor that you need to know people who are working in the company!) to be able to make money from it - I find the Yahoo company message boards extremely useful. Timing the market, or day-trading, is very much a gamble, so I agree with the "buy and hold" advice. Just don't use any money that you cannot afford to lose.
     
  13. ggambett

    Moderator Original Member Indie Author

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    Awwww, come on. I associate "being different" just because with teenage behavior. I want to do what I want, the way I want, even if sometimes that's a traditional thing done in a traditional way. I think that's the point of being an indie. Being "independent", not being "different" just because it's "cool".
     
  14. nquijano

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    I meant being different as in being better, no juvenile notions of cool :)
    Things evolve 'cause people try different things, not from any teen notion of cool.
    Matter of fact, I'm turning 34 today, and I like to think, that while I retained some aspects of juvenility, I've learned a thing or two about life.

    Indie as in independent, not egocentrical and not caring about what the repercussions of your actions are.

    I'm taking the moral high ground on this one, and not decrying anyone who doesn't : as I said, food for thought, nothing more, or less, but that doesn't take away from the fact that the stock market is an artificial construct and one of the great sources of inequity in the world we all live in.
    Ask any economist worth his salt, he'll tell you that, as well as mention what svero said.
     
  15. carl

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    My Investing Philosophy

    For what it's worth (I haven't made my first million yet :) ) I view the stock market from a business owner's perspective:

    As a business owner, I am investing my time and money in the hopes of generating more money*. If I did not think I could generate a return on that investment, I would not be calling myself a business owner. Before deciding what to focus my business on, I ask a series of questions - what is the size of the market, do I have an idea that will generate money in that market, what does the competitive landscape look like, do I have a large enough moat around that idea to keep competitors at bay, am I confident in my abilities to pull it off, and so on. The answers to these questions are critical to determining the success of my business.

    When deciding to invest in another company through the stock market, I ask myself the same kind of questions. What does the market for this company's products or services look like? Is the company doing a good job of serving that market? What competitors are out there? Can this company beat the competitors? (If not, maybe I should invest in the competition...), do I trust the management of that company to execute?

    This is not an exhaustive list by any stretch, but it helps explain my perspective. I agree with Svero - if you "play" the market you are gambling, and as likely to lose your money as you are to make any. It is my belief that approaching the market as a true investor gives you a much greater chance of success. There are certainly risks, just as there are risks to running your own independent game development company. The key is to take intelligent risks that you are comfortable with.

    How can you answer these types of questions when you aren't an insider? The best way I know of was defined by Phillip Fisher in "Common Stocks and Uncommon Profits" as scuttlebut. It means doing the legwork - talk to customers, employees, distributors, investor relations, company management, read articles (both good and bad), drive by the head office and see what the employees are like on their way into work in the morning (or find a friend online that can drive by for you). It's a lot of work, but so is owning a company, and when you purchase a share on the stock market, that is what you're doing.

    I think following this advice will allow you to consistantly make money in the stock market. Time will tell :).

    Cheers!
    Carl

    * This does not mean I am only in it for the money.

    P.S. I also have nothing against trading based on technical factors. I studied some chaos theory in school, and my final project was an AI that learned what stocks it should invest in based on price fluctuations and a few other heuristics. I just don't consider this approach investing.
     
  16. grimreaper

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    LOL! No you're not. You're just being a patronizing, lefty, PITN.

    How predictable!! Dont forget to blame globalization, colonialism, racism, american imperialism. Dude, stop reading Naomi Klein, She's so last year...

    Yes, Marx would tell you that. But you wouldnt really want him as your economic adviser would you??? :D

    Any economist worth his salt will tell you that a stock market is just a market, just like, for example, ebay or WalMart. The advantages of markets like the stockmarket and ebay is that the demand and supply set the price in a more transparent manner.

    Bye, bye comrade! :)

    grimreaper
     
  17. goodsol

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    There's a lot to say about this thread.

    First off, to the original poster - you really need to have a lot more money available to you before you go buy an individual stock - you really need $3000-$4000 to put into one stock before the trading costs become efficient. If you have less than that, I would recommend using one of the brokers that allow you to put small amounts into lots of stocks, such as Sharebuilder or FolioFN.

    Secondly, I would stay far away from Nvidia. The gain you saw has a name - it's called a "dead cat bounce". You may think that the stock has to go up, but the chart says otherwise. Every technical indicator on that chart says that stock is going down, down, down. They could be wrong, but I wouldn't care to bet any of my money on it.

    It is possible to make a lot of money trading stocks and contrary to some opinions expressed in this thread a lot of people do. But it requires a lot of work and patience. Buy and hold does not work, although if you make a good pick you can hold a stock for a very long time (even decades) and make a lot of money. But that doesn't happen very often.

    Buy and fold is a much better strategy. When you buy a stock you are going to be right sometimes and wrong sometimes. The key to making money is to make a lot of money when you are right and lose as little as possible when you are wrong. This means that when you buy a stock and it goes down, you sell it. You don't care that the company may be great and you are sure that the stock will go up, you sell because it went down.

    This happened to me just today. I sold a great company today - a wonderful 20 year record of increasing dividends, one of the best stocks of the last 20 years, fantastic earnings, absolutely nothing wrong with the future potential of the company - but it hit my predetermined sell stop level at which I simply won't let the loss get any greater.

    No one who used this strategy got burned by Enron. If you bought Enron on the way up, you would have made a lot of money of it. I'm sure many people did. If you bought on the way up, the key was to sell when it broke its uptrend line, which it did long, long before it went bankrupt. If you went bottom fishing and bought on the way down, then if you had a good stop in place you still got out with a minimum of damage. The only way you got burned was if you bought it without a sell stop in place, which means you weren't a trader, you were a hopeless romantic.

    Buying bottom fishing stocks like Nvidia with all your available money is just asking for trouble - the probabilities are against you. It's like going all-in in Texas Hold em with a 7/2 off suit. I will occasionally bottom fish, but you have to have a plan. For example, I recently went bottom fishing with New York Community Bancorp (NYB). I've owned it before and made a lot of money on it. It started dropping in April and I bailed out with my big gain. Recently it broke its downtrend line and moved above its 20 day exponential moving average (EMA). The company has good earnings and pays over a 5% dividend, and it just happened the it was about to go ex-dividend, meaning that if you bought it then you would get the quarterly dividend immediately. So I bought it as it moved over the 20 day EMA, with a stop to sell if it ever drops below the 20 day EMA. While the stock hasn't really moved much since, since the 20 day EMA has moved up close to what I bought it at and I've already collected a quarterly dividend, the risk is low. Best case scenario is that it stays above the EMA and I collect another dividend in 3 months. Worst case it drops to the EMA and I'm out and I find something else to put the money in. THis is what I call buy and fold, I bought it and I'll fold when it hits the stop.

    If you read about people who make a lot of money trading (such as in the Market Wizards series of books, which I highly recommend), you'll see that they always do this - always have an exit strategy in place when you buy a stock. Always plan for it to go down immediately after you buy it and know when you will exit. Then you can only be pleasantly surprised if it doesn't happen. You wind up with a lot of trades where you lose a small amount of money, and some trades where you make money, and a few trades where you make a large amount of money.
     
  18. Applewood

    Moderator Original Member Indie Author

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  19. Kai Backman

    Original Member Indie Author IGF Finalist

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    First a thank you to everyone for good comments and especially to Tom for the good book list he published some time ago. I sense there is a slight confusion of terms going on here, so just a quick recap:

    On the difference of investing and speculation: (from Security Analysis by Graham, Dodd et. al.):
    If you speculate you should be prepared to loose your principal. As many have pointed out already, day trading without a clear and enforceable system is easily within the realms of speculation.

    IMHO, there is a considerable gap between small time investment and big time investement. Where the small time investor can expect a modest annual net return (after costs, taxes and fees), the big time investor can naturally get better result. However, it seems like most mid-time investors do worse than small timers, many times considerably worse by loosing their principal. Big time investment in any form (including but not limited to day trading) is essentially a job or a business in itself, it requires your full attention.

    For small time investors wanting to differentiate their net worth into common stocks, index funds are probably the best bet. They have low management fees and are essentially tracking the growth of wealth over a specific part of humanity (or humanity as whole). If you bet that humans will continue to prosper on the long term, an index fund is a good investment. Dollar averaging and a 50% - 50% bi-annually balanced allocation between stocks and bonds will dampen out most of the oscillations. A 3% net gain is fantastic in this scenario, and you use very little time with portfolio management. This is essentially value investing in its most basic configuration and interested parties can read more in The Intelligent Investor by Benjamin Graham (originally published in 1949).

    Day traders should plow through the book list by Tom and watch out for those trading fees eating into your profit .. :D (And expect higher gains as well ..)
     
  20. nquijano

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    And you're not ? Who do you think you are, and how do you think it sounded ?

    Now that's patronizing, starting to assume I must belong to a certian political group, read a certain author, etc. because I expressed one opinion.
    FYI, never read Naomi Klein, and no interest in doing so.

    Yeah, right. Go talk to a few of them, they'll explain the peculariarities of the stock market way better than I can, and all the facts and principles that don't make it a market as we usually think of them.
    They'll also explain to you that it's not driven by any "real" demand, only the demand for trading stocks, etc. This is basic economics, whatever political spectrum you're from. The divorce between stock market and "real world" trading happened a long time ago. Research the topic a bit before voicing your opinion.
    You'll note that I never said "don't play the market", or that people who do are bad, and also afaik, this is not a cult where everyone has to say the same thing right ?

    I also didn't call you or anyone else a savage capitalist for playing the Western Roulette, or any other typical term you might have been labelled as by a lefty.

    And yes, I'm taking the moral highground for me on this issue, and not participating in the folly that the stock market is.
    I'm not imposing my views on anyone, but I do have the right to voice them, however unpopular they might be

    In closing, you did exactly what you're reproaching I did : be predictable :)
     

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