tag:blogger.com,1999:blog-31169815690450272222024-03-13T21:04:41.728-07:00Mistakes Small Investors MakeLinxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-3116981569045027222.post-37163557231682192822012-03-03T08:29:00.002-08:002012-03-03T08:29:35.653-08:00Diversification and Commissions<br />
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Many stock pundits and advisors strongly recommend
diversification, that is, holding more than one stock to reduce risk.<span style="mso-spacerun: yes;"> </span>This is the idea that it is a good idea to
put all your eggs in one basket.<span style="mso-spacerun: yes;"> </span>More on
the concept later, but I wanted to address the impact of diversification on
commissions here. </div>
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Different experts (and I will use the term loosely)
recommend different numbers of stocks to be diversified, but for our example we
will use five.<span style="mso-spacerun: yes;"> </span>Assume a starting
portfolio of $10,000, a not insignificant sum for most people.<span style="mso-spacerun: yes;"> </span>In order to purchase five stocks at $8 per
buy, the investor is down $40 from the get-go.<span style="mso-spacerun: yes;">
</span>Of course, in order to unwind the positions, that is, sell the stocks,
he will have to pay another $40.<span style="mso-spacerun: yes;">
</span>Diversification has cost him $80, or 0.8%,<span style="mso-spacerun: yes;"> </span>He could have put all $10,000 in one stock
and been better off even if the stock went down in value by one half of one
percent.<span style="mso-spacerun: yes;"> </span></div>
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Whatever the benefits of diversification, and there is some debate
on the value, it does create a financial hole that the investor has to dig out
of.<span style="mso-spacerun: yes;"> </span>It may be better to put all of your
eggs in one basket if the cost of buying many baskets is going to cause you to
go broke anyway.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></div>Linxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.com0tag:blogger.com,1999:blog-3116981569045027222.post-9246907505978057962012-03-02T04:24:00.001-08:002012-03-02T04:24:57.583-08:00Commissions Add Up Over Time<br />
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Commissions are insidious.<span style="mso-spacerun: yes;">
</span>For each transaction, they are relatively small, but after repeated buys
and sells, they add up quickly.<span style="mso-spacerun: yes;"> </span>And they
always come in pairs.<span style="mso-spacerun: yes;"> </span>Every time you
commit to buying a stock, you will eventually have to sell it to get access to
your money, whatever might be left.<span style="mso-spacerun: yes;"> </span></div>
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If there were commissions for movie theaters, you would have
to pay to get AND to get out, though it might be worth it for some films.<span style="mso-spacerun: yes;"> </span>If there were commissions for bank accounts,
you would have to pay ATM fees to deposit and withdraw funds, which is likely
to happen soon anyway. </div>Linxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.com0tag:blogger.com,1999:blog-3116981569045027222.post-29659362224053648822012-03-01T04:07:00.000-08:002012-03-01T04:07:13.293-08:00Getting Lucky on Stock Picks<br />
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I understand that you didn’t intend to sell the stock at the
same price you bought it.<span style="mso-spacerun: yes;"> </span>Your goal was
to buy the stock at $425 and sell it at a zillion dollars.<span style="mso-spacerun: yes;"> </span>Or two zillion, if you hold it a bit
longer.<span style="mso-spacerun: yes;"> </span>Sadly, the former example is
much more likely.<span style="mso-spacerun: yes;"> </span>But, even if you were
successful, the stock would have had to rise to $443 just to break even, a 4.2%
increase.<span style="mso-spacerun: yes;"> </span></div>
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Logically, the way to reduce your breakeven point is to
invest even more.<span style="mso-spacerun: yes;"> </span>Instead of one share,
you buy the 10 at $4,250.<span style="mso-spacerun: yes;"> </span>Then you only
need a 0.42% increase in the stock to break even.<span style="mso-spacerun: yes;"> </span>Mathematically, it makes perfect sense.<span style="mso-spacerun: yes;"> </span>If it goes up to $443, you are making some
money.<span style="mso-spacerun: yes;"> </span></div>
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If it goes down to $420, you are not only paying for the
broker’s lunch, you are also doing a favor to the guy who sold it to you at
$425.<span style="mso-spacerun: yes;"> </span>The more shares you buy the more
risk you are taking on.<span style="mso-spacerun: yes;"> </span></div>
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The downside of a drop in prices is obvious.<span style="mso-spacerun: yes;"> </span>But what happens if you are successful?<span style="mso-spacerun: yes;"> </span>You buy 10 shares of AAPL (the stock symbol
for Apple Computer) at $425 and sell it at $443, making a nice profit of $164
($180 less $16 in commissions.)<span style="mso-spacerun: yes;"> </span>Then
what do you do?<span style="mso-spacerun: yes;"> </span>Go out and buy another
stock, locking in another $16 (you’ll have to sell that one too) until you aren’t
smart or lucky anymore.<span style="mso-spacerun: yes;"> </span></div>Linxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.com0tag:blogger.com,1999:blog-3116981569045027222.post-81864868635705171052012-02-29T12:15:00.004-08:002012-02-29T12:15:50.596-08:00The Cost of Commissions<br />
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When investing the very first things you need is an account
with a stockbroker and an idea.<span style="mso-spacerun: yes;"> </span>These
are today, generally, free.<span style="mso-spacerun: yes;"> </span>After that,
you start paying. </div>
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In order to buy shares of stock, brokers charge a <i style="mso-bidi-font-style: normal;">commission</i>, or fee.<span style="mso-spacerun: yes;"> </span>Rates of commission vary between brokers for
reasons that have nothing to do with anything related to the actual purchase of
stock. You can pay $7 at Scottrade, $8 at Fidelity or $8.95 at Schwab for the
exact same service.<span style="mso-spacerun: yes;"> </span></div>
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You pay this commission every time you buy or sell
transactions.<span style="mso-spacerun: yes;"> </span>For instance, if you want
to buy a share of Apple Computer from your Fidelity broker, you will pay the
price of the stock, currently $425 plus $8 commission.<span style="mso-spacerun: yes;"> </span>If you buy 10 shares, you will pay $4,250
plus, still, an $8 commission.<span style="mso-spacerun: yes;"> </span>If, after
a time, you decide you don’t want to own your share of stock, you less it at
whatever the market price is less another $8 commission.<span style="mso-spacerun: yes;"> </span></div>
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If you sell the stock at $425, you have paid $16 to your
broker for the privilege of holding the share, which you made no money on.<span style="mso-spacerun: yes;"> </span>You started with $425 and now have $407.<span style="mso-spacerun: yes;"> </span>It is important to note here that $16 would
have bought you a large pizza and your choice of beverage.<span style="mso-spacerun: yes;"> </span>The good news is that the broker will now be
able to now be able to buy that pizza for his family.<span style="mso-spacerun: yes;"> </span></div>Linxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.com0tag:blogger.com,1999:blog-3116981569045027222.post-55796893365938786942012-02-28T04:42:00.005-08:002012-02-28T04:42:57.596-08:00Buying Stock in a Company<br />
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There are lots of way to invest your money, but the most
common way, the one most investors take part in, and follow, is to invest in
common stocks.<span style="mso-spacerun: yes;"> </span>The simple definition of
a share of common stock:<span style="mso-spacerun: yes;"> </span>Equity in a
publicly traded company.<span style="mso-spacerun: yes;"> </span>A single share
of stock is a piece of ownership of a company, and affords the same rights as
other owners.<span style="mso-spacerun: yes;"> </span></div>
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The problem is that a single share of the company gives an
almost infinitesimal share of a company traded on the stock market.<span style="mso-spacerun: yes;"> </span>For instance, at this time, Bank of America
has 10.54 billions shares outstanding.<span style="mso-spacerun: yes;">
</span>So, a single share has an ownership percentage of<span style="mso-spacerun: yes;"> </span><span style="font-family: Arial; font-size: 10pt;"><span style="mso-spacerun: yes;"> </span>0.0000000000949,
or 9.49E-11 in scientific notation.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span style="font-family: Arial; font-size: 10pt;">An
ownership percentage such as this, or even 100 or 1000 times that isn’t going
to give you much leverage in how the company is run.<span style="mso-spacerun: yes;"> </span>So, we can discount any ownership advantages
that shares might bring the small investor.<span style="mso-spacerun: yes;">
</span><o:p></o:p></span></div>
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<span style="font-family: Arial; font-size: 10pt;">Therefore,
the reasons for owning a publicly traded stock are pretty much limited to the
ability to make money off of the investment.<span style="mso-spacerun: yes;">
</span>There are two main ways of accomplishing this:<o:p></o:p></span></div>
<br />
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal" style="margin: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in;"><span style="font-family: Arial; font-size: 10pt;">Selling the stock to someone
else at a higher price than you paid.<o:p></o:p></span></li>
<li class="MsoNormal" style="margin: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in;"><span style="font-family: Arial; font-size: 10pt;">Receiving cash dividend
payments</span></li>
</ul>
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<span style="font-family: Arial; font-size: 10pt;">Sounds
simple, right?<span style="mso-spacerun: yes;"> </span>In concept, it is.<span style="mso-spacerun: yes;"> </span>Making it happen consistently is beyond the
reach of most small investors.<span style="mso-spacerun: yes;"> </span>It is, studies
show, even beyond many professional investors.<span style="mso-spacerun: yes;">
</span><o:p></o:p></span></div>
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<span style="font-family: Arial; font-size: 10pt;">The reasons
why this is so difficult will be explored in the first section of this
book.<span style="mso-spacerun: yes;"> </span>If this gets too depressing, feel
free to put the book down, (or more accurately, shutdown the computer or
e-reader) and take a break.<span style="mso-spacerun: yes;"> </span>Be sure to
come back, though.<span style="mso-spacerun: yes;"> </span>Knowing the downside
of investing in stocks might save your financial fortune. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>Linxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.com0tag:blogger.com,1999:blog-3116981569045027222.post-23126333894429329292012-02-27T04:41:00.001-08:002012-02-27T04:41:32.646-08:00Things Your Broker Won't Tell You<br />
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There are a lot of investing professionals and websites that
can tell you how to invest your money.<span style="mso-spacerun: yes;">
</span>The goal of most of these people is to get you to invest by telling you
that you can make money, retire early, and provide for your family today and
into retirement.<span style="mso-spacerun: yes;"> </span></div>
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The real reason to get you to invest is, of course, so that <i style="mso-bidi-font-style: normal;">they</i> can make money, by selling you
investment products, books or educational courses.<span style="mso-spacerun: yes;"> </span>There is nothing really wrong with this.<span style="mso-spacerun: yes;"> </span>People have a right to make a living, and as
long as the information is appropriate and sales tactics aren’t high pressure,
there can be a mutual benefit.<span style="mso-spacerun: yes;"> </span></div>
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Unfortunately, this isn’t always the case. Much of the
investment products and advice aren’t appropriate for you.<span style="mso-spacerun: yes;"> </span></div>
<br />
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The goal of this book is different.<span style="mso-spacerun: yes;"> </span>I don’t have anything to sell you (well,
other than the book) but to show you that it is really easy to lose money by
investing in the stock market.<span style="mso-spacerun: yes;"> </span>The
active of an investor you are, the more you are likely to lose.<span style="mso-spacerun: yes;"> </span></div>
<br />
Maybe the best thing you can do with your hard earned money
is to dig a hole and bury it in the backyard. At least it will be there when
you actually need it, and not frittered away on some harebrained scheme, flawed
strategy or run of bad luck. <br />
<br />
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That may be overstating it a bit.<span style="mso-spacerun: yes;"> </span>You can invest wisely.<span style="mso-spacerun: yes;"> </span>But that’s not what this book is about.<span style="mso-spacerun: yes;"> </span>This book is about how following most
investment advice is likely to end up making someone else rich with your money.<span style="mso-spacerun: yes;"> </span>As they say, <st1:place w:st="on"><st1:city w:st="on">Las Vegas</st1:city></st1:place> wasn’t built by the winners.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-xMjctsak1os/T0t58EPv2cI/AAAAAAAAAE4/bcVY7vJQyiI/s1600/aloft+Hotel+Lobby.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="http://4.bp.blogspot.com/-xMjctsak1os/T0t58EPv2cI/AAAAAAAAAE4/bcVY7vJQyiI/s320/aloft+Hotel+Lobby.jpg" width="320" /></a></div>Linxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.com0tag:blogger.com,1999:blog-3116981569045027222.post-53176004150783900132012-02-27T04:23:00.004-08:002012-02-27T04:25:50.675-08:00How to Lose Money in StocksSmall investors have found many ways to lose money in stocks. I could write a book about it. As a matter of fact, that's what I am doing here. Whether you invest in equities, bonds, options, ETFs or mutual funds, there is a way to generate losses quickly. <br />
<br />
The worst part is, the more you lose, the more desperate you are to find a way to get it back, and that generally leads to more losses. The best thing you can do is stop the losing cycle. <br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-6BiaMVej28M/T0t2K6xDjAI/AAAAAAAAAEw/wPiNREWtvII/s1600/Hilton+Pool.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="http://2.bp.blogspot.com/-6BiaMVej28M/T0t2K6xDjAI/AAAAAAAAAEw/wPiNREWtvII/s320/Hilton+Pool.jpg" width="320" /></a></div>
Before that happens, you need to recognize how and why you are losing money. Don't make other people rich That's the purpose of this book.Linxhttp://www.blogger.com/profile/06231462343123561311noreply@blogger.com0