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Thread: newbie at investing

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    Default newbie at investing

    Hi all--

    One of my customers came into the club last night and was telling me that he just bought a UPS store here in town. I was appaled cuz he looked so young (he's 25!) So I asked him how he was able to do that at such a young age and he told me he started with 500 dollars when he was 18 and put it into the stock market on etrade.com. While hes telling me this im thinking damn, i've got more than that saved up, I could be doing that! But heres the thing my parents got divorced over my dad doing the same exact thing. Day trading. He lost almost all out family's savings, which I believe was because he never went to college or anything and jsut started "gambling" on etrade.com. So I'm kinda scared.

    So my question is, how should I go about investing my money relatively safely. I am willing to take college classes so that I know what i'm doing but which ones should I take? Or, could i hire an accountant, etc? I would love any advice you experienced ladies could give me. Do any of you guys daytrade online? And how did you get started on making informed investment descisions? I live in SoCal, btw so if you know of any good resources i would be very grateful!

    much love-

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    Banned Katrine's Avatar
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    Default Re: newbie at investing

    Talk to a financial advisor. Seriously, I'm not even trying to market myself here. But day trading and investing without taking the time EVERY DAY to study the markets is like gambling in Vegas. Most advisors will take you in for an initial consult for free, to see what you are looking to do and how they can help you.

    A CPA isn't an investment advisor, FYI. They help you with filing your income taxes, and will help you with the taxable implications of your investments. But seldomly do they make investment recommendations unless they are qualified to do so. And in my experience a CPA who also does financial planning is very expensive.

    http://en.wikipedia.org/wiki/Financial_planner

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    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Banned Melonie's Avatar
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    Default Re: newbie at investing

    in regard to this particular anecdote, I would point out that there is an old economic adage that applies to the US economy and stock / bond markets over the past 6 years ... " a rising tide lifts all boats". My point is this ...

    After the 9/11/2001 attack the US economy was thrown for a major loop. In response, by late 2001 / early 2002 a very unusual set of economic circumstances had developed. The gov't had cut individual and business taxes, the gov't had cut interest rates, the gov't had jacked public sector spending sky high to 'improve security', and the economic upheaval of 9/11 had 'bottomed'. As a result (and in the absence of another terrorist attack), the US economy had followed a pretty steady uptrend from that point forward.

    Because of this, just about anybody with half a brain who decided to put money into the US stock markets after the post-9/11 'bottom' was able to take advantage of this steady uptrend. This meant that amateur investors could put money in your average mutual funds or index funds and achieve pretty substantial gains. This also meant that amateur investors could put money in more speculative investments and still have the luxury of the general upward trend making up for a fair amount of bad judgement via preventing big losses.

    However, based on a large number of factors, since last fall the general upward trend that American markets had followed since the post-9/11 bottom has pretty much lost momentum. Interest rates are rising, there is talk in Washington of significant tax increases etc. The US economy has slowed down substantially since the end of last year. Arguably, this now means that an amateur investor who puts money into average mutual funds or index funds no longer has a 'guarantee' of achieving any gains. This also means that an amateur investor putting money into more speculative investments no longer has market momentum to help minimize their potentially large losses.

    To put this bluntly, that was then and this is now. The unusual circumstances which allowed your 18 year old custy to earn a ton of money in the US stock and bond market over the past several years no longer exist. In fact, odds are that if an 18 year old were to make the same sort of amateur investments today that your custy did 5 years ago that they would be facing losses instead of gains.

    However, this does not mean that there aren't any 'safe' investments available today. Nor does it mean that a saavy investor can't earn big gains in today's US stock and bond markets. However today's 'safe' investments are not the same ones that were considered 'safe' 5 years ago. And the strategies required to earn big gains in today's market are entirely different from those that worked 5 years ago.

    For starters, since you live in Southern California, one of the major 'safe investments' available to you are California Muni Bond funds. Because of California's outrageous state income tax rates, because of the new congress letting the Bush income tax cuts expire (plus talk of enacting new taxes besides), because of the new congress' failure to extend cuts in the Alternative Minimum Tax (which will disallow federal deductions for paying state / local taxes), and because of rising interest rates hammering the bond market, California Muni Bond funds may now offer a very attractive after-tax rate of return with a reasonable amount of 'safety' at a reasonable buy-in price.

    These funds are exempt from federal income tax as well as exempt from California state income tax because they consist of muni bonds issued by California municipalities. As such, a 6% annual rate of return on one of these California Muni Bond funds could equal a 9-10% rate of return on a fully taxable investment where federal and state income taxes will eat up 1/3rd of the gains.

    One example can be found at I would also add that with a $2000 initial investment it's possible to directly buy into this fund without needing a brokerage account and without paying a broker's commission. There are many other similar California Muni Bond funds available, of course. However, be careful to determine whether or not a particular fund is also exempt from Alternative Minimum Tax (the one I linked to is), because if the current congress doesn't 'fix' the AMT then that fund may be subject to federal income tax after all.

    ~
    Last edited by Melonie; 06-09-2007 at 08:38 PM.

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    Banned Katrine's Avatar
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    Default Re: newbie at investing

    See, this is my point. Melonie, there are TONS of other investment options besides bonds and muni-bonds. Now, I LOVE munis for high income earners, but there are things the OP needs to understand before she just throws her money in.

    1. Are her goals for short-term gains or long-term growth? If the latter, then today's situation isn't going to matter that much. Economic trends cycle about every decade or so.

    2. What's her risk-tolerance? If she is relatively young, she doesn't need a bond portfolio or present income. She can earn that income elsewhere. NOW...I know she mentioned day-trading, investing to start a business, but as we both know, few people can earn enough from equities/fixed to turn $600 into $60,000 in 5 years. So as to your original assertion about post 9/11 investing, I agree with you 100%.

    Honestly, I seriously doubt that this customer raised all of his startup capital from an init. investment of $600, but its a nice story to tell.

    3. Asset allocation, risk management through derivitives, fundamental analysis, technical analysis, etc.....few people will take the time to thoroughly understand these principles.

    The reason I think its a good idea for her to at least SPEAK to a professional investment advisor is because I see oh so many people who thought they could do what you've been able to do. IE, spend the time learning and following the markets and understanding investments. But most of them do a poor job of learning, or they get bored. Then, their investments start to tank and they pull out at a loss.

    So....whilst it sounds like your investment advice is more conservative, ie bonds, it actually could be riskier. I mean, do you go to the dentist at least once a year for a formal checkup, but also maintain your teeth/gums on a daily basis?

    4. What's wrong with paying someone for their expertise, ie broker's fees. If my broker could get me a 17% return and took 1% off the top, effectively leaving me with the 16% ROI that I need, would that be so bad considered that the average U.S. invester "do it yourselfer" gets about 4.3%? The statistic is somewhere in that neighborhood, but dare I say, it might even be lower, like 2.2%, I forget.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Banned Melonie's Avatar
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    Default Re: newbie at investing

    See, this is my point. Melonie, there are TONS of other investment options besides bonds and muni-bonds. Now, I LOVE munis for high income earners, but there are things the OP needs to understand before she just throws her money in.
    Oh, absolutely ! I just threw this one option out there which now seems to be a particularly good mix of after tax rate of return versus risk for people who live in super high tax states like California or New York. This option also looks better and better the more that the US congress or California / New York legislators talk about raising tax rates on the 'rich' ... with their idea of 'rich' being any single person earning more than $75k, which basically includes every full time dancer !

    What's wrong with paying someone for their expertise, ie broker's fees. If my broker could get me a 17% return and took 1% off the top, effectively leaving me with the 16% ROI that I need, would that be so bad considered that the average U.S. invester "do it yourselfer" gets about 4.3%?
    Absolutely no argument on this count either ! However, there is also the risk that a mediocre broker / adviser will not do any better than a 'do it yourselfer' in terms of rate of return, but will still extract their 1% commission.

    The major point that I was trying to get across is that, since late last year, the 'easy money' aspect of stocks / bonds / real estate which existed for the last several years is now pretty much history. I will expand this to comment that, like generals preparing to fight the 'last' war, the majority of formal financial educators i.e. college economics professors and mainstream financial advisors are teaching the 'last' economy ! Arguably, the stock and bond and real estate markets are a 'zero sum' game ... which by definition means that there must be just as many losers as there are winners. And not all of the college economics professors and mainstream financial advisors can be on the winning side. Thus where brokers / college professors / financial advisors are concerned, there is a major element of 'caveat emptor' these days ! Pick the right one and you're golden in more ways than one. Pick an old reliable and you may be wasting time and money.

    The reason I think its a good idea for her to at least SPEAK to a professional investment advisor is because I see oh so many people who thought they could do what you've been able to do. IE, spend the time learning and following the markets and understanding investments. But most of them do a poor job of learning, or they get bored. Then, their investments start to tank and they pull out at a loss.
    No argument from me on this count either !!! Again my only point in this regard is that paying any old investment advisor is no guarantee that the advice being dispensed is going to result in 'guaranteed' gains / profits. I also agree with you wholeheartedly that most people do not really want to devote the time and effort to truly follow the markets and understand the forces affecting their investments - they just want gains / profits, and when these don't continuously materialize they lose faith as well as money.

    Honestly, I seriously doubt that this customer raised all of his startup capital from an init. investment of $600, but its a nice story to tell.
    Again I agree wholeheartedly. In my own investing history, I have been very lucky to hit a few 'three baggers' and an occasional 'ten bagger' ... but this happened when the market was in a major uptrend which is not the case today ... this also happened when some of my other investments went nowhere or even had to be sold at a 20% loss ... resulting in my achieving perhaps a 50% overall average ROI in my best year. Thus even if this guy was able to pull off a 50% gain for each of the past 6 years, starting with $1000 would still only compound to $11400 BEFORE TAXES, leaving somewhere between $8k and $10k in gains after taxes (depending on whether he was day trading and paying full shot or holding a year for long term capital gains tax rates).

    Is it remotely possible that this guy was able to flip from 'three bagger' to 'three bagger' to 'three bagger' on an ongoing basis while avoiding other investments that would have resulted in treading water or losing money, which in turn would have allowed him to compound a $1000 initial investment into $100,000 inside of 6 years after taxes ? Sure it is. However the odds of that happening (without soon being followed by an insider trading charge at any rate) are extremely and I mean EXTREMELY low. And the odds of that happening again in today's market are even lower still !

    ~
    Last edited by Melonie; 06-10-2007 at 12:17 PM.

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    Default Re: newbie at investing

    For someone with absolutely NO investing knowledge and NO desire to watch the markets and profit daily from them....talk to a financial advisor at any of the large brokerage firms that advertise on TV and magazines (Charles Schwab, Morgan Stanley, etc). They will set you up in with a nice diversified portfolio for your risk tolerance. In a bull market this portfolio MIGHT beat the average S&P 500 returns of 10%. In a bear market you will get crushed becase fund managers are not allowed to short sell when the market tanks.

    I LOVE corrections like last week. As a trader, I banked on Wednesday and Thursday when most of the financial world was panicking because their long positions were plummeting. I'm anticipating another drop next week. I don't buy mutual funds or stock. I buy options when I anticipate a large movement, or I sell options via spread trades when the market is trending sideways for income.

    Is there risk in my trades? Maybe. I think investing in mutual funds is the MOST risky investment of all because they only trade at the end of the day. So if the market crashes and you get your sell order in at 10 am, it doesn't matter, you are getting the closing price. As an independent trader, I manage my risk and set a specific dollar price of when I am in or out. So far I have beaten the S&P 500 this year AND I didn't contribute to some fund manager's $100 million bonus check.

    I do pay a flat commission per trade. It's a whopping $1.50 There is so much competition between brokerage firms that commissions on trades have been reduced to next to nothing. So the old "oh the commissions will kill ya" excuse doesn't fly with me. I pay $1.50 per contract to get in 1.50 to get out. THREE DOLLARS per trade! And if I make 40 trades per month, I get a check for $40 bucks to cover the cost of my internet connection. I LOVE my broker: www.thinkorswim.com


    Do I suggest Biancababe go out and buy put options on the SPX, no of course not. I do think that getting a financial education is important for all women. A really good place to start is RichWoman.com by Kim Kiyosaki. Robert Kiyosaki's Rich Dad book series (www.richdad.com) is also a good place to start getting an alternative view on investing. Although Kiyosaki is criticized for not giving any solid answers on HOW to enter the markets, I think he does a very good job of explaining the basic concepts of how and why people need to take ownership of their investments.
    Rebecca Avalon







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    Default Re: newbie at investing

    Touche! Great response, I agree with everything. You rule! Yup, opportunity cost is what it is.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Default Re: newbie at investing

    Quote Originally Posted by britneyireland View Post
    Although Kiyosaki is criticized for not giving any solid answers on HOW to enter the markets, I think he does a very good job of explaining the basic concepts of how and why people need to take ownership of their investments.
    Ok, fair enough. Personally, I think Kiyosaki is useless, but his series has helped many of my clients change their thinking. Britney, can you tell me again how long it took you to learn how to trade options? How long do you spend on this each day? And what was your initial investment to learn about all of this?

    I really enjoy options trading, international currency options was my specialty. But its pretty complex for the intro investor....

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

  9. #9
    God/dess britneyireland's Avatar
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    Default Re: newbie at investing

    I posted a few months ago about my options education. http://www.stripperweb.com/forum/sho...5&postcount=27

    I've been a PhD student with Investools for a little over a year now and all the smaller pieces of the puzzle (greeks, Implied Volatility) are finally coming together. In the beginning I spent about 2 hours a day on it. Then as my interest in the subject matter grew, so did my time studying. The past two weeks I've been glued to my computer during market hours AND listening to several trading rooms each night, AND talking to my coach once a day. So, I guess you could call it a "full time" job: I get up and watch amatuer hour, put my trades in, go to the gym during lunch hours, then come home and trade during the last hour of the day.

    The initial investment for the education program was 20K. Pretty steep, but the funds were already earmarked for either Investools or a rental property. Given the local AZ housing market I'm SOOOOOO glad I didn't jump into a rental property last spring! That 20K is for two people, so if you have a "family member" you want to split the cost with go for it. We've actually been thinking about auctioning the other half of our membership on ebay since we don't use the "guest" login.

    Forex is next on my list. I want to master options first. I like options because I don't have to be directional. One of my favorite strategies is the Iron Condor where I sell credit spreads 50 pts away from where the SPX is trading. That gives me 100 pt range that I can be profitable AND it can only fail on one side.

    Kiyosaki is a great STARTING point. Easy to understand for the novice. It was the "Retire Young, Retire Rich" book that motivated me to understand investing for cash flow and financial freedom.
    Rebecca Avalon







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