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StockMillionare (< 20)

Why don't more people make a lot of money in stocks if it's so easy to do?

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December 09, 2010 – Comments (63) | RELATED TICKERS: AAPL , GOOD , DANG

Well let me try and attempt to answer that.  First off, I don't think it's easy to make a lot of money in stocks.  Sure, you can throw a dart and possibly catch a double for a year on a stock but that is the exception, not the norm.  In order to make a lot of money consistently in the stock market it requires many things to happen.  One, you have to put a lot of time learning about what makes stocks prices rise or fall.  You must learn about how to properly gauge the economy and individual stocks.  You have to understand what will be the catalyst to make a stock rise or fall.  It can require a lot of trial and error to fully understand how to buy stocks and be right about there direction in the short or long term.  Many people don't have the tolerance level required to trade stocks and make consistent money.  I knew a guy who tried to get into trading stocks and gave up in six months.  He read a good book on stocks and figured he knew it all.  Reading a good book on stocks is only the beginning.  You should read many good books on stocks, especially if these people who wrote books actually made a lot of money in stocks.  Anyways the guy bought a few stocks based on what he learned and ended up losing a total of 15 percent total over the six month period.  During that same period the S & P was down 8 percent.  He gave up to quickly.  The next six months the market went on a tear going up over 40 percent.  See he said, it's all crap, rigged, you can't time or beat the market.  I said no, you just bought in a down turn or correction.  He ended up losing about $3,000 dollars and quit.  Ability to lose, and continue to try and learn from your mistakes is key.  Mistakes are gonna happen in the beginning it's a learning curve.  And mistakes will be made forever truthfully.  But it's learning from what you did wrong, being competitive, striving to learn what you need to learn to win that is the key.  One of my favorite Authors of all time is Napolean Hill.  And my favorite book of all time is Think and Grow Rich.  If you haven't read it I suggest you read it.  The book changed my life forever the better.  A lot of things in life come down to psychology, planning, not giving up etc.  Check out Three Feet From Gold.  I recommend paper trading for people when they start out.  Now, I can hear the arguments already.  Paper trading is fake because you don't have the emotional connection that you would from trading in real life, and 2, ....  That's all fine, but if you lose starting out, which most usually do, I'd rather lose $10,000 in fake money than $10,000 in real life.  So don't give up when you first get your butt kicked.  Write down every thing you do regarding trades, why you bought a stock, what you expected to happen and what actually happen.  Make a log so you can look back and see what exactly you did right, and what exactly you did wrong.  Is there a one only way to make money in stocks?  I don't think so.  In my experience there are many ways to make money in stocks.  Some people specialize in making money off of stocks that will go down in value by betting against stocks.  Some people the opposite.  Some people are value investors, others are growth or momentum investors. Some are purely technical traders, or purely fundamental traders. There are many strategies to making money.  I think it comes down to what works for you.  Me, personally I like to use any style that works for me at the time depending on various factors.  I will admit that I usually don't buy stocks betting on them going down.  I am more of a long investors, it's just what I feel I am best at.  Here are a few books that I have found helped me a lot regarding stocks.

How To Make Money in Stocks, by William J O'neil. 

How I made 2,000,000 in the Stock Market, by Nicolas Darvas. 

Learn to Earn, One Up On Wall Street, and Beating The Street, by Peter Lynch.

The Intelligent Investor, by Benjamin Graham .

 Common Stocks And Uncommon Profits, by Philip Fisher.

There are many other notable books which I didn't mention so search for yourself.

So is it easy to make money consistently in stocks?  The answer according to me is no, it's not easy.  But I believe it's entirely possible if you put a ton of time into learning and getting better over time and not quitting.  It can be done, it has been done, and many of the people that have done it are some of the most knowledgable in regards to investing.  But the key is to learn the right knowlege.

So what are you waiting for?  Go out there read these books I mentioned, paper trade for awhile, put in consistent hours learning from your wins and losses and when you beat the market let others know it can be done, good luck to everyone.

Enough Said! 

63 Comments – Post Your Own

#1) On December 09, 2010 at 7:38 PM, truthisntstupid (85.16) wrote:

Come on now.  It isn't that hard and you know it...for bookworms that read about it incessantly.  I see among the books you have listed Common Stocks And Uncommon Profits.

I've looked for it every time I've been in Barnes & Noble in the last six months.  I live 80 miles from the nearest Barnes & Noble, though.  But I've seen it referred to often enough to know it contains quite a lot of information about my preferred style of investing, which is in solid market-leading companies that pay dividends and consistently increase them every year.

MO has increased its dividend 3 times since I bought it in Oct 2009.

Average people that don't have any consuming interest that will drive them to constantly read about stocks and investing are at a severe disadvantage.

That's too bad. Sucks to be them.

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#2) On December 09, 2010 at 7:57 PM, truthisntstupid (85.16) wrote:

BTW - Think And Grow Rich is an awesome book.  I've had it for a long, long, time.

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#3) On December 09, 2010 at 8:04 PM, StockMillionare (< 20) wrote:

Yeah, Think And Grow Rich is a sweet book.  When I first got it I wasn't sure what to expect.  But after reading it so much of how I looked at things changed.  A great book to read, and if you follow it will work.

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#4) On December 09, 2010 at 8:12 PM, StockMillionare (< 20) wrote:

You make a good point about the interest factor.  Problem is so many  say they are interested in making there investment grow, yet there not interested in learning all they can which seems contradictory in nature to me.

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#5) On December 09, 2010 at 8:57 PM, Goodnwell (< 20) wrote:

Everything you are saying is true, and I'll check out the books, but let's give credit where it's due: TMF rocks. Some of us join the service because they know stuff that we don't and they do the work we don't have time to do. We can't take all of the recs but certain ones speak to us and we do some research and decide if it makes sense. Add to that their outstanding record of returns and we go ahead and put some money down. We watch the prices go up and then down while they are holding our hands and telling us to be calm, be patient. It works. I did the first stock investing of my life six months ago, sticking to companies that I don't have moral qualms about, and I am now up 20.4 % overall, beating the market by 11.7 %. That includes some big mistakes early on and several market "corrections". I think I'm better at it now. This is a unique service and no one who has some money that they don't need for the next few years or so should be afraid to jump in and make use of it. Thank you Fools!

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#6) On December 09, 2010 at 9:14 PM, truthisntstupid (85.16) wrote:

TMF will point you in the right direction if you read their articles and ignore all the speculators here that think they're investors.

Beware!

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#7) On December 09, 2010 at 10:05 PM, truthisntstupid (85.16) wrote:

Reading, studying, and crunching numbers isn't everybody's idea of fun.  Those that enjoy it will consistently make money.  And have fun doing it.  I started this wonderful hobby in Apr 2008.

Talk about a hobby that pays for itself!  What fun!  But I've been a bookworm all my life and have loved to read about investing for 20 years before I finally started.  I even pursued a degree in accounting for a few years just for that very reason before being forced to drop out (long story never mind).

The people who are always disappointed are the ones who pursue capital appreciation with a short time horizon that treat a share in a company as if it were a lottery ticket instead of a piece of a business.

 I have ended up selling shares at a gain sometimes but that was never my intention when I bought them.  I always buy shares intending to keep them and hope to never sell them.  Sometimes it just doesn't work out that way because I learn more and decide it wasn't that good an investment, or the company misses its annual dividend increase for the first time in 22 years and gets denied a rate increase (PGN, Progress Energy in Florida).  

Sometimes I just needed the money and was sitting on a 25% gain so I took it.  

I do think it's easy.  But I didn't have anything but a few hundred to start with, and I only make $9/hour so I'm not able to save a few hundred a month like some people.

But I've turned that few hundred into a few thousand, occasionally adding what I could spare on a cook's pay over the last couple years.

Keep reading.  That's your competitive advantage.

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#8) On December 10, 2010 at 9:10 AM, SkepticalOx (98.69) wrote:

It isn't easy, and it's not from a lack of studying about investing either (though for a lot of retail investors and amateur day-traders, it may very well be a lack of hard-work). Professional fund-managers and day-traders who do this for a living, who devote their life to investing and trading, most of them don't even beat the market over the long-term. 

Beating the market is a zero-sum game. Those who beat the market do it at the expense of those who don't. Add on friction costs (trading expenses, taxes), and it's not even a surprise why a majority of investors don't beat the market. 

What about the guys who bought index funds to match the market? Well. Um. In the past decade, their holdings may have budged a bit upwards, but it's far from getting filthy rich. 

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#9) On December 10, 2010 at 11:27 AM, davejh23 (< 20) wrote:

"You make a good point about the interest factor.  Problem is so many  say they are interested in making there investment grow, yet there not interested in learning all they can which seems contradictory in nature to me."

Even those that do take the time to learn often don't stick to their plan.  There are relatively simple ways to beat the market long-term, but many let their emotions get in their way.  Many investors look back and realize that they would have come out ahead if they had stuck to their plan...could have easily avoided the last two market crashes...it can require nerves of steel though...

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#10) On December 10, 2010 at 11:37 AM, truthisntstupid (85.16) wrote:

I care nothing about beating the market.  I do make money, and it's money worth making.  Both Index funds and mutual funds would have included in their holdings a whole slew of severely overpriced companies nobody investing in individual stocks would have even considered buying in 2000.

KO at 70 times earnings in 2000, paying a measly 0.7% dividend at that price.

 Mdt at 60 times earnings in 2000, paying a 0.3% dividend at that price.

There are no doubt dozens of examples of stocks that were overbought in 2000.  I just know these two off the top of my head.

Nobody with an ounce of investing sense that was buying individual stocks would have even remotely considered buying those after the fund managers chasing performance managed to chase them up that high.

There are plenty of reasons people can do better buying individual stocks than funds. 

I know I do.  

 

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#11) On December 10, 2010 at 11:46 AM, truthisntstupid (85.16) wrote:

Why does beating the market always come up?  All I care about is beating the bank!

And yes - it's easy.

And while I'm beating the bank, I've also beaten the market, but I sure don't care whether I do or not.

I started in early 2008 and the crash gave me a wonderful advantage.  I may not do as well going forward.  But as a dividend investor who buys intending to keep for a long time, beating the bank will remain easy.

I've listed some of my transactions in detail here.

http://caps.fool.com/Blogs/too-poor-to-save-part-2/469643

Easy.  

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#12) On December 10, 2010 at 11:51 AM, Jbay76 (< 20) wrote:

Who is the author of think and grow rich?  I looked up the book a the library and  I get "Think and Grow Rich: A Latino Choice" by Lionel Sosa.  Is this the book you are referrign to?

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#13) On December 10, 2010 at 11:54 AM, truthisntstupid (85.16) wrote:

Napolean Hill

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#14) On December 10, 2010 at 11:58 AM, totallyoblivious (26.12) wrote:

I'm right around the 1 year mark as an investor, and it's definitely not easy.  Your post pretty well identifies what it takes to get started and be succesful.

I started out because I had recently divorced and noticed that my bank account just kept growing as my expenses had gone down considerably, and decided I that sitting on a pile of cash wasn't ideal.  So, I opened a brokerage account and I bought a few stocks of companies I thought had good prospects as businesses over the next few years. 

Fortunately, none of them exploded on me before I realized my criteria for buying them was highly flawed. I learned how to do some basic fundamental analysis early, and made some drastic alterations to my portfolio.  I was doing pretty well for awhile, picking up underpriced stocks, holding some in hopes of them realizing their underlying value and selling others for a quick profit.  And then the summer came.

Summer taught me to re-evaluate my strategy considerably, in particular that just because there was money in my brokerage account didn't mean I should invest it all.  It also taught me that stocks which are not directly tied to whatever crisis is driving the market down can still suffer just as badly as those which are.  Fortunately I didn't lose my shirt, and came into September having broken even for the year.

The fall taught me that the market can become drunk with euphoria despite major ongoing global issues.  This funny little thing called QE2 just kept making the market move up.  It took me a good month of scratching my head wondering why the hell the stock market just kept moving up before I took a look at the bigger picture.  So, I started learning about the relationship between securities, bonds, commodoties, and currency (and I have so much more to learn here!)

I started participating in the market again, and my lessons are starting to pay off.  I've started applying some basic technical analysis into my trades, and am generally purchasing stocks at better prices as a result.  My biggest problem now is that I tend to sell too soon when things start moving up again.  Regardless, I'm now up 42% on the year and am sitting on a 100% cash position for the moment simply because I'm not sure what direction the market's headed and feel that the upside potential is very limited, while the downside potential is severe. 

My hopes are that there will be a crash sometime in the next year at a time when I'm sitting on a very large cash position so I can go bargain hunting. But the real question for 2011 is what lessons does it have to teach me?  I've learned just enough in 2010 to realize how little I know about making money in the stock marke.  But I believe I have learned the single most important lesson: that you must continue learning, applying new knowledge, and altering your strategies when the old ones prove ineffective.

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#15) On December 10, 2010 at 12:04 PM, SkepticalOx (98.69) wrote:

#11 - Beating the market is mentioned because if you do all that hard work and can't manage to beat just buying an index-fund, that doesn't seem to make reading all those books all that useful if it doesn't translate into performance.

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#16) On December 10, 2010 at 12:28 PM, truthisntstupid (85.16) wrote:

#15 - It isn't work because it's something I enjoy immensely.  I learn all I can so that I can evaluate a company's financial strength, profitability, and competitive advantages.  I want to feel secure about a company's ability to maintain and continue to grow its dividend.  If it does that, I will make money whether the market goes up, down, or sideways.

 It allows me to be totally unconcerned with what the market's doing.  I care only how my companies are doing while my yield on cost goes up every year.  

I could realize a 33% gain in MO right now...and I'd be throwing away my 8.23% yield on cost if I did.  Next year, when MO increases its dividend again, it'll be higher and probably rise above 9%.  That's a dependable return I get without having to sell a single share.

SkepticalOx, I know you've been here long enough to know exactly what I'm talking about and I've read enough of your posts to know you're smart enough to understand it.  It's the main thrust of many, many Motley Fool articles. 

I'm here to tell you that it works and works big time.  And the reason it's easy is because most people want bragging rights on multibaggers.  They're simply not interested in this kind of investing because results a person can boast about are simply years away.

This is my favorite MF article about this investing style, for anyone who is intrigued:

http://www.fool.com/investing/dividends-income/2009/03/24/build-a-high-yield-portfolio.aspx?source=isesitlnk0000001&mrr=1.00

 

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#17) On December 10, 2010 at 1:30 PM, mtf00l (50.64) wrote:

Try buying a seat on the board somtime...

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#18) On December 10, 2010 at 2:01 PM, SkepticalOx (98.69) wrote:

#16 - My point is that it isn't "easy". If it was easy, everyone would be making money. 

In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets.  Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. -Warren Buffett 

The last part of that statement is the most important one. Emotional fortitude. All those books will mean nothing if you are not able to control your emotions, your biological impulses and normal human biases that affect us all.

You mentioned yourself that you only started in the middle of 2008. You didn't have money on the line in the dot-com mania. You didn't have money on the line during the real-estate, emerging markets and commodities boom.

Hindsight is 20/20, but wait till you're sitting their chugging along getting those tiny dividends when almost everyone else and their mother are tripling or quadrupling their nest egg while you're earning single-digit returns. That is when it is hard. 

It's easy to sit in your chair and say "those idiots back in 2000 buying KO with PE of 70 and a measly 0.7% yield", but even with frothy valuations a couple years earlier, you would've still made a killing. Or you could have sat their and looked at GOOG with a triple-digit PE at IPO with no dividend and said that was too much for you, and you would've missed out on getting a multi-bagger. 

And what of all those smart people who invested in staid-boring low P/E high-yielding financials or industrials (like GE)? How did they fair?

It isn't easy. That is my point. To cherry-pick examples and use hindsight is one thing. But investing with your own money on the line through market bubbles, recessions, changing regulations, tax-rules, etc. etc... It ain't so easy. 

In the end, it's a matter of opportunity cost. Would you make more money focusing on learning investing, or would you make more focusing on improving yourself at your everyday job. 

 

 

 

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#19) On December 10, 2010 at 2:18 PM, SkepticalOx (98.69) wrote:

Why Some Investors May Be Fooling Themselves? [WSJ]

Read that, it's written by Jason Zweig, the very same guy who edited one of the revised versions of The Intelligent Investor. That's Fooling, with a little "f" :P.

What are we smoking, and when will we stop?

A nationwide survey last year found that investors expect the U.S. stock market to return an annual average of 13.7% over the next 10 years.

Robert Veres, editor of the Inside Information financial-planning newsletter, recently asked his subscribers to estimate long-term future stock returns after inflation, expenses and taxes, what I call a "net-net-net" return. Several dozen leading financial advisers responded. Although some didn't subtract taxes, the average answer was 6%. A few went as high as 9%.

We all should be so lucky. Historically, inflation has eaten away three percentage points of return a year. Investment expenses and taxes each have cut returns by roughly one to two percentage points a year. All told, those costs reduce annual returns by five to seven points.

So, in order to earn 6% for clients after inflation, fees and taxes, these financial planners will somehow have to pick investments that generate 11% or 13% a year before costs. Where will they find such huge gains? Since 1926, according to Ibbotson Associates, U.S. stocks have earned an annual average of 9.8%. Their long-term, net-net-net return is under 4%.

All other major assets earned even less. If, like most people, you mix in some bonds and cash, your net-net-net is likely to be more like 2%. 

 

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#20) On December 10, 2010 at 3:04 PM, StockMillionare (< 20) wrote:

@ Skeptical0X: I agree, like I said above in my article I don't believe it's easy.  Beating the market one year or even two, is not the same as consistently beating it over say a period of 20 years. There are a lot of factors which makes one a winning investor over the long term, but that would require me writing a book about it.  The emotional aspect, or lack of it rather is very important.  For example when your stock that you bought at $20 dropped to $10 you lost half the value.  You can't sell that without losing 50 percent.  So what do people do, they hold, and do they get that money back?  Sometimes they do but it takes ten years, so your locked possibly all your capital into that stock while other stocks rise in value.  Or, you hang on for years and it never comes back it drops, look back at the bubble if you caps members don't think that can happen, or if you think all stocks eventually come back, not true.  So how did that $20 dollar stock get to $10.  Well it could of happened a million ways, but at some point it had to drop from 20, to 19, 18, etc.  At any point they could have taken a loss and recovered and moved on.  Maybe that take a 5 percent loss, or 10 percent, I personally use stop losses others don't, but for me it works.  I can't watch stocks all day long, and I often buy high flying stocks with strong relative strength, so while I'm gone I don't want to come home to seeing my stock drop from say $30 to $20.  Stop losses protect me that way.  If you learn the art of stop losses, which I trully believe it is - Most people just don't understand how to properly use them you will protect yourself.  It's like William J O'neil says, if a football team drives the length of the field but continually only comes away with a field goal, it's hard for them to beat you.  Strong Defense.  In my experience it's not the losses that destroy or deter investors.  It's the size or percentage of losses.  Losing 20 percent here, or 50 percent there even once in a short while will be what destroys you.  Another reason I like stop losses among many, is that sometimes I research a stock, I look at the economy all the factors which are many-that I know to help me buy a stock rising in value, and somehow I mis read the chart etc, and buy right into a high flying stock that is going through some major profit taking. Again, keep in mind something that took me awhile to learn, and this is another reason why I think it's not easy to consistently beat the market over the long haul, although I think it's entirely possible:What works one year, doesn't always work the next year, I'd go further to say what works for one month, might not work the next.  You have to constantly revaluate where your at and what strategy to use depending on the market.  It's like a martial arts analogy.  Someone asks what is the best martial art.  Well it depends, are you in a elevator, is there more than one person attacking you, are there rules, is there a refereee etc.  It's similiar in stocks, what's the best strategy, hard to say depends a lot on the economy, trends, expectations etc.  Keep in mind this not an article against Motley Fools obviously I think there is a lot of value for people or I wouldn't be here posting articles and discussing matters.

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#21) On December 10, 2010 at 3:16 PM, StockMillionare (< 20) wrote:

#14 Keep it up, I am always learning everyday regarding stocks.  I think 2011 will be a good year for stocks.  Just a historian fact for fun:  3rd year Presidency the stock market has been up big historically, but that is just a note, I don't necessarily follow that.

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#22) On December 10, 2010 at 3:26 PM, StockMillionare (< 20) wrote:

#8 Take a look at this article I found:

 Professor French’s study can also be used to show just how different the investment arena is from a so-called zero-sum game. In such a game, of course, any one individual’s gains must be matched by equal losses by other players, and vice versa. Investing would be a zero-sum game if no costs were associated with trying to beat the market. But with the costs of that effort totaling around $100 billion a year, active investing is a significantly negative-sum game. The very act of playing reduces the size of the pie that is divided among the various players.

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#23) On December 10, 2010 at 3:40 PM, AvianFlu (77.26) wrote:

I suggest that it is easier to make money if you approach the process as "owning companies" instead of "trading".

 Also, I have found that spending time trying to understand worldwide macroeconomic trends can pay off.

 In my view, right now is a very perilous time to invest. Here is my list of risky asset categories: stocks, bonds, real estate, cash, and anything American. Thanks, helicopter Ben. But of course you have to do SOMETHING so you don't get annihilated by inflation.

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#24) On December 10, 2010 at 3:45 PM, truthisntstupid (85.16) wrote:

I've said everything I have to say. To say more would simply require continuously repeating myself.  It's easy to make good money if you aren't chasing a pot of gold.  I simply want a good and growing return on money I save at a time when banks are paying less than 1%.  There are many, many solid companies offering safe and growing dividends of more than 3%.  Many have a long record of growing their dividends at a rate of 10% or more per year.

Using the rule of 72, a dividend growing @10%/year is a dividend that will double in 7 years.  Many solid companies  have a significantly higher dividend growth rate than that.

A lot of people seeking capital appreciation have made a lot of money this year.  But there's been no shortage of blogs by other people seeking capital appreciation claiming the market's "rigged"  or bemoaning the fact that "it's impossible to make money in this market."

Meanwhile, folks focusing on long-haul dividend growth tend not to make such posts.  I don't remember seeing any.

My average return on stocks I ended up selling for various reasons has been 25%.

I'm very hesitant to buy even a solid dividend-paying company with a long history of outstanding dividend growth if it happens to be in the higher part of its 5-year P/E range.

It's insurance.  That works pretty good, too.  Even though I hope to keep it for good I want insurance.

I will not pursue this further.   I will, however, continue to make more money every year as my income grows.  That is a virtual certainty.  Because I know how to analyze a company's financial shape and profitability and how well its dividend is covered and whether it has ample room to grow and it's easy.

Yes, it's easy.  Of course, there is the trade-off that I sacrifice any chances of hitting a jackpot that will triple or quadruple my nest egg.  But I'm also sure I'll never be on here whining that I can't make money in this market and warning everyone that the market's "rigged."

And I don't understand the fixation on my job.  I'm happy with my job and there aren't many jobs here.  I'm also damned good at it.  There aren't many jobs here because it's a resort area and people often move here to retire.  Most people here don't want a job.  Many that do want a job are forced to drive 30 or forty miles to work - or more.  

 I've said too much for someone that swore they were done.  I'm done.

 

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#25) On December 10, 2010 at 4:32 PM, russiangambit (29.92) wrote:

Ok, spending time researching stuff and crunching numbers is my idea of fun, well, in addition to  many other things I find fun.But let me tell you - stock market investing is not science. It is part science, part physicology, part art and part gambling. If you can think you can learn to be profitable consistenctly, I think you are wrong. A method by itself is not enough. Plust, you are at severe informational and quantatative and technological disadvantage when compared to professionals. Sotck market in low growth environment is close to a zero sum game, which means that chances are high that preofessionals will pray on you via short squeezes, stops fishing and other games.

To make profits in the stock market as individual you have to do lots of research, take small medium-long term positions so that you are not shaken out during the swings, and stick to your guns. Still, you cannot make big profits, only modest ones. Anybody who makes big and quick profits is either lucky gambler or playing in a niche where professionals don't play like penny stocks.

 

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#26) On December 10, 2010 at 4:56 PM, Seano67 (86.00) wrote:

You also have to have the right mindset, and that's a big, big factor. You have to have steady nerves, and you can't panic if and when things aren't going so great for your stocks or the market in general. You can't fall in love with your holdings and you have to remind yourself that these companies are investment vehicles by which you'll hopefully make some $$$, and so you need to be mentally prepared to sell any or all of your holdings at any time, though hopefully only after you've made a profit. That's another thing, it's never wrong to take profits.

I had two stocks recently (HUN and ICO) which I was up well over 100% on, and so I sold half of both and booked those profits, and now I've got cash in hand for further investment opportunities, and maybe even reinvesting that money back into Huntsman and International should they fall back to earth a little bit. The importance of booking profits is a tough lesson I learned by *not* booking profits when I was a much more novice investor than I am now, and by being greedy and holding on for even MORE profits I eventually lost them all and felt like a total fool. 

Those who do not cash out of some of their position after a big move upward will eventually become disheartened after a big pullback and will very often sell in panic or disgust at the worst time, when it's nearing or at its bottom. That's just human nature. Selling at least half of a big winning position will give the novice investor some confidence, and then you take it from there.

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#27) On December 10, 2010 at 5:33 PM, Bays (98.34) wrote:

Stockmillionaire.

Looks like you've made a lot of good points, but please break your blog into paragraphs!!!  I almost went blind trying to read that.

From your list, I've read One Up, Common Stocks, and Intelligent Investor.  All three are very good books, with three completely different strategies.

Peter Lynch put a lot of emphasis on the product, Philip Fischer on management, and Graham on fundamentals.  

Buffet actually used a fair combination of all three strategies. 

Most common theme in all of the books would be:

The market cannot be timed!!!!!!!!!!!!!!!!!!!!!!!  Consistently that is, everyone is lucky once in awhile.

Couldn't agree more.

 

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#28) On December 10, 2010 at 6:19 PM, StockMillionare (< 20) wrote:

#25 Read up on Peter Lynch books.  He has been one of the big boys, and even he states that the individual investor can beat the big boys.  

There are several reasons for this:  Sometimes the big boys don't aren't allowed to own certain stocks based on various reasons. Sometimes they can't buy them based on there cap status.  So a small cap or micro cap might not be able to be purchased simply because they might be considered to risky.  If there aren't enough analyst following they might not take a chance on it.  There are many other reasons read Lynch's books to see the references along with others.

If you try and copy the big boys than yeah, you could be at a disadvantage.  But if you get in just before the big boys get in you can hit it big.  I did that with my TRS pick.  I used certain serach parameters that I find works and picked the stock TRS that way. I looked for earnings, rs, under 30 percent instituional ownership, growing potential, under the radar factor.  

I also found fll this way, although it has yet to take off.  But if all goes well as the big boys discover it and growth continues along with earnings you have another trs type pick. 

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#29) On December 10, 2010 at 6:24 PM, StockMillionare (< 20) wrote:

#27.  I like learning from each of these books, because as you stated they are geared towards different strategies and I like learning all of them to use if needed.

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#30) On December 10, 2010 at 6:28 PM, truthisntstupid (85.16) wrote:

Someone who has held PG for twenty years will have a much better return from PG than a mutual fund got from it that has been in & out of it 10 times during that twenty years.

One of the reasons individual investor investing in individual stocks will do better over the long run is because of the turnover.

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#31) On December 10, 2010 at 6:36 PM, williamjoneal123 (33.16) wrote:

#30. Not to mention the fees that are hidden in the 401k prospectus etc.  When you add up all these fees they take for managing your money for years-whether you win or lose it's staggering.  

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#32) On December 10, 2010 at 6:39 PM, portefeuille (99.75) wrote:

My "virtual fund" is in the green by around 41% since March 8, 2010 (not 2009 ...) currently with high turnover, and with a well diversified portfolio of stocks and ETFs that are quite common in mutual fund and hedge fund portfolios (see this post). Okay, a little leverage helped, hehe ...

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#33) On December 10, 2010 at 6:43 PM, truthisntstupid (85.16) wrote:

stockmillionaire

Good blog post!  Whether or not anyone can see my point it is a good blog nevertheless.  I hope you keep reading!  

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#34) On December 10, 2010 at 6:44 PM, portefeuille (99.75) wrote:

#32 That is the performance pre "commmission and fees" and neglecting dividend payments.

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#35) On December 10, 2010 at 6:47 PM, portefeuille (99.75) wrote:

#32,34 Not sure whether it has been "easy" ...

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#36) On December 10, 2010 at 6:56 PM, truthisntstupid (85.16) wrote:

Ha of course it wasn't "easy"  for you to get those kind of returns, porte!  But I'm not trying to do that.  I've read some of your posts and to put it very simply, I think you're much smarter than I am!  Your knowledge dwarfs mine!

 

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#37) On December 10, 2010 at 6:59 PM, portefeuille (99.75) wrote:

#36 I think I tend to appear "smarter" than I am, hehe ...

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#38) On December 10, 2010 at 7:02 PM, truthisntstupid (85.16) wrote:

 porte

You published your reading list once in another post a long time ago.  I would never get through it.

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#39) On December 10, 2010 at 7:09 PM, StockMillionare (< 20) wrote:

#36 Don't be so hard on yourself, you made a sweet pick on txn.

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#40) On December 10, 2010 at 7:10 PM, NOTvuffett (84.09) wrote:

It is not easy to make 'big' money in the stock market.  The way I like to think about it is it is like your first swimming lesson, but they just chuck you into the deep end and there are sharks.

On the other hand, I don't think it is that hard to beat the market.  Many people entrust their money to 'professionals', but they are oftentimes constrained by a fund paradigm or just fund money issues.  Ok, some people are clueless jackasses, not too hard to beat those people.

Your best bet is to read as much as you can, and to lose some real money in the market.  You can screw around with vitual trading all you want but until you have real money on the line, you don't know how you would behave in the real world.

 

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#41) On December 10, 2010 at 7:15 PM, StockMillionare (< 20) wrote:

#40 See my comment above on the possible objections to starting out with paper trading.  I still stand by it in the beginning.

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#42) On December 10, 2010 at 7:17 PM, russiangambit (29.92) wrote:

#28 - I read all kinds of books, include Lynch ( invest in what you know) and Graham. But what are you going to do when "what you know" has been overvalued for years, for example?

You (meaning an average amatuer investor)  can't beat big boys. The fairy tale that you can is promoted by Wall Street and it is very damaging to an individual investors.

Knowing what you suposed to do is not enough. As I said, it is only part science, and consequently you cannot study and learn it.

Mostly it is lack of information that gets you. I observe it by reading some professional money managers blogs. They know something ahead of time, but they won't tell you until later and then their calls look like they are genuises. Ha! They know what big money does and where it moves the market and we don't.

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#43) On December 10, 2010 at 7:18 PM, StockMillionare (< 20) wrote:

#36 I am intrigued by one of your picks lyb.

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#44) On December 10, 2010 at 7:23 PM, truthisntstupid (85.16) wrote:

stockmillionaire

This is what I mean.  When I picked TXN it was ridiculously obvious that it should be an outstanding pick as a dividend stock.  It was at or near a 5-year low P/E and at or near a 5-year high for its dividend yield.  For real money purposes I wouldn't have bought it because I want a higher dividend.  But it did make a good CAPS pick, and it did escalate in price.  I just don't invest for capital appreciation.  I find income to be much more dependable, and the gains or opportunities for them are just  "incidental."   But I haven't had any shortage of them, either, which, if you've checked out the link I provided in #11, you must know.

NotVuffet

I seem to do just fine in the shallow end!

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#45) On December 10, 2010 at 7:24 PM, StockMillionare (< 20) wrote:

#28 I would argue Wall Street pushes the opposite myth- which is that you can't beat the big boys so why try.  In other words hand over your money because it's a losing battle, which I disagree with.  And Peter Lynch also disagrees with.  You mention the advantages that you think the big boys have, but you fail to mention the little guys advantages.  Do you know how many constraints the big boys have. They can't just move in and out of money like a little guy can because there leveraged to to much money.  Trying to unload 50 million dollars is not the same as unloading 50k.

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#46) On December 10, 2010 at 7:28 PM, StockMillionare (< 20) wrote:

#44 What do you think of the idea of a good dividend and a rising stock value a 2 for 1?  Such as my pick on MSB.

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#47) On December 10, 2010 at 7:29 PM, truthisntstupid (85.16) wrote:

russian

That's why I won't compete with them.   I seek the lion's share of my returns outside of and independent of the market. 

This is my long-thought-out, best effort at explaining it:

 http://caps.fool.com/Blogs/dividends-vs-capital/344638

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#48) On December 10, 2010 at 7:34 PM, NOTvuffett (84.09) wrote:

Hey truth,

Merry Christmas.

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#49) On December 10, 2010 at 7:43 PM, truthisntstupid (85.16) wrote:

stockmillionaire

Just my quick look at it on the Motley Fool's quote page doesn't tell me enough.  But I sure like that dividend if it's safe!  I'll need to go to dividendinvestor.com and look up its dividend-paying history:  How many consecutive years it's paid a dividend, its 3-year dividend growth rate, its 5-year dividend growth rate, its actual dividend pay date.

Then I'll go to Standard & Poors  "The Outlook"  site and see if there's a recent S & P research report on it and see what they say and find out what S & P's STAR rating for it is.

Finally, I'll go to Morningstar.com and see what STAR rating Morningstar.com gives it.  I'll also read "Morningstar's Take" from the Morningstar quote page on it. 

But before I do any of that, if I find that it has no direct stock purchase plan, I know I won't invest in it.  I've done VERY well using direct stock purchase plans - fees are either nonexistent or negligible.

I'll look it up and tell you what I think about it, though.

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#50) On December 10, 2010 at 7:46 PM, truthisntstupid (85.16) wrote:

NotVuffet

Merry Christmas to you too, buddy!  And I'm having the best Christmas I've had in many, many, years.

Thank you!

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#51) On December 10, 2010 at 8:01 PM, Mstinterestinman (43.56) wrote:

I love numbers and reading so I think learning stock analyses is fun. I'm getting better I made back all my Losses on Sirius XM and am now about 17% positive when you lose nearly 4k being 4k on the green side is very nice change...lol

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#52) On December 10, 2010 at 8:14 PM, truthisntstupid (85.16) wrote:

Mstinterestinman

Nice!  You're in good company here!

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#53) On December 10, 2010 at 8:41 PM, truthisntstupid (85.16) wrote:

stockmillionaire

MSB would just be too volatile for me.  I do hope it does well for you.

Dividendinvestor.com lists its 3-year dividend growth rate as 103% and its 5-year dividend growth rate as 61%, while its consecutive years of dividend increases is listed as zero.

This is because:

In 2005 dividends paid were $1.355.

In 2006 dividends paid were $1.755.

In 2007 dividends paid were $1.15.

In 2008 dividends paid were $2.855.

In  2009 dividends paid were $0.71

In 2010 dividends paid were $2.385.

I couldn't find an S & P STAR rating at Standard & Poor's "The Outlook."  

Morningstar didn't list a STAR rating for it either.

The dividends weren't all that were volatile.  Virtually every metric you might look at was very volatile looking at the last several years.

Go to Morningstar.com and enter your ticker in the "quote" box and see what you think.  You'll be impressed by all the free info at Morningstar if you stay awhile and look around.  After your quote comes up, click on various things, like "Key Metrics" and " Valuation."

You'll like it, if you don't already know about it.

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#54) On December 10, 2010 at 9:02 PM, ozzfan1317 (72.08) wrote:

Yeah that inconsitent of dividends unless that included a special dividend is a red flag for me.

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#55) On December 10, 2010 at 9:09 PM, ozzfan1317 (72.08) wrote:

I don't have a clear cut style I combine growth and value and just buy good or great companies at reasonable prices. I did pick up a couple cigar butts lately one of them BAC. When your selling that far below book their isnt much downside risk unless they go bankrupt.

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#56) On December 10, 2010 at 9:22 PM, truthisntstupid (85.16) wrote:

And there's nothing wrong with that style or any style, ozzfan.  It's a matter of preference.  I'm happy for other people whan they get a multibagger.  But there's many ways to make money in the market.  Some people seem to think there's only one way.

Just as some people preferred to buy income-producing real estate and collect rent instead of "flipping houses,"  some people prefer to build up a dependable income instead of having to constantly be on the hunt for the next stock they think they can "flip."

There's nothing wrong with either one - it's a matter of preference.  One is much easier than the other, though.

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#57) On December 10, 2010 at 9:51 PM, StockMillionare (< 20) wrote:

#56 I picked msb in real life at $20 so my appreciation has been pretty good.  I think the dollar will be weak for a little while longer, so it's a play against the dollar also along with other plays I mentioned.

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#58) On December 10, 2010 at 10:52 PM, NOTvuffett (84.09) wrote:

StockMillionare, I wasn't saying there was anything wrong with using tools to trade 'fake' money. I would encourage that.  Just saying that until you have 'skin in the game' it is just an intellectual execise. When it is your money, the hard lessons of losing are the most instructive.

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#59) On December 10, 2010 at 11:13 PM, StockMillionare (< 20) wrote:

#58 Yeah I hear what your saying.  I guess I just misunderstood, my bad.

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#60) On December 10, 2010 at 11:23 PM, Bays (98.34) wrote:

Easiest way to beat the "big guys", have a diversified group of index funds, and hold forever.  Only about 50% of mutual funds beat the index in a 1 year time frame.

Over a longer time period, ie. 20 years, you will be in the top 10% of investors easily.   Not bad for never having to worry about reading financial reports, economic reports, market timing, bankruptcies, etc...... 

Read William Bernstein's "4 Pillars of Investing", one of the best investing books of all time for the passive investor.

Sure, you want a little of excitement, so allocate 10-15% of your portfolio to your own personal selections.  But the core of anyone's portfolio should be a basket of index funds.

My 10-15% has grown to about 30% right now because some of my picks have been 10 baggers since the March lows ie SLW, TCK, SXL.V, but any new money coming into my portfolio has been going towards the index funds to bring back a reasonable balance. 

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#61) On December 10, 2010 at 11:44 PM, truthisntstupid (85.16) wrote:

I'm with you, stock millionaire

The 'big guys' are a bunch of clowns, and we've both read all the reasons why.

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#62) On December 11, 2010 at 1:14 AM, StockMillionare (< 20) wrote:

#61 lol, true.  BTW I liked your blog that you posted on dividends I'm always trying to learn more.

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#63) On December 11, 2010 at 1:25 AM, truthisntstupid (85.16) wrote:

Thanks!  They are a bunch of clowns.  And they really can't help themselves.  There will be another overheated market.  They will chase valuations up to ridiculous levels again.  People will invest in funds at or near the top of an overheated market again - and a year or two later have seen their investment plummet in value and wonder why they had to pay taxes on capital gains distributions even though they lost all that money - again!

I had to try to explain to a lady at work why she got hit with capital gains taxes after she lost thousands of dollars.  Naturally, she couldn't understand.  All average people that aren't into this know after something like that happens is they're never venturing into the market again.

I'm glad you liked it.  I need to rewrite it soon and repost it.  I thought I did a good job on it but I know I could do better the second time around.

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