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DocLightning
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The Stock Market

Fri Nov 14, 2008 2:42 pm

Well, I've made a decision.

I will not be investing in stocks anymore. Not when 25% of my net worth can evaporate in a single day.

Bonds, sure. But I'm done with the stock market.

I don't know very much about finances, but it seems to me that we seem to have hit some sort of point where the stock market is no longer a very effective system of managing an economy. I don't know what the alternative is, but I've always thought that the entire idea of a stock market involved a lot of smoke and mirrors and now I apparently am vindicated in that belief.

The question is: do you think others will follow suit? Is this the beginning of the end for stock markets?
-Doc Lightning-

"The sky calls to us. If we do not destroy ourselves, we will one day venture to the stars."
-Carl Sagan
 
scrubbsywg
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RE: The Stock Market

Fri Nov 14, 2008 3:31 pm



Quoting DocLightning (Thread starter):
Is this the beginning of the end for stock markets?

no. stock markets will always be around and always be important.

however, it is the end of people with little or no knowledge of how it works investing in it. Frankly, those people probably shouldn't be investing in the stock market. As you said, thing can go awry very fast in the markets, and if you are not always looking for information or keeping a heads up, or at least have a good broker, you shouldn't be in the markets.

my $0.02.

Besides, i think you are reading a little too much into all the recent trouble. The economy is not doing well. companies are posting huge losses, or diminished profits and that is why you are losing money and it is an effective barometer of the economy. The markets are just reflecting that. This is just the ebb and flow of the markets and the economy.
 
masseybrown
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RE: The Stock Market

Fri Nov 14, 2008 3:43 pm



Quoting DocLightning (Thread starter):
the stock market is no longer a very effective system of managing an economy.

I'm not sure how you would use the stock market to "manage" the economy. Broad market measures, the averages, reflect people's expectations about the economy and tend to move ahead of it.

You are right that there are lots of traps for the unwary and even for the experts. Expert Warren Buffet was a genius a few weeks ago, but after October he is just the man who has lost more money in the stock market than anyone else in history.
 
portcolumbus
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RE: The Stock Market

Fri Nov 14, 2008 3:49 pm

No, the stock market is still a great way to get good returns over the long-term. It just takes some time to research so you know when things may get rocky, and re-balance to limit risk.


The market right now is a trader's market. High volatility with huge movements up and down every day. It's still a great entry point for the long-term, but getting worried about the daily ebbs and flows will give you an ulcer.

[Edited 2008-11-14 07:51:09]
 
SlamClick
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RE: The Stock Market

Fri Nov 14, 2008 3:56 pm



Quoting DocLightning (Thread starter):
I will not be investing in stocks anymore.

Well, it is called "risk management" after all.

Quoting DocLightning (Thread starter):
25% of my net worth can evaporate in a single day

Guess you didn't believe in diversifying. And by diverse I don't mean:

Quoting DocLightning (Thread starter):
stocks



Quoting DocLightning (Thread starter):
Bonds

Those are both paper. Conditions that are bad for the one are bad for the other as well. Stocks are paper. Bonds are paper guaranteed by paper.

Occasionally I've had gains as large as your losses. I've had big losses too but never had 25% of my net worth in any one thing, except maybe when I bought my first house. Gains and losses of that scale are rare in anything but the most speculative issues, but for absolute certain you CAN lose your money.

A big factor right now is that all kinds of markets were inflated and that made investing attractive to the 90% of the population who will NEVER understand "buy low sell high" It is when the market is overheated, inflated -nothing but froth and foam that 90% of the investors get into it.

In the big sell-offs of recent times when the network purveyors of negativity were proclaiming "ten billion shares were sold" some of us realized that every share that was sold was also (but apparently not "obviously") bought. Think how different it would be if Tom Brokaw said "ten billion shares were bought" instead. I think it is a really interesting question - WHO IS buying right now.

I'm happy to say I got almost completely out of the stock market and even mutual funds about two years ago. I'm a little sorry I didn't sell off some real estate back then too - as some of my heads-up friends did. They even sold their houses and rented for a year or two. They've since picked up the same sort of houses for about 50-60% of what they sold them for.

We're in for interesting times. I'm betting that the Dow will be at 4000 in two years.
Happiness is not seeing another trite Ste. Maarten photo all week long.
 
David L
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RE: The Stock Market

Fri Nov 14, 2008 4:51 pm



Quoting ScrubbsYWG (Reply 1):
however, it is the end of people with little or no knowledge of how it works investing in it.

For the time being, perhaps. This isn't the fist time such inverstors have been hit hard, nor it is the first time it's been "the end" of investment in the stock market by such people. In fact, I think there's a fair group of them who think now is the time to "pick up a bargain".
 
Dougloid
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RE: The Stock Market

Fri Nov 14, 2008 5:45 pm



Quoting SlamClick (Reply 4):
We're in for interesting times. I'm betting that the Dow will be at 4000 in two year

You might not have to wait that long.


Say, where is that guy who wrote the book "Dow 36,000"?
If you believe in coincidence, you haven't looked close enough-Joe Leaphorn
 
Flighty
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RE: The Stock Market

Fri Nov 14, 2008 6:00 pm

Bonds can, and do, lose or gain tons of value in a single day or week.

Stocks have the somewhat wrong connotation of "promissory notes" or "gambles." Stocks are assets. Owning a stock means you own bricks, mortar and intellectual property. Owning a mining company means you own a huge amount of land and the minerals underneath it. This is what being "rich" is. There is a strong argument that true "money" is in fact the ownership of stocks. This is more natural "money" than the US Dollar, which is based on promises.

Cash can, and sometimes does evaporate within months. Currencies can crash. Yet productive assets retain their value. A basket of world stocks is among the safest investments you can make. Yes, there are bubbles in asset prices. But don't let that distract you from the fundamental product. You are buying real things when you buy stock. Things you can sell when you desire to. Bonds are promissory notes and can become worthless. Stock can too -- but baskets of stocks never become worthless. Their value goes up and down but mostly up.

Why do stock markets grow? Because humanity is growing. The world production has risen. World assets are stronger and worth more money. This is why the exchange markets to trade the world's stuff have grown 1950-2010. If you believe stock markets will all crash, then you believe nothing of value will exist in the world. If assets do exist then naturally there will be a market to trade them.

[Edited 2008-11-14 10:07:06]
 
David L
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RE: The Stock Market

Fri Nov 14, 2008 6:01 pm



Quoting Dougloid (Reply 6):
Say, where is that guy who wrote the book "Dow 36,000"?

Living at 1.6 Pennsylvania Avenue. Ah well...
 
oswegobag
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RE: The Stock Market

Fri Nov 14, 2008 6:19 pm

Diversification is the key.... in the long run you will always makes on average 12% per year in the market. Seems like a good deal to me. Keep your money in the market for the long term and you should never lose. It is impossible to time the market with constant buying and selling. You would be just as well off on the Las Vegas Strip.
 
flexo
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RE: The Stock Market

Fri Nov 14, 2008 8:00 pm



Quoting SlamClick (Reply 4):
A big factor right now is that all kinds of markets were inflated and that made investing attractive to the 90% of the population who will NEVER understand "buy low sell high" It is when the market is overheated, inflated -nothing but froth and foam that 90% of the investors get into it.

Private investors tend to react too late - when the market is falling they start hoping while professionals are already selling. Once the market is down they finally sell but professionals have already begun buying again.

Quoting ScrubbsYWG (Reply 1):
Frankly, those people probably shouldn't be investing in the stock market.

I couldn't agree more, I know many people who used the stock market like a casino where it was pure luck that they made money in recent years because basically everything was rising. Needless to say they are paying a high price now.

It is like with everything in life - if you don't know what you are doing you should probably hire someone to do it for you and pay a fee rather than losing everything.
Just like you would when you pay a plumber to mount your toilet rather than having your bathroom flooded the next time you use it because you mounted it wrong.
 
David L
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RE: The Stock Market

Fri Nov 14, 2008 8:19 pm



Quoting Oswegobag (Reply 9):
Diversification is the key.... in the long run you will always makes on average 12% per year in the market

Well... it is possible to diversify too much and dilute any gains (or losses, of course) but your point is generally valid.

Quoting Oswegobag (Reply 9):
Keep your money in the market for the long term and you should never lose.

I've never had the nerve or inclination to try anything else. I'd also add that you should never invest any money in the stock market that you can't afford to lose because any time you invest, you can lose it... no matter what any "expert" says.

Quoting Oswegobag (Reply 9):
It is impossible to time the market with constant buying and selling.

 checkmark  Those who loudly announce they've made a fast buck on the stock market are very like those who announce the same from fruit machines - they never tell you how much they've lost on "fast buck" deals. And please, don't fall for the penny share BS!

Quoting Oswegobag (Reply 9):
You would be just as well off on the Las Vegas Strip.

And there you have it.  Smile
 
Flighty
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RE: The Stock Market

Fri Nov 14, 2008 10:06 pm



Quoting David L (Reply 11):
I'd also add that you should never invest any money in the stock market that you can't afford to lose because any time you invest, you can lose it... no matter what any "expert" says.

Hmmm... this statement is problematic because it is both very right and very wrong.

Over time the yield of bonds has been awful. It is not ownership of anything, it is a legal agreement. Treasury bonds have also been a terrible investment over time. So I would not agree that you are "safer" to hold cash in a bank. If inflation hits 7% then you are losing money. That's not safe...

Stock markets have higher volatility but also higher returns. Over time the volatility disappears. I go back again to the asset statement. Stocks are assets. So is land. By your logic you should never buy land because sometimes the price for land goes down. This is both "true" and also "wrong" at the same time. Land is good and so are a basket of mining companies. Agriculture companies. Real estate trusts. Or whatever. Somebody needs to own that stuff.

But you are right stock markets can be a can of worms sometimes. This is the problem with owning things. The solution, however, is not to foreclose the idea of owning things. No pun intended. People hurl all kinds of insults at the stock market, yet I enjoy the opportunity to own things all over the world.
 
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Aaron747
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RE: The Stock Market

Fri Nov 14, 2008 10:39 pm



Quoting Portcolumbus (Reply 3):
No, the stock market is still a great way to get good returns over the long-term. It just takes some time to research so you know when things may get rocky, and re-balance to limit risk.

Agree 100%.

Quoting SlamClick (Reply 4):
A big factor right now is that all kinds of markets were inflated and that made investing attractive to the 90% of the population who will NEVER understand "buy low sell high"

It's nearly fanatical that despite all the hard evidence out there, people still vote emotionally with their feet when it comes to the markets. The "buy low, sell high" mantra has never been wrong at any point in the history of modern trading.

Quoting SlamClick (Reply 4):
In the big sell-offs of recent times

...a lot of people have made fantastic money. The media is failing to report this.

Quoting Flighty (Reply 12):
So is land. By your logic you should never buy land because sometimes the price for land goes down. This is both "true" and also "wrong" at the same time. Land is good and so are a basket of mining companies.

Depends on where the land is. Generally, in countries that are guaranteed to return 5% GDP growth or better for a five to ten year period, you can't go wrong investing in their land or those who are building on it. The latter tends to be a very secure, high return investment. All it takes is the research and information necessary to find out who and where those companies are, and what markets they are listed on.
If you need someone to blame / throw a rock in the air / you'll hit someone guilty
 
David L
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RE: The Stock Market

Fri Nov 14, 2008 11:31 pm



Quoting Flighty (Reply 12):
So I would not agree that you are "safer" to hold cash in a bank.

In the context of rash and/or uninformed investment in the stock market (I could have been clearer about that), I'd say you are. The comment was aimed more at the fast-buck merchants who rely on making a quick kill, pulling the capital and looking for another. If one of those investments tanks, they're faced with the dilemma of whether to cut their losses and salvage as much as they can immediately or sit out the storm. If they've invested next month's rent money, they're in trouble.

Quoting Flighty (Reply 12):
Stock markets have higher volatility but also higher returns.

Of course but if you lose everything on the stock market you can't blame anyone else.  Smile
 
PPVRA
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RE: The Stock Market

Sat Nov 15, 2008 2:50 am

Just remember that bonds can be a bad place to be with high inflation. Look up the Fisher Equation. Same thing with just holding cash, unless you are holding a currency that isn't suffering from high inflation. Stocks, on the other hand, derive their value from the company's activities, not the currency (though it is measured in currency).

There's pros and cons.

[Edited 2008-11-14 18:56:40]
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
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STT757
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RE: The Stock Market

Sat Nov 15, 2008 2:59 am

If you can afford it real estate is a bargain right now, if anything you can build up equity.
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Dougloid
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RE: The Stock Market

Sat Nov 15, 2008 3:41 am



Quoting STT757 (Reply 16):
If you can afford it real estate is a bargain right now, if anything you can build up equity.

We bought a house back in the end of April and it was a good idea. I recently saw the fellow at the credit union and asked him if we'd have been able to do the same thing, and he said "There's money out there, it's just a little harder to get and you have to be better qualified. You'd still get the same loan at the same rates."

I'm not sure if I believe it but I posted our house on Zillow when we bought it and they think we're up $10,000, which is not bad work for six months.
If you believe in coincidence, you haven't looked close enough-Joe Leaphorn
 
Alias1024
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RE: The Stock Market

Sat Nov 15, 2008 7:44 am



Quoting David L (Reply 14):
The comment was aimed more at the fast-buck merchants who rely on making a quick kill, pulling the capital and looking for another. If one of those investments tanks, they're faced with the dilemma of whether to cut their losses and salvage as much as they can immediately or sit out the storm. If they've invested next month's rent money, they're in trouble.

Short term trading can work if you have the discipline to always cut your losses. That's the tough part, and why so many fail miserably at it.

The winners are easy to deal with, it's the losers you have to fix and quickly. No hoping it will come back, no convincing yourself it was a good buy and the market is wrong, just sell it. There isn't a dilemma for the good traders, they don't ever try to hold on to a stock and ride out the storm. That's how a managable 5-10% loss turns into a portfolio wrecking loss. Anyone that puts next month's rent money to work in the market is a moron. Never trade with money you aren't willing to lose.

Long term investing is totally different though, and a much better bet for anyone that doesn't have the time or motivation to become a student of the market.

Quoting ScrubbsYWG (Reply 1):
however, it is the end of people with little or no knowledge of how it works investing in it.

Not a chance. A great deal of employer retirement plans for Americans involve some sort of contribution to the employee's retirement account, either by matching employee contributions or simply matching. Where does most of this go? Stocks. Why? That's where the experts say it should go. Those people with little knowledge will mostly just follow the advice in the prospectus provided by the plan administrator and end up with most of their money in stocks.
It is a mistake to think you can solve any major problems with just potatoes.

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