Watch Your Wallet (The Stock Market Collapse: Part 5 (Conclusion))
Posted Thu Mar 22 00:40:29 2001 by steveg |
Note: this is the final part of this week's multipart series on the collapse of the stock market and its effect on IT.)
By Steve Gilliard
This isn't going to be about being a smart investor, hell that's
the Fool's business and they're good at it. This is about being smart
with money. And smart with money in the stock market means getting good
with research. Not the numbers crap either. You can play with P/E
ratios and dividends all day long and still lose money.
You're going to invest for the long term, not the next year. You
put money into a stock, it is for a long time. This is your future
we're talking about and unless you get unlucky, you'll have one.
Before we say anything else, WATCH YOUR 401K. You have to
know where your 401K is invested and how it is doing. Also make sure
you're in the best one you can be in. You may have a choice of more
than one and you need to make sure that you're involved in the best
one. If you have questions, ask them. Read every thing that you get
from the plan, read it closely and file it in a place you WILL NOT LOSE
IT.
This is the mosrt critical investment you can make and the one
which you need to keep track of the most closely. This is your
retirement money.
Here are the NetSlaves rules to not losing your shirt:
1) You buy what you know
Don't invest in anything you cannot explain. If you do not
understand it now, you will never understand it. You can educate
yourself about it, but you will never be able to follow it well enough
to make money at it. Why? How many hours do you have in the day. How
many companies can you follow given everything else you do? Two, five,
15? Buy what you know, and you can follow it without heavy lifting. If
you're studying a stock like a term paper, you better be able to
explain what they do.
2) Research the hell out of what you know.
You may think you know McDonalds, you don't. You have to learn
everything you can about what you already know anyway. Make no mistake,
if you don't know how the restaurant or real estate business works, you
will by the time you finish with McDonalds. Know how they spend their
money, where it goes, who their enemies are and what their problems
will be. If you invest in McDonalds, BSE is important to you. You
better know how people see beef if you're going to invest in the
world's largest retailer of it.
3) Smart vs. stupid research
Smart research comprises of two things, stuff which affects the
company and stuff which affects your investment in the company. Which
can be accomplished by reading the newspaper. Stupid research is
anything else. If you're wasting time with Value Line and custom
research and crap like that, you're wasting your life on nonsense. The
only thing a chart is good for is to look at. It means nothing you
can't figure out by reading Yahoo's fnancial news.
4) You are not a professional
Stocks are part of your life, but they aren't your life. You are
not smarter than a guy who does this for a living. He doesn't write
code and you don't trade stocks, you buy them. You don't think like a
broker, don't pretend you do. No matter what they tell you, unless you
live the life, you cannot beat the pros.
Look, monkeys can pick stocks and beat the average. The stock
market isn't concerned about that. They want the bounce, the minute to
minute bounce, the large movements, not whether Intel makes money over
five years. Five days is a lifetime. Don't get fooled by that. You're
in it only for the long term.
5) Chat rooms=minefield
Don't ever go into a chatroom. Avoid all of them. Let the company
groupies and the wannabe brokers play that game. There is nothing good
in a chat room.
6) The obvious is obvious for a reason
Your stock goes down because your company loses a major contract,
that's obvious. The CEO is fired because sales are slow, that's
obvious. These things matter and if enough of them collide in one place
at one time, you've got problems. Because this is your money. The
company better make it work for you or you will go elsewhere.
7) The ten percent rule
Julie Stav, one of the PBS experts, suggested that you sell your
stock if it dropped more than 10 percent of your original expert. Now,
I'm not much on trusting people with vague Central/ Eastern European
accents and porno platinum hair, but this rule makes sense. Stocks can
fail to come back and you can lose 90 percent of your investment. Doubt
it, think sock puppet. So 10 percent is a good way to go.
With mutual funds, your managers better have their shit together.
Stay out of sector mutual funds with a crappy economy. You want the
risk spread as far as possible. If they can't make money betting the
spread, then they can't do crap and you need to put your money
elsewhere.
8) Save your money
Stock investments mean nothing when you have debt out the ass. Pay
your debt, Buy what you need. Put enough in the bank to live on for a
few months. Stock investment is long term and hard money to get a hold
of in an emergency. Keep it for your long range goals, a home, a car,
illness.
9) Don't expect miracles.
There should be no one who expects they will make money easy or
quickly in the stock market. That's a game for the hard core and the
rich and more than a few have lost their shirts. We can say it 80
different ways, but it needs to be said.
10) Read the best advice you can get
My personal favorite is Suze Orman. She's very Oprah-ish, but her
advice is solid and she gets into how people spend money and the kind
of mistakes they can make. The Wall Street Journal has great advice on
investment thinking. Chris Byron gives the best single advice on how to
evaluate stocks. His research is not based on numbers but on executives
and product lines, things that matter in the real world. Most of what
you see on TV is crap. Much of what is sold in bookstores is based on
fantasies and ego. Basic, simple investment advice is hard to get. You
have to filter out the crap and figure out the best way to get the most
from your investments.
The easiest rule is that the less the writer has to push, Orman as
a former insurance exec loves insurance as an investment option, the
more they're going to serve your needs. You want the most neutral voice
around and one concerned with your financial health. Anyone offering
schemes will screw you over.
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Name: MasterPo
Email:
Date: Thu Mar 22 14:52:54 2001
Comment: I'm referring to the link below, not this article which I agree with.
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Name: MasterPo
Email:
Date: Thu Mar 22 13:23:44 2001
Comment: Interesting reading but I disagree for several reasons.
First, even if CSCO is toast forever (not likely but assume so) they will be dropped from the indexes more sooner than later.
Second, not all 401k offer an SP500 index fund.
Third, by law 401k's and IRA have limits on what type of investment
they can be put in. That pretty much leaves stocks and bonds (either
directly or through funds). I have no problem with other investment
vehicles, but you can't use them for 401k's and IRA's.
Fifth and most importantly, as the author himself admits, he pulled
out into cash too soon. So if he can't get that timing right for the
short term who can really say what will happen in the next 20 years?! I
don't think we're going to see markets rise as much as fast as we have
in the last 2 years. But saying that the money market is now the proper
benchmark is ludicrous! If he wants to use MM's as your risk-free
return that's fine but not as a benchmark.
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Name: The Lone Twister
Email:
Date: Thu Mar 22 12:03:41 2001
Comment: Dow down 300..the worse the better..
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Name: Leon
Email:
Date: Thu Mar 22 11:35:26 2001
Comment:
All of these are good valid points, but I would like to suggest perhaps
a little bit more cautious approach to your 401K. Check out this link:
http://csf.colorado.edu/longwaves/2001/msg00781.html
It's a pretty interesting read, and you might want to consider an
alternative to stocks as an investment vehicle. Today is not like 1987,
but more like 1929 (or japan in 1989) |
Name: steve gilliard
Email: sgilliard@netslaves.com
Date: Thu Mar 22 08:44:54 2001
Comment: It depends on how you play the game. I doubt the people planning to retire on Amazon are so sanguine.
But clearly, only sell if the stock is bottoming out because of
management decisions. The market is fickle, management either has a
clue or it doesn't. |
Name: El Heffe
Email:
Date: Thu Mar 22 08:36:19 2001
Comment:
This 1987 all over again, only this time, it hits more people 'cuz more
people are invested in the stock market. The ones who made money 1987
were the ones who held onto their stocks as they dropped, the ones who
bought as the panicked were selling. The same is true today. Now is a
great time to invest in the stock market for the long haul. If you pick
companies with good fundamentals, ones that'll still be here in a
decade or two, and you hold onto those stocks, you'll have money for
retirement. Today, you'll be buying the stocks for closer to what
they're really worth, and sometimes less. A year or two ago, you paid
way too much, you got ripped off. In the long run, the current market
correction is going to be good for the economy and the smart investor.
In the short run, a lot of speculators and a few innocent folks will
get burned, but if the innocent ones can hang on and not panic, they'll
be OK in the long run. |
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