Investing 102

[silvermonte]

Yeah im already 30, i woke up one day and said enough of this crap its time to get serious, went and got a part time job and paid everything off, ill prolly work the part time for another year or two till the wife starts popping out kids just to get caught up from all the fun i had in my early 20s, and it was from reading things about how much money you can save by starting in your 20s instead of your 30s that got the ball rolling for me. Like I said its a shame I didnt read something like this when I was younger, I wouldnt of blown all that cash trying to be a high roller.

[WSSix]

Make your house payment and no more. Put the $200 and any extra into a Roth IRA. That's what you can do and have a good impact on your retirement. The other thing is to keep your spending levels low even when your income increases. Basically, live below your means.

[GregWeld]

With the stellar run the market (stock market) has had for over a year now... I've had several people ask when they should take some profits. It's a great question - especially since one of the best market quotes is -- Nobody ever went broke taking a profit!

However... We must also use our heads and adjust these kinds of blanket statements to "our" personal situations.

For someone such as myself... who's already "set"... and who has very large (compared to most) positions. Taking a gain is how we buy stuff - how we re-invest in other stuff... and how we make a living. But let's put this into perspective. If I have a million dollars in one position - and it's up 25% - that's a $250,000 gain! So If I sell 100K of that position (pure gain) - that's "real money". A 100 grand is a 100 grand. I don't care who you are.

But let's look at a more normal situation and strategy/thought process. The basic premise of LONG TERM investing is to buy dividend paying stocks - having the dividend automatically reinvested to buy shares and parlaying this over a very long time to build up the number of shares owned so that upon retirement - you'll have enough that you can start using that dividend to live on. So..... how are you going to get there if you sell some off every time you have a 20 or 30 or 40% gain?

Let's remember the long term goal is TOTAL RETURN. When you look at a purchase -- we're supposed to research this as part of our strategy right? So if you look at this... we want to use the long term total return of any given stock --- usually 5 years. If the 5 year TR is 100+%.... and you're asking about selling to take a gain when something is up 40%.... how are you going to double your money in 5 years. That 40% rise is PART OF that overall gain we need to get set long term. Think of the market as a set of stairs.... they go up - they flatten out - they go up again and so on. So if you go back and pull up a long term chart of a stock -- you know - the one you relied upon to make a buying decision... go back and look at that same chart and see when you would have "taken a gain"... My guess is -- unless you're the smartest man in the universe - any time you'd have sold -- the stock would have continued to rise AFTER your sale. Now -- had you been brilliant - and been in the market prior to 2007 -- and you sold at the top -- and then been brilliant enough to have gotten back in at the bottom of 2009... then okay -- we could argue that you "should have" done all that. But my guess is... none of us is that f'n lucky. One or two might have even done that with housing - but "most" didn't - and in fact - many more did just the opposite - they bought high and sold low.

So let's get back on track here.... It's dang hard to see a nice gain in either dollar terms or percentage terms -- and not start thinking about "making some money". But if you "only" have 100 or 200 shares of something... let it ride... There's nothing wrong with 20 years from now looking at your account and that "gain" you were going to take -- is now 800% and paying you a nice check every quarter. That's what we're after here.... You'll never get there is you're thinking is the here and now.

Does this make sense??

[sik68]

Originally Posted by GregWeld

With the stellar run the market (stock market) has had for over a year now... I've had several people ask when they should take some profits. It's a great question - especially since one of the best market quotes is -- Nobody ever went broke taking a profit!

However... We must also use our heads and adjust these kinds of blanket statements to "our" personal situations.

For someone such as myself... who's already "set"... and who has very large (compared to most) positions. Taking a gain is how we buy stuff - how we re-invest in other stuff... and how we make a living. But let's put this into perspective. If I have a million dollars in one position - and it's up 25% - that's a $250,000 gain! So If I sell 100K of that position (pure gain) - that's "real money". A 100 grand is a 100 grand. I don't care who you are.

But let's look at a more normal situation and strategy/thought process. The basic premise of LONG TERM investing is to buy dividend paying stocks - having the dividend automatically reinvested to buy shares and parlaying this over a very long time to build up the number of shares owned so that upon retirement - you'll have enough that you can start using that dividend to live on. So..... how are you going to get there if you sell some off every time you have a 20 or 30 or 40% gain?

Let's remember the long term goal is TOTAL RETURN. When you look at a purchase -- we're supposed to research this as part of our strategy right? So if you look at this... we want to use the long term total return of any given stock --- usually 5 years. If the 5 year TR is 100+%.... and you're asking about selling to take a gain when something is up 40%.... how are you going to double your money in 5 years. That 40% rise is PART OF that overall gain we need to get set long term. Think of the market as a set of stairs.... they go up - they flatten out - they go up again and so on. So if you go back and pull up a long term chart of a stock -- you know - the one you relied upon to make a buying decision... go back and look at that same chart and see when you would have "taken a gain"... My guess is -- unless you're the smartest man in the universe - any time you'd have sold -- the stock would have continued to rise AFTER your sale. Now -- had you been brilliant - and been in the market prior to 2007 -- and you sold at the top -- and then been brilliant enough to have gotten back in at the bottom of 2009... then okay -- we could argue that you "should have" done all that. But my guess is... none of us is that f'n lucky. One or two might have even done that with housing - but "most" didn't - and in fact - many more did just the opposite - they bought high and sold low.

So let's get back on track here.... It's dang hard to see a nice gain in either dollar terms or percentage terms -- and not start thinking about "making some money". But if you "only" have 100 or 200 shares of something... let it ride... There's nothing wrong with 20 years from now looking at your account and that "gain" you were going to take -- is now 800% and paying you a nice check every quarter. That's what we're after here.... You'll never get there is you're thinking is the here and now.

Does this make sense??

Greg it definitely makes sense, especially since like you say, when the price is slumping on your stock, your investment is buying more shares, so it's better to look at it like a stock going on 'sale' rather than losing value for us long-termers.

Where I get hung up on regarding not "taking a profit" is that my portfolio is about 60% dividend stocks, but 40% in 3 mutual funds...they all move in direct correlation to the market. Given this "triple top" where the S&P hasn't done anything for 13 years except grow skepticism, that's I think where this sentiment is coming from.

I believe strongly in the dividend stock strategy you are teaching us, but it's my Funds that I worry about on total return...am I talking myself out of Funds completely?

[GregWeld]

Steven --- I wouldn't put 50 cents into a Fund...


Funds are just fees for management... there's not a single reason in the whole wide world that a semi intelligent individual can't do every bit as well as any fund and should do considerably better. A fund is just a dumbed down blended basket of stocks... sadly -- in their effort to be broad based... the laggards drag down the performance of the top. While the "Top 10 Holdings" are usually stellar --- they're only the top 10 and the fund probably has 100 or more holdings. It's those that dumb down their returns.

When you factor in their mediocre returns -- and then compound what they're fees do to YOUR returns over time - it's astounds me that anyone in invested in them. It's just that they are "available" via retirement IRA's for most folks -- they pick them by throwing a dart at a list -- and then work for 30 years and wonder what the hell happened to all the money they put in.

If a person can buy or build their own little basket of stocks --- 10 minimum and 20 tops... you can kick some azz all on your own just by buying the best of breed stuff we discuss here so often. It isn't rocket science that's for sure.

[WSSix]

You're making sense, Greg.

[GregWeld]

Originally Posted by WSSix

You're making sense, Greg.

Good!


People hear about all these terms and sayings and things they should be doing... i.e., "taking a profit".... but if you're got 10K invested and have a 2K profit -- that's GREAT but you don't need to take it...

Even if you have 50K and have a 10K "gain" ---- great! But let it ride. If you don't - you won't get to 100K which is where you want to be heading!

If you have 300K and have a 75K gain... you might take 25 or 30K and buy another name with it.