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Originally Posted by TrevDigital
I have been doing a lot of reading about investing lately and I have come away with the following information
The way to win the game is not day trading or pseudo day trading. Not only does it carry huge risk, but you accrue brokerage fees that can easily negate your profits.
<a href="http://en.wikipedia.org/wiki/Efficient_market_hypothesis">The Efficient Market Hypothesis</a> is the underpinning of a strategy similar to what Warren Buffet has used (Buffett was already mentioned in here)... Find a good company, put in some money, then just relax. The value of your money is going to fall, from time to time but on the average you're going to make money.
Timing will cause you to pull your hair out. Buffett put a ton of money into Coke back in the 80s when the stock price was rather high, but he never felt any regret. Why? Sure, he could have made a bit more money if he'd have chased it up and down and picked a low point to invest, but the company still grew substantially and took the value of his investment with it.
Buffett is also strongly in support of a non-diverse portfolio. From his standpoint, if you pick great companies you can afford to put a huge amount of money (In his case, billions) into 3 or 4 companies. You might want to consider this when you think about chasing tiny fluctuations in dozens of companies.
Hope this was useful - I'd love to chat with you about the stock market more! I have no money in the market yet but I'm trying to gather as much information as I can now. |
I don't mean to sound disparaging, but you indeed sound like someone who has read a lot about the market but has no actual experience trading it.
How do you suppose you will find "great companies"? If you had bought $10,000 worth of Coke stock 5 years ago how much would you have now? How about the same amount of stock in GM or Merck? Are those not great companies? Will you simply decide that they are great companies and keep them forever or will you listen to quarterly conference calls, read annual reports and re-evaluate? How many individual investors actually do this?
I don't think that the individual investor has a real chance to outperform buying large cap stocks like those named above unless you have an effective money management plan. At some point you can't ignore catastrophic losses and just tell yourself "it's a great company." Otherwise you end up with Enron stock certificate wall paper.