Investing 102

[GregWeld]

Originally Posted by Steve_O

Greg,

Re: Diversification, a google search reveals 10 'sectors' (investment sectors...).

Are there some sectors you might favor? Sectors to avoid? I'm about 15 years away from retirement if that factors in.

Is there a rule of thumb about spreading risk? One stock of each sector before 2 of any one sector?

Sorry if this has been covered, I'm up to about page 75 in the thread and
had not seen this question.

Battling 'analysis paralysis' but I just opened a Schwab account, so I'm close to making some moves,

Thanks for the info and the motivation!

Steve O

Excellent questions!!!



Okay -- I'll try to keep this simple (the market is anything but!)....

Diversification is based on how much you really have to invest -- time horizon -- adversity to loss of capital etc. It's pretty dang hard for a guy with 5 grand to invest - to get much diversification.... at 10 grand a guy could buy 10 stocks - 1 grand each. I personally don't see any need for more than 20 stocks - regardless of how much money you have... 20 stocks will keep you in the 5% rule. More than that is just kind of a waste of effort and you loose track of what you own.

SECTORS are a different story. Sectors tend to go in ROTATION.... one sector can be a looser in an up market -- as investors roll out of that sector and invest in another sector. So just to have every sector covered.... is probably not a good strategy.

If you read this thread --- I'm personally more about owning the best of the breed in the field that you're going buy in -- and even more about owning names that you know and understand... by understand - what I'm saying is places you shop - places you eat - places that you buy from - in other words - something that you personally can look around and say -- I like this dump - and the parking lot is full - and the merchandise is good and these places seem to be well run. Whatever "these places" are...


The reason for that is because I believe that it's important to hold and invest more when things are crappy. If you can look around and trust the business you've invested in - then you'll tend not to panic and sell just because the share price isn't so hot for a year or two. And if you like the company - then you might feel comfortable adding to your position when things aren't so hot - and that's where real investors make their money.


SO -- make a list of places you'd like to own.... Just for fun - let's say
Home Depot
Ford
McDonalds
WalMart


Okay -- then we look and say -- you have THREE retailers --- but break it down more and you have FOOD -- General merchandise -- Home building supplies... and a manufacturer (Ford). I don't really see a problem in owning those stocks even though they're not diversified by "sector".

Now --- I like to own some OIL.... whether or not that's pipelines -- retailers - drillers - refiners.... there's so many kinds and types -- but again -- never buy something you know nothing about. I happen to always buy Chevron... I like their product - I see their stations -- I can sleep at night owning it. Maybe you're a Conoco guy... but you see where I'm going.

I don't own sectors I own COMPANIES that I like and can live with and understand -- and that pay me to own them (dividends) -- In other words -- they like to share their profits with me.


So the short answer is --- you don't want to be in all retail -- or all banking -- or all housing.... BUT -- you do want to be in great companies that pay you to own them and that you love.

Do that --- and you'll be happy and successful over time. Why own something in a "sector" you don't know a damn thing about -- just for the sake of being diversified.

So here's something else ------- I don't smoke or drink ------ But I love cigarette and booze stocks... because people buy them in an up economy or a down economy... even if a guy is laid off - he's still puffing away... While I might hate that and wish he'd quit.... he's not going to -- and I'm going to make money off that. Can't help him - might as well help myself. They're called SIN STOCKS.... don't overlook them.

I used to own AT&T and VERIZON -- then I said --- why bother -- AT&T is who I use - so that's the one I own. Nothing wrong with either one of them -- but I'm a customer of AT&T so they might as well pay me back once a quarter with a nice dividend.


Hope that helps.


Take you a few nights -- but go back and read from the beginning.....

[GregWeld]

Yesterday I said I was picking away at adding to some positions because I wanted to be buying down a buck or so if I could. That doesn't sound like much does it.... I mean really? Down a buck? Whoo hoo....

Here's the PROPER way to look at this though.


When you're buying 4 or 5 or 10 THOUSAND shares at a time like I do... Down a buck is 4 or 5 or 10 Thousand DOLLARS.

I also always look at PERCENTAGES... so if something is off 2 or 3 PERCENT... and I'm only trying to make 5 percent for the year - well (hopefully) I have a good leg up on that 5% when the market snaps back!


Here's a snap shot of one of the orders I placed yesterday. I placed two separate orders as the day went on -- one for 2000 shares and another one for another 2000 shares as the price fell a little more. I always do LIMIT orders -- so I pick a price I want to pay and when shares are for sale at that price - then the computers buy them. Thus the multiple fill of the orders.



300 $39.679 $11,903.70
Commission: $1.34
$11,905.04
1,700 $39.678 $67,452.60
Commission: $7.61
$67,460.21
159 $39.60 $6,296.40
Commission: $0.71
$6,297.11
1,241 $39.60 $49,143.60
Commission: $5.55
$49,149.15
100 $39.5994 $3,959.94
Commission: $0.45
$3,960.39
100 $39.5994 $3,959.94
Commission: $0.45
$3,960.39
400 $39.599 $15,839.60
Commission: $1.79
$15,841.39



Now --- here's why I'm writing about this today. BUYING ON THE DIPS --- makes you FEEL BETTER. When you buy a little here and there -- and the price a few days or weeks later is MORE than you paid -- YOU FEEL BETTER. Does it make a huge difference 10 years down the road? Probably not really... but for those 10 years... I'll think I was pretty dang smart.

Does this kind of investing make a difference in a portfolio where someone is buying 50 or 100 shares... Not really... BUT YOU'LL FEEL BETTER!!!

Note that I was ADDING to an already established position. I've been asked a zillion times about "should I wait to get in"? The usual answer is no. While you're waiting -- you're losing time -- and will probably wait until just after the "X" date of a dividend payment -- and then will have to go for 3 more months before you get paid a dividend etc. And maybe you missed the 3 day selloff -- and now the shares have not only rebounded but they've jumped 4%. In the long run -- 3 - 5 - 10 - 15 years -- just buy when you have the money ready and are ready to make a pick. TIME is your friend.... not the .50 per share dip you waited for.

If you're pretty sophisticated and are aware of all the little nuances of the market - you know the X date - and on and on - and you're placing orders for 500 shares at a time etc -- okay -- then maybe you can wait a couple weeks or a month or two for a dip like I do.

[GregWeld]

Looks like I should have waited another day or two!!! LOL


You can never pick the bottom -- or sell at the top... Just get over it.

[GregWeld]

This is a good article and everyone should read it -- it's short - but long on ideas and values to be remembered. The values are that it really doesn't take that much per year or that long - to accumulate some meaningful funds.

The strategy is that investing is not about getting rich quick - but rather - time is the wealth creator... the sooner someone gets started the better. The author uses 12 years to show money growth. If money doubles every 10 years - then the 167K is going to be 330K and the author is assuming that you quit saving after just 12 years. Of course he's not writing about that - but I'm taking his example just a bit further.

Now imagine - that if a person really said to themselves... RETIREMENT should be fun - and fun costs money. And then saved accordingly. To me - I think if someone is making 100K a year... they should easily be putting away 1K PER MONTH... which would double all the authors results.

http://seekingalpha.com/article/1460...g_income&ifp=0

[glassman]

I thought you smoke'd tires and drank gas? goodyear and chevron lol

But seriously, Greg you've said so much just right there. That is why i keep refering friends and family to this thread, the old sales motto, kiss=keep it simple stupid!!

Steve, i'm kinda in the same boat as you, mid 40's, and about 15 years left.

Think about that, its halftime in our careers, 3rd quarter, hows your game doin?

Have a great Memorial Day everybody!!! AND REMEMBER TO THANK OR HUG A VET!!!! (not a corvette, you can hug that some other time,,,)

[glassman]

sorry, i missed this last page, was referring to right after Steve's post....

[Bucketlist2012]

Hey Guys..

My thought for the day is just remember that health is a HUGE factor in your Numbers..

You can plan and then wham....You are not working anymore due to Health..

My numbers had me working 10 more years, but due to major health issues I can no longer work..

So overestimate what you will need and shoot for that.. Also have the Will/Trust in place...I don't think you want your Family in probate after you are gone...Keep the Government out of your pockets...

Life Insurance ? It depends...

Long Term Care....Another question...

Not things we like to talk about, but all your planning can go out the window in a flash