Investments

[Legion_Prime]

I have some money laying around and am thinking of investing it. I was thinking of buying silver but it looks like the price has been rising steadily the past 4 or 5 years so maybe I'm a little late on that with the amount of money I have ATM.
Ford Motor Company is looking like it might not be too bad. It is at an all time low right now (or may as well be for my purposes) and it looks like I can pick up 300 shares right now for under $50 (including fees and all). Ford appears to be the strongest out of the big 3 so if any American car companies are going to go under it's not likely to be Ford. This is going to be a long term investment for me. I'm not looking to get rich quick but just pick up a couple hundred shares here and there and sit on them for 5 or 10 years or so. If their share prices get back up to $10 that'll be 3K just for those 300 shares alone. Dividends for the past year or two have been $0.10 per share for the past year or so, so $30 quarterly isn't something I'm gonna really take into account for now.
So, what say you? Is this a sound conservative investment plan or is this just breaking off a section of antenna mast to chase the dragon?

ETA: A coworker just brought up the fleet sales. Most cabs on the road seem to be of the Ford/Lincoln/Mercury trifecta and while Chevy does currently have the police fleet agreement it will be Ford again in '13 as long as the traditional 4 year cycle is adhered to.

[LittleRedToyota]

my 2 cents...

if you want to gamble, pick an individual company and put all your money in their stock.

if you want to invest for the long term, invest it in an index fund...something that captures the entire US stock market, like the Vanguard Total Market Index...and perhaps put some of it in a foreign stock index fund as well.

diversification is the key to "conservative" long-term stock investing. any individual company can go bankrupt. any individual stock can become worthless very quickly. the likelihood of the entire US stock market staying in the tank over the long term is small...and, if it happens, we will have bigger problems--like our economy will be completely in shambles and our money will be worthless so it won't matter how much of it you have.

(remember, there are a number of very smart people out there who have access to all kinds of information that is difficult for the general public to get hold of who get paid to do nothing but sit around for 16 hours a day trying to find the individual companies that are going to make a ton of money for shareholders in the future. for the most part, they fail. they don't consistently do any better than a monkey throwing darts at the wall street journal. so, one might wonder why some random guy who works in your office will be able to do it...)

[Coops]

Good advice LRT

An index fund and dollar cost averaging is the way to go. Don't try to hit a homerun with an investment. Hit for average.

A more complete portfolio would have at least 3 months of emergency cash. Stocks and fixed income instruments such as bonds and CDs. The ratio depends on your age. Take on more risk (more stocks) when you are young and re-balance towards safer investments as you grow older.

[H.E. Pennypacker]

I have some money laying around and am thinking of investing it. I was thinking of buying silver but it looks like the price has been rising steadily the past 4 or 5 years so maybe I'm a little late on that with the amount of money I have ATM.
Ford Motor Company is looking like it might not be too bad. It is at an all time low right now (or may as well be for my purposes) and it looks like I can pick up 300 shares right now for under $50 (including fees and all). Ford appears to be the strongest out of the big 3 so if any American car companies are going to go under it's not likely to be Ford. This is going to be a long term investment for me. I'm not looking to get rich quick but just pick up a couple hundred shares here and there and sit on them for 5 or 10 years or so. If their share prices get back up to $10 that'll be 3K just for those 300 shares alone. Dividends for the past year or two have been $0.10 per share for the past year or so, so $30 quarterly isn't something I'm gonna really take into account for now.

How will buying 300 shares of a company trading at over $5/share cost you only $50?

Ford has been recently going up as you may have noticed. It has been the one of the best performers - if not the best - in the S&P 500 over the last few months. I bought it a while ago at around $2.20...sold it a month or so later at $2.70. I bought it knowing it would be a short-term thing to make (or lose) a quick buck. Ended up only making $60-ish, but that's because I only bought 150 shares.

Ford is an entirely speculative play, but less so today than a few months ago. While it's still better off than GM, it is by no means healthy and can very well end up in GM's position.

I would shy away from Ford for a few reasons if you're looking for a "conservative" investment:

1. The recent run-up in price
2. The fact that they're still burning through cash like crazy
3. Will the impending GM and Chrysler failures put some suppliers out of business?
4. Demand is still terrible for new autos

Stay away from mutual funds, too, unless you're looking for a specialized investment. ETFs are the new thing and follow a sector, an exchange, a country, a commodity, or basically any other type of investment. They are not actively managed, which means fees are much lower than mutual funds (Vanguard, though, does have some low fees).

Mutual funds tend not to really outperform the market, and you could do better by just investing in an ETF and saving money on fees.

I'd take whatever money you have and buy a couple of stocks - there is such a thing as being overdiversified and I think that's the problem with mutual funds.

My current holdings are: GLD, VALE, GLW, GE, OME.

• GLD follows the price of gold
• VALE is a Brazilian mining company
• GLW makes glass and fiber optic cables
• GE is obviously GE and they do everything from medical equipment to financial services to...well...everything
• OME is a small company that produces fish oils and other stuff rich in Omega-3 fatty acids

I'd say with just those 5 holdings that I'm pretty diverse.

There are plenty of cheap stocks still out there, even after this recent run-up. Look for companies that have good cash flow, good earnings, higher-than-average dividend yields and low PE's.

[LittleRedToyota]

Stay away from mutual funds, too, unless you're looking for a specialized investment. ETFs are the new thing and follow a sector, an exchange, a country, a commodity, or basically any other type of investment. They are not actively managed, which means fees are much lower than mutual funds (Vanguard, though, does have some low fees).

you are confusing the concept of active vs. passive management with mutual funds vs. ETFs.

not all mutual funds are actively managed. in fact, almost every mutual fund company offers index funds (which are not actively managed, but rather passively managed). index funds have much lower fees than actively managed funds. vanguard just offers more index funds than most mutual fund companies.

mutual funds vs. ETFs is a matter of how the fund is bought an sold, not inherently of active vs. passive management. do you buy it directly from the fund company and sell it back to the fund company (mutual funds) or do you trade it on an exchange like a stock (ETFs)?

in general, though, i agree with your idea regarding avoiding active management. active managment can and does outperform the market...however, it is usually due to luck rather than skill and trying to consistently predict which active managers will outperform in the future is an exercise in futility. for this reason, i like index funds over actively managed funds.

you could do better by just investing in an ETF and saving money on fees.

whether index mutual funds or ETFs end up being cheaper depends on the particular mutual fund's expense ratio vs. your trading account maintenance fee, the price you pay for making trades, etc. for an ETF. (another advantage of mutual funds over ETFs here is that the mutual funds automatically reinvest the dividends where as ETFs do not. they deposit the dividends into your brokerage account and then you have to invest them...and probably incur a fee.)

and then there is the whole issue of how each is taxed...which i am no expert on as i deal with retirement accounts where taxes do not really come into play.

I'd take whatever money you have and buy a couple of stocks - there is such a thing as being overdiversified and I think that's the problem with mutual funds.

for long term planning, i would argue with the idea that there is such a thing as overdiversification. sure, in hindsight, you can always look back and say "well, i wish i had put all my eggs in these baskets over here", but that also implies "well, i am very gladd i did not put all my eggs in those baskets over there".

diversification makes it less likely that you will hit home runs, but i also makes it less likely you will strike out. and many studies have shown that lack of diversification is more likely to lead to strike outs than home runs.

I'd say with just those 5 holdings that I'm pretty diverse.

unless one of those companies goes belly up. imho, 5 holdings is not even close to adequately diversified.

There are plenty of cheap stocks still out there, even after this recent run-up. Look for companies that have good cash flow, good earnings, higher-than-average dividend yields and low PE's.

just out of curiosity, have you ever calculated your annual rates of return and compared them to various indexes?

how is it that guys with MBAs from the best schools in the world can devote their entire lives to the pursuit of winning stocks and generally end up fairing no better, or worse, than the maket in general but random people can beat the market all the time?

like you said, active management does not consistently work...and, trust me, the guys who are doing the active management look at all kinds of companies with all kinds of cash flow, earnings, dividend yields, PEs, etc. etc.

[Legion_Prime]

How will buying 300 shares of a company trading at over $5/share cost you only $50?

Ford has been recently going up as you may have noticed. It has been the one of the best performers - if not the best - in the S&P 500 over the last few months. I bought it a while ago at around $2.20...sold it a month or so later at $2.70. I bought it knowing it would be a short-term thing to make (or lose) a quick buck. Ended up only making $60-ish, but that's because I only bought 150 shares.

Well the prices listed at the brokerage account I opened list it in the $1.60's
I also mailed a buddy from basic about a "Sin Fund" he's invested in. It consists of tobacco and alcohol companies, casinos hence the "Sin Fund" he said that the return has been phenomenal every year. Hopefully I hear back from him sometime soon.
I'm looking at Ford as an investment over the next 5-10 years minimum. I know it's not diverse but a decent first step, I figure on putting in $50-100 a month with the dividends being held in a tax free MMA. I know it is going to take time to build up something worthwhile, but I think this may be a decent start.

ETA: Whoops, off by a decimal place. I can buy 30 shares for less than $50.

[dc dalton]

About your silver comment. Silver has been rising steadily for years BUT it took a major correction this time last year. It was over $20 an oz and I'd be willing to bet money (actually I have) it's going back to 20 or above by the fall....

As far as the stock market? Well yes there are a lot of stocks that have been beaten down but I see this latest rally as a bear market rally that can't last. Could be wrong (and I have been before) but I honestly don't think this mess is quite over yet. I'm looking to fall for the 'real' rally.

Here's one I wanted to jump on in December but didn't have the extra cash:

http://money.cnn.com/quote/quote.html?symb=CDE&time=6mo

[Legion_Prime]

About your silver comment. Silver has been rising steadily for years BUT it took a major correction this time last year. It was over $20 an oz and I'd be willing to bet money (actually I have) it's going back to 20 or above by the fall....

As far as the stock market? Well yes there are a lot of stocks that have been beaten down but I see this latest rally as a bear market rally that can't last. Could be wrong (and I have been before) but I honestly don't think this mess is quite over yet. I'm looking to fall for the 'real' rally.

Here's one I wanted to jump on in December but didn't have the extra cash:

http://money.cnn.com/quote/quote.html?symb=CDE&time=6mo

Trading in the $1.30's it looks like, I may pick up some of them as well.

ETA: It looks like I have 25 free trades good for the next 90 days. I think if I put in $50-$100 a week for the next 3 months I will be able to take advantage of most of them and get a decent portfolio started.

Where do you recommend buying Silver? I know they will charge me fees over the price so what is a minimum amount I would need to invest to make it worth my while?

[dc dalton]

Trading in the $1.30's it looks like, I may pick up some of them as well.

ETA: It looks like I have 25 free trades good for the next 90 days. I think if I put in $50-$100 a week for the next 3 months I will be able to take advantage of most of them and get a decent portfolio started.

Where do you recommend buying Silver? I know they will charge me fees over the price so what is a minimum amount I would need to invest to make it worth my while?

Well you have to watch CDE ... it is known as the ugly stepchild of the mining stocks and has spent years going sideways but when silver and gold took their pounding last year (engineered by the government btw) they took a horrible hit (an unjust hit).

I wanted it at 47 cents and wanted to dump 3-4 grand into it but that was when our money situation was really bad. Story of my life, cigarettes and no matchs, matchs and no cigarettes.

Right now I'm not 100% sure of CDE, if I were to buy I would want it around the $1 mark. If you look at the charts for 5 years you will see it was once at $7 a share, then some horrible management blew them out of the water but they have started to fix that mess ... the other thing is (and something I believe will happen) if we have another bull run on silver and gold (see my previous post) CDE should ride the wave.

[H.E. Pennypacker]

for long term planning, i would argue with the idea that there is such a thing as overdiversification. sure, in hindsight, you can always look back and say "well, i wish i had put all my eggs in these baskets over here", but that also implies "well, i am very gladd i did not put all my eggs in those baskets over there".

http://www.google.com/finance?chdnp=...&q=MUTF:PRFDX&

That's a fund I had a little while ago. It's supposedly pretty good, but still didn't do as well as the Dow 30, and it definitely has more than 30 holdings. I guess 30 companies is a lot, but some of these mutual funds have hundreds of companies. The S&P 500 has 500 companies and performs about in-line with the Dow 30 (30 largest companies). In fact, the DJIA has performed better than the S&P 500 since about 1970.

http://www.google.com/finance?chdnp=...JX:.DJI&ntsp=0

So how many is enough? I dunno. If you choose five companies diligently, you should do OK. If they are well managed, have a good business plan, make a good product, are profitable, etc., then you should feel comfortable making the investment. Once you get more than five companies, you can't really keep track of their current events unless you concentrate full-time on your companies. If you can't do that, then I guess an ETF or a mutual fund is for you.

just out of curiosity, have you ever calculated your annual rates of return and compared them to various indexes?

That's kind of tough to do when I've only had these investments for a few months and buy them at different times. I know I'm up around 15% overall, but my holding periods are all different.

how is it that guys with MBAs from the best schools in the world can devote their entire lives to the pursuit of winning stocks and generally end up fairing no better, or worse, than the maket in general but random people can beat the market all the time?

Providence? Everyone seeks to arbitrage the market...but aside from extreme circumstances, the market is so vast that it's pretty much priced "right" and there is no formula to use to find out if it's not.

like you said, active management does not consistently work...and, trust me, the guys who are doing the active management look at all kinds of companies with all kinds of cash flow, earnings, dividend yields, PEs, etc. etc.

They can only do so much. A guy managing a large-cap growth fund can't invest in a small-cap value company too often, even though in the prospectuses it says they can.