Investing 102

[GregWeld]

Just a reminder for the newbs --- or just for readers in general.


The price / yield relationship is inverse.... as the share prices drop -- the yield increases!


October is historically a terrible month... and I personally always have cash saved up for September / October purchases. Some new positions -- some I add to positions...

If I thought for 1 second that we (the USA) weren't doing well --- then maybe I'd sit on the sidelines.... but everything I see with my own eyes - and the discussions I have with my friends that are in business says we're doing just fine.

Personally I have fully anticipated the interest rate increases that we KNOW are coming. I've been too early "waiting" on that to happen sooner rather than later. WE KNOW that as interest rates rise -- that will affect stocks returns but as long as the rate doesn't rise too quickly - then everyone will adjust to the new norm. I'm building a house right now - and I only wish they would hurry up as I know everything I must buy is going up. Prices don't go up in a bad economy... so then it's just up to me to "get over it" and pay the price. Frankly, I'm more secure doing that - than wondering what the hell is going to happen next with a down economy.

[Vegas69]

Do you ever buy bonds? Is there a time and place?

[GregWeld]

Originally Posted by Vegas69

Do you ever buy bonds? Is there a time and place?

Todd --- I personally used to have a 4MM bond portfolio -- a laddered set up with max 5 year maturity... So let me explain that for those that don't understand.


A "laddered" maturity portfolio would have your total investment placed so that each year a percentage of your total portfolio would return your capital so that you could reinvest or (roll) that investment. Example

100,000 invested in bonds with a maturity date of 2015
100,000 invested in bonds with a maturity date of 2016
100,000 invested in bonds with a maturity date of 2017

and so on.


Here's my personal problem with BONDS in general. If you are a long term holder / investor.... you'll get only your initial cost back at maturity. So if you bought a 5 year bond at face value - that pays you a tax free interest.... at the end of the 5 years - you're only going to get back your capital. Safe? Oh yeah? A good investment? Not if you missed out on 20 or 30 or 40% returns in the stock market via capital growth.

I personally hated every single minute I owned this laddered portfolio -- because my stocks were soaring --- and all I could see was that money (possible gain) slipping thru my fingers. I unwound (sold) that portfolio at a nice profit because at the time interest rates were falling -- and I owned bonds that paid above market rates (as the interest rates are falling - the higher yielding bonds face value climbs).

I think the only way to make any money in bonds is to be a trader. You have to be so on top of what the interest rates are "maybe" going to do -- and be able to move in and out of the bonds. I'm not interested in doing that - nor am I that smart.

Now --- if you are retired --- and have a very high annual income... then bonds are a way to get TAX FREE income... and that's why I owned them. But as previously stated -- I was calculating the losses on capital growth... and I'd prefer to just have gains and income over trying to skin the tax man.


SO -- your "is there a time and place". Yes --- high taxable income earners can use bonds to gain tax free income. Or a retired person that absolutely requires their capital be guaranteed to be returned.

I would be a buyer of tax free bonds when they're paying 9 or 10% TAX FREE.... because at that point the income would be "stellar" and you'd have no loss of capital (provided you held to maturity). But when they're paying 2 or 3 or 4%... and we're going into a rising interest rate environment. Hell no!

[Vegas69]

That's what I thought you would say. It's the guaranteed path to meager results. I have 30 years, I'm looking at the potential for explosive results and I'll gladly ride the coaster in the duration.

Greg, I want to thank you again for sharing your knowledge with us. This is big time financial stuff. Stuff that very well could result in financial independence and greater lifestyle if pursued actively.

I have to admit that I relied to heavily on financial advising in the past. I've taken the reigns and have analyzed funds and strategies and will make up my own mind with guidance from those voices of value. Looking at the returns on IRA's and 403b's, I just don't see it being the catalyst to get me where I want to go. Will it grow and turn into real money, yes. I just think there are better opportunities like my self managed account.

I know you are anti mutual funds for the most part. I'm looking for another bucket on top of the individual stocks, IRA's, 403b, whole life. I found this healthcare based Fidelity fund that has averaged 16% over the last 30+ years. Should I just forget it and add to my individual stocks? It looks like a majority of the growth is on the tale end which is a bit concerning.
http://research.scottrade.com/qnr/Pu...y?symbol=FSPHX

[GregWeld]

So let's dissect the "mutual fund" issue first.


IRA's and 401's et al --- are all about getting people to save SOMETHING! ANYTHING! They are pretax auto deposits for people getting paychecks. I'm all for that - because without them - people wouldn't save at all.

Add to this - the "company match" which is basically free money.... and that can't be all bad. In the strictest sense that something is far better than nothing.

Mutual Funds are the pablum of investing because people don't have to get involved - they don't have to think - they just pick off a list - throw money at them and hope like hell that when they need the money - it will be there.

Here's the problem with all of that.... the lack of actively THINKING about and being involved with something that is so fundamentally important (or sure as hell should be!). Our retirement... where we hope to live 20 or 30 or more years.

I think they're (Mutual Funds) fine until you gather up about 10 grand. At that point - you can pick 10 stocks and invest 1 grand a piece and probably do far better overall on a compounded return.


What I've tried to do in this thread since day one is to get people involved - take some of the fear of making CHOICES out of the game - and get people to look at their investing differently. It's not scary or hard - in fact - pick the right stuff and it couldn't get more simple. Just the mere act of getting people to look at the mutual fund in their IRA -- you know, the one they haven't looked at for 10 years... is monumental.

I wouldn't just NOT LOOK AT any kind or style of investing --- as my personal belief is that as long as you're thinking - comparing - looking - and then acting on your investments is the biggest "move" that people can make. So if you think -- and I pretty much agree with this -- that investing in a mutual fund in an effort to diversify your holdings -- and do so in an area where you have no knowledge (say healthcare - or drugs etc), then I'm all for that kind of investing. My anti Mutual Fund is more about people pick three in their IRA and letting them sit for 20 years and then wake up and find out they didn't do very well. Most don't! But if you're active in the picking and have a valid reason and thought process for why you're buying THIS particular fund. Then great! It's just another act of investing and that's the secret to all of this.

[GregWeld]

I want you "newbs" to look at more than just the shares YOU own on down days. I want you to see your pops and drops in PERCENTAGES... because down .50 cents on a $100 stock is no big deal percentage wise.

I want you to compare the percentage drops in your stocks that pay dividends versus the "hot stocks" that don't. Learn from these kinds of days and weeks and months. How do you feel when you see your paper gains dripping away. I've reminded people many times to make note of how they feel when everything is going up day after day - and to remember that - because there will come a time when they stop going up and they start going down....

On days and weeks like this -- look at the GoPro drops - Look at Facebook drops - look at Tesla... and look at them in percentage terms - and compare to your stocks... Take Altria (MO) today -- it was UP three quarters of a percent GoPro was DOWN over 4.5%. Facebook was down almost 4%. Tesla was down almost 8%. AT&T was down barely over 1%. Realty Income (O) was down just about a half percent. WHY?? Because these dividend payers are supported price wise by the dividends!! It cushions them on the way down. Now you also have to remember that in a month or two YOU'LL be getting a cash dividend that helps ease the pain.

Now -- if any of this shakes you up just a tad - and you start to doubt your strategy... GO LOOK AT A 5 YEAR CHART of your stocks... look at how squiggly that line is! It's not straight up - there's all manor of drops (and pops). Does the line still go from lower on the left side of the chart to higher on the right side?? Yep? Then get over your angst knowing that 1 year - 2 years - 3 years down the road you will never remember this week or this month or even this quarter.

If you're a buyer..... KNOW that no matter what you pay - at some point you could have bought it cheaper. Get over it. A buck or two a share on a 100 share purchase is not what you're after. You're after that dividend quarter after quarter year after year... and the capital gain will come.

NOW --- Let's talk LIMIT ORDERS. I bought 4000 shares of Energy Transfer Partners (ETP) today. 2000 shares with a limit order early this morning at 58.85 a share - it took awhile to get executed. Then as the day got worse I stuck another 2000 limit order in at 58.50 it got executed. So my average is 58.68 per share. Luck for me - this closed at 60.30

I used the LIMIT ORDER to try to get shares at lower prices than where they were trading and it worked. I also stuck in a bid (a limit order) for TESLA (TSLA) at $235.00 a share -- It did NOT get executed. I'm okay with that. I don't feel the need to buy this minute or this hour or this week even. If I can get the shares lower in a market like this then great. If not - OH WELL.... But I'm on top of the market every day - most of the day... If you're NOT.... and you're not buying 100's of shares at a time - then does .50 cents one way or the other really matter? No - it really doesn't. So this strategy is on an "it all depends" basis. If you like to learn from doing this - regardless of the size of your trade - okay! Nothing wrong with preparing yourself for when you are able to play a little deeper. Sometimes it's all just about learning. Look at your car builds - your first build was not a 2000hp twin turbo road killer... you gained skills a little here and a little there. That's how it's done.

[WSSix]

Hell, I'm stoked that I may be able to pick up some T come Monday while it's down 3 something percent from when I purchased. In the end it won't matter but dropping my average cost down a wee bit sure does make me feel like I'm doing something fantastic, lol.

Thanks for the continued insight and pep talks, Greg.

[GregWeld]

Originally Posted by WSSix

Hell, I'm stoked that I may be able to pick up some T come Monday while it's down 3 something percent from when I purchased. In the end it won't matter but dropping my average cost down a wee bit sure does make me feel like I'm doing something fantastic, lol.

Thanks for the continued insight and pep talks, Greg.

Most of the little things - like buying on a dip - or averaging down etc are not really about making a pile of money.... it's mostly about how we feel. We are human and we can't take the feelings out of investing so we might as well acknowledge them. Beating the day makes a guy feel smart... selling for a gain
is euphoria... FEAR is the one we have to contain and manage. You'll experience fear when you're not invested correctly. By that I mean - when you've gambled and it's going against you... or when you've invested too much cash and you really had a need for that money and now the market it against you. We generally cause our own fear situations.

I always keep cash. It makes me feel good/secure. It's my pile that says to me - Dude! If there's a big drop in the market... I'm ready to buy. Many times I don't ever buy - or buy just a little... but it's the comfort that line of thinking gives me. So I acknowledge it and use it to my advantage.

[GregWeld]

Originally Posted by Vegas69

Do you ever buy bonds? Is there a time and place?

Todd --- Found this by accident and thought it worthy of a post in response in a round about way to your question.

I can't live with a 3% return - with no capital growth - in an inflationary world.



(Reuters) - Bond investors need to revise their expectations of the returns they can make in the years ahead, said Scott Mather, one of three Pimco managers who run the firm's Total Return Fund following the shock exit of co-founder Bill Gross last month.

In an interview with Germany's Boersen-Zeitung newspaper, Mather, Chief Investment Officer for U.S. core strategies at Pimco, said: "Even if interest rates gradually increase, with a global portfolio of bonds with the best creditworthiness you can maybe expect a return of about 3 percent in the coming years."

[chichirone]

Talking to my financial advisor yesterday, he mentioned tax considerations when investing in dividends. Warned us we would pay regular income tax rates versus the 15-20% I read on this site and elsewhere. Also, he mentioned qualified and unqualified dividends. I tried to research and on www.dividends.com the 2012 fiscal cliff legislation that went into effect kept capital gains and dividend taxes at 15%, unless adjusted gross income is over $400kind/$450kcouple, raising it to 20%. However, there is a statement that unqualified dividends would be taxed at the regular income tax schedule up 39.6%.

So what constitutes qualified versus unqualified? And if I check the box to reinvest dividends, I'm guessing they go down as income but are they taxed at 15-20% or at my personal income tax rate based upon total earnings? I've got an email out to my accountant as well. I'm not trying to play a tax scheme here, just trying to understand the differences between the two types of dividends.

On a better note, my advisor did say we have learned something that takes many 20+ years to figure out. Dividend stocks that combine growth and a healthy dividend return are better during downturns and also allow you to buy shares at a lower average cost if reinvested during growth years, prior to the need to take the cash payout. He said, keep it up and my goal should be to put him out of a job! Thanks to all that contribute to this thread. It has really opened up our eyes to different avenues to grow our wealth and invest to have our "employees" work harder for us.