Bay 12 Games Forum
Finally... => Life Advice => Topic started by: JoshuaFH on June 16, 2020, 04:17:07 pm
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I honestly know almost nothing about investing, I just see that the world is experiencing some turmoil, and that has caused the stock market to really plummet. Should I take this opportunity to 'buy low; sell high' as it were? I feel like the world is ending, and so such long range planning is pointless, but assuming it isn't, it wouldn't hurt to try to invest in the future. Though honestly, I wouldn't even know where to start, what to do, or what to go at, so I thought I'd ask here.
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I don't think it is.
Really, unless you have a very clear idea on what you're doing, which I think most people don't, I don't think playing at stocks is a good idea in general, much less now.
I think playing at stocks is by and large just another form of gambling, for the vast majority of people you will know. I think it can only become something else if you have such a huge patrimony to begin with that you can easily weather bad streaks.
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I wouldn't buy stocks in individual businesses right now, unless you know something the rest of us don't. As Poo said, that is mostly gambling.
It might be the case that more easily understood things like market trackers would be a good plan rn, provided you can last through a potential recession without needing the money. For example, the FTSE100 dropped suddenly due to Covid, and hasn't climbed back to where it was. It probably will eventually, but this might take years if a recession occurs.
Really, it's best to consult a paid expert about these things. I'm not investing anything myself! Gotta spend money to manage money.
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It's risky, but if you aren't going to need it for a while, and aren't going to put yourself in debt doing so, why not? It's not like carrying money (or any other store of wealth) isn't an investment in and of itself.
And no, the world isn't going to end. Authoritarian jackasses have hijacked nations before, and people do survive the process, and despite what the russbots on the left tell you, Biden isn't Trump, so if he wins things will be fine. And major political movements do happen, and it's probably healthier that they are than aren't.
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If it's a really well known stock and it's gone in to the dirt because of the "Happenings" it might be worth it to buy a few hundred shares for pennies on the dollar. Too bad we all missed the boat on Voice Chat Software stocks (although our Congress people sure as fuck didn't.....), because that'd be the place to live right now.
All in all though, it's chaos and there aren't any safe bets. Best you can do is find really cheap stocks so if they don't preform or recover, the hit is only as bad as it was initially to buy in.
If buying stocks would in any way jeopardize your current stability, I wouldn't. That is a gamble that is too risky to take with so many unknowns about how the next year is going to play out.
But it might be worth contacting one of the brokerages to get an entry-level introduction to investing. I have a friend who does wealth management and I'm not really sure how he feels atm about new clients and investing. But I imagine it might be worth a sitdown with someone if you're serious and be like "I want a low-risk, average returns on stuff that will turn around*"
If you have a 401k or anything like that, there should already be an advisor somewhere you can run some stuff by.
*when and if the world returns to some state of less fucked-ness than right now.
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If you know nothing about investing, picking individual stocks during a very uncertain time is most likely a bad idea. If nothing else, for the psychological reasons: panic is the cause of many losses.
Even for experts picking stocks is hard and often leads to failure (although, if they are worth anything, failure means earning less than hope rather than outright losing usually), for somebody with no previous experience or knowledge it would basically be gambling.
But I don't want to be entirely discouraging. What is your goal here? is it to just exploit a time in which you feel you might make some quick money or are you planning rather to start a pattern of regular saving and investment? The first is most likely a terrible idea, but if done well the latter in the long run is likely to be beneficial.
There are 2 key things:
1) Diversification. Don't hold everything in just one thing, because everybody makes mistakes, even Warren Buffet. And if you make a bad mistake in which you invested 100%, or even 50% of your assets, it will be hard to get back up. Meanwhile, if you have 10, 20, 50 companies, operating in different sectors, you can start playing averages. Sometimes you will be wrong, sometimes you will be very right.
2) Time. When do you need that money? On average, the stock market goes up. But it is a *very* bumpy ride. If you have some savings that you need to use in less than 5 years to buy an house or some such thing, stay clear of stocks. Short term treasuries or Certificate of deposit are your friends there. If you plan to keep your stash growing for 20-30 years until you are old? Then stocks are great. The time period is long enough that the bumps on the way matter little.
Now, the second point is entirely up to your life and priorities, so Ill instead delve on the first.
It might seem daunting to try diversifying across so many companies. And depending on the sums involved, even impossible (looking at you, 2600$ Amazon shares). What to do then? thankfully, there are people who do this job for you. And by that, I mean funds. Usually you invest in a fund, and then the fund takes all the money from people who invested in it, and do all the operations needed with the aid of a good team and a larger capital to play with. Of course, you still need to choose what kind of stuff to invest in: emerging markets, USA, Developed countries, etc. You will still need to do research, but all the real heavy lifting will be done for you.
Now, funds are often expensive and there is evidence that funds, on average, can't meet their goals after fees (that goal is generally to surpass a target called benchmark and it is either a stock index like S&P 500 or some other target). Even with high fees, many funds are still good, especially since you most likely can invest in one through your bank.
Other funds, however, bypass the issue by not trying to beat the benchmark but rather just replicate it. For example, with the S&P500 as benchmark, they just buy the 500 companies of the index (weighted by value). This will never beat the S&P500, but it will match it and requires far less manpower and transactions, meaning much lower fees (talking about more than 10 times less). Since this is a rather passive approach which tries to replicate an index, those are often called passive funds, index funds or similar. I would suggest using those, if you are willing to do some more work personally. There are a few good companies in USA offering those, such as Fidelity and Vanguard.
If you want more flexibility in taking money out, some funds can even be traded on exchanges like stocks, but if you are resident in USA, Vanguard and Fidelity funds will most likely suffice.
Finally, still about diversification, there is temporal diversification. On average, you are best off by putting everything in at the same time. But averages are made of ups and down, and investing at the wrong time could delay results for quite a bit. One of the ways to deal with it is to apply diversification even to that. If you have a large sum to invest, you could spread it over a period of time. Some time you will invest in an high market, sometimes in a low one. But you smoothed out the ride, at the cost of lowering average performance a bit. Regardless, this approach (called dollar cost averaging) is what naturally happens when you invest part of your income as it comes in.
Please note: this post isn't made to tell you what to do, but rather to introduce ideas and concepts. It is a bit more complex than just what I wrote and even to pick a fund you need to be aware of your goal, your own psychology and personality, your risk tolerance and in general you should be able to understand what the fund does and how it does it. There is a bit of research to be done, but I assure you that for those basic things it is well within the reach of the average person. Just use google, maybe look up the entities I mentioned (if you have a 401k you may already be familiar with them), search for online discussions.
edit: part of the point is: today specifically may be a good or a bad day to invest, but if you keep at it regularly and well diversified, it is never a bad moment to start. Most likely beats cash on decent time frame anyway.
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Just chiming in here to note a few things to be aware of - based largely on discussions with a colleague I know in the Federal Reserve. I am not an expert (or an investor, aside from my employee plan).
First, despite the big drops and general instability over the last several months, at its very worst this year the stock market was about where it started at the beginning of the Trump presidency - a presidency that has often been one of inflating stock prices thanks to mix of policies, promises, and even just expectations. That's not great, but it also could have been (could become) far worse. So the 'dip' wasn't actually that terrible/low.
Second, stock markets are in a really weird place right now and to some degree divorced from the economy (more than usual) because of Federal Reserve activity against COVID-19. Even counting today's rather ongoing big drop the numbers are still roughly half-recovered from the bottom of the COVID crash. There are fears out there that the stock market still hasn't really internalized the current state of the economy, in part thanks to the Fed pushing out funds. (Not saying the Fed is wrong here, mind - just noting the potential effect on the stock market.)
Third, there are a lot of (long-running, to be fair) fears that we're well in the midst of another bubble right now. Certain realms of corporate debt are looking more like the realms of housing debt pre-2008. Even before COVID some folks were arguing that we're due another recession (not necessarily like 2008, mind, but a recession all the same).
All that said, if you're considering a long-term investment (i.e. a decade or decades) then there is rarely a truly bad time to start, as other have already noted.
And I echo what others said about trying individual stocks. It's a risky gamble, through and through. (I do have some past first- and second-hand experience there, both wildly lucky and wildly unlucky.)
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If you don't know what you are doing, save your money until after the pandemic.
It could be a very long time.
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If you don't know what you're doing, you're probably the kind of person the people who do know what they're doing will make their gains from.
This does not mean you'll lose out. But if you're doing well, you can bet your bottom dollar that someone else has already bet upon your same bottom dollar to earn themselves top dollar. And if you lose out, they'll be the people[1] who already guessed you'd lose out and made money out of that, at your expense.
Unless you have indecently good knowledge of what the immediate future holds, you can't have a better idea than the analysts of whether a stock (or whole market) currently seeming to maybe level off in a fall is really about to revive or is just pausing in its continued fall. If you bet right, yay! But the roullette wheel is stacked against you (at least in relative terms). The best yiu can hope for is to ride the trough with a broad portfolio and at some indeterminate point in the future decide to divest back to cash having hung on the coattails of the big boys, without too many of your interests having crashed out.
It's like horseracing. Very rarely do the bookmakers lose (and they know how to only lose what they can bear) and any Hot Tip you hear down the pub (or name/number of a horse that you think bodes well[2]) is secondary to anybody else's actually informed intuition/analysis.
Or, in other terms, yes, people do win big in lotteries, but on balance the lottery tends to profit (and maybe shave off half the rest to go to Good Causes rather than back into the Prize Pool), so you rrally shouldn't bet on it. Though the system somehow manages to work based upon the fact that people do, anyway...
[1] Maybe actually not the same people, but the professional winners and their kindred 'losers' in the bigger game are all going to win bigger and likely lose more gracefully. Yes, there's the Nick Leason types, but 'little guy' traders don't get much back from his losses, though they sure did fund his pre-fall gains.
[2] You know the type: "Lucky Number Seven" is in the number seven gate in the seventh race at Worcester[3] on July 7th, etc, etc. You bet on them to win.. but they finish seventh.
[3] A racecourse on the banks of the River Severn, of course.
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First, do you have any sources of debt? Student loan, mortgage, credit cards?
If yes, pay them off now. Returns from the stock market aren't likely to be better than the compound interest on your debt.
If you still have savings after this step, what purpose is your savings serving?
Is your savings serving as a backup plan against emergencies?
Is your savings serving as a future deposit for investing in a house to exit the rental market?
If so, don't invest in the stock market. Expect your savings to be tied up in the market for years without seeing anything profit from it. You won't be able to withdraw your savings quickly should you need it urgently, and if you're counting it as a deposit, you might end up with less than you have now, pushing the benefits of gaining a real estate asset further into the future, and all the attendant lost investment potential that causes by continuing to rent instead of own your home.
Finally, assuming you're now in a situation where your excess income isn't being used for anything other than growing a savings account, you can consider investing. Put whatever you have in excess of your needs into a diversified investment fund, and consider focusing on dividend paying shares, reinvesting your returns in continuing to diversify your portfolio.
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I agree with previous recommendations. If you do not have a profound knowledge of investments or the stock market, I do not think it is wise to start investing now. If you want to invest, but do not have the time or motivation to deal with the essential aspects of investing, I would recommend a professional advisor.
But if you really want to deal with it, you might as well start reading and getting informed. There is also a type of simulation that is based on the real stock market. There you only play with fictitious money and you will gain some experience.
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I believe a couple studies have shown that even expert investment banks with financial and market analysts and what have you rarely outperform the market as a whole. Individual stock prices are essentially a random walk. Buying individual stocks is almost gambling. For every Warren Buffett there's a million people who went broke that you don't hear about. If you want to invest in the stock market, invest in a mutual index fund with fingers in a hundred pies to reduce risk. It'll still be more risky than just sticking it in a bank, especially now, but the returns could be higher if we don't hit a recession.
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I believe a couple studies have shown that even expert investment banks with financial and market analysts and what have you rarely outperform the market as a whole.
Might that be because the market as a whole largely consists of whatever expert investment banks/analysts are doing, so naturally very closely reflects their cummulatively averaged abilities? ;)
(Ok, not quite accurate. But it definitely looked a bit tautological at first.)
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Well no, the market is how everyone is doing. The data that says that Mr. Financial Analyst's portfolio generally doesn't do better than the average joe schmoe stock tells you something.
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I'm glad this thread has remained alive. I haven't gone forward with investing, but I've kept the idea alive. I imagine the market would be especially tumultuous at election time when everyone is feeling insecure about the future, and I don't know if Biden taking office would mark a good time to start investing, as there might be someone who isn't braindead dictating fiscal and foreign policy.
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Unfortunately, the outcome of who sits in the office of the POTUS is unlikely to dictate future market trends over the long term. Investor confidence aside, world markets being what they are thanks to pandemic circumstances mean we're in for lean times. With this so soon after the GFC thanks to US sub-prime mortgages, the new millennium is a bad time to risk exposure in the markets unless you can afford slow growth and risk a third downturn due to some future crisis.
Unless you had the foresight to invest in toilet paper futures at the beginning of this year. Then you're on a roll.
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Then you're on a roll.
*fwap"
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Haven't put any money into the speculation game though trying to understand how it works. The government regularly picks winners.
Check out the winners at: https://www.federalreserve.gov/monetarypolicy/smccf.htm
Still don't understand how calls and puts work, just have a dabbling skill level. Looks like that calls, buys, indicate a willingness to purchase stocks because there's some consensus about a stock's ability to pay out over a longer period of time. Puts are for selling and getting money now but if that company ended up paying out you lose money.
Loans and the ability for companies to take loans also appear to significantly influence the stock market. Major speculation appears to be guesses on what the interest rate will be and if companies can pay out with the current loan rates.
Safe sources of income like treasuries are yielding really low or even negative in some countries because I think there's a lot of risk?
Finance and energy companies have been doing really awful from what I understand, so it looks like the government is going to intervene in a lot of situations. In the long term it looks like those companies listed at https://www.federalreserve.gov/monetarypolicy/smccf.htm are chosen winners so they get government intervention, meaning that they can withhold their earnings or pay out with more flexibility.
Companies like home depot and real-estate speculation seems to rely on how much people are willing to spend on home improvement stuff. My guess is that over the long term no other companies can compete, and if the demand for homes keeps up Lowes/Home Depot and those types of companies are going to do well.
I never researched it but companies that deal directly with food, and candy like Hershey are probably worth keeping an eye on.
If we get lucky, it's possible that fusion energy might be viable in the future. The Italian company Eni S.p.A has been investing in MIT to develop mini fusion https://www.eni.com/en-IT/operations/sustainable-energy-study.html and from what I've seen and heard it seems to have a solid plan. Though if energy companies really fail hard it'll be a bad investment.
In general it seems like investing in the fortune 500 companies is better in general, because they choke out competition and do well in environments where smaller businesses can't survive. Speculation people keep talking about having a "fluid" mind, whatever that means. Still trying to learn this stuff as a side project of a side project.
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If you're of the economic mindset and enjoy a bit of hollywood dramatization, I thoroughly enjoyed the movies The Big Short (https://www.imdb.com/title/tt1596363/) and Margin Call (https://www.imdb.com/title/tt1615147/) as a distillation of the previous economic crisis through a director's lens. Who knows, you might even get some inspiration from them?
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Still don't understand how calls and puts work, just have a dabbling skill level. Looks like that calls, buys, indicate a willingness to purchase stocks because there's some consensus about a stock's ability to pay out over a longer period of time. Puts are for selling and getting money now but if that company ended up paying out you lose money.
"Call options" and "Put options" are contracts to buy or sell something at a fixed price within a larger time window than the usual Buy/Sell contracts where the assets (usually cash and the financial instrument).
A "short" is when you take a contract to sell something you do not currently own.
The pursuit of price volatility is the more common reason for options trading.