Stocks and bonds have historically been excellent long-term investment vehicles. Essentially, it means owning the businesses that move the world forward. As the world grows, so do companies and the underlying stocks that underpin them. Financial markets are no longer governed by just a few powerful exchanges, such as the New York Stock Exchange and Deutsche Boerse (Germany), but instead influence a vast and complex, interconnected network of financial exchanges. Of course, there are many ways to invest in these global pieces of corporate property, but for now we’ll save the sexy, albeit risky, stock trading techniques that include derivatives, foreign exchange and day trading for other columns.
Lusha, the investment guru
Investing in stocks and bonds is basically very simple: buy low and sell high. Simple enough, in fact, people with Ph.D.’s and MBA’s next to their names and financial network TV celebrities who have written volumes on trends, charts, flash indicators, stochastics, investment psychology and even rallies based on that have made their fortunes. , whether the Dallas Cowboys win or lose. They are all experts and all have different opinions, literally thousands of opinions. Russia also has a now-famous chimpanzee named Lusha who defecates on a list of stocks on charts, and those stocks tend to match or beat the picks of some of the world’s most knowledgeable analysts. What does this tell us? It’s not that easy to buy low and sell high, or better yet, we can pay analysts high fees or hire a primate at a much lower price to be a stock picker.
Indicators and common sense
When buying stocks, bonds and mutual funds, it is best to start by studying the indicators. These are tools that provide an analytical view of a company and its relative share price. One of the most common is the P/E ratio (price-to-earnings ratio), which looks at a stock’s current price in relation to its earnings per share. It makes sense! The P/E ratio is simply the stock price divided by the earnings per share (which can be found in any number of financial publications). A high P/E ratio can mean that a stock is overvalued, and a low P/E ratio can mean that a stock is undervalued, but this is only one indicator that is completely reversible. For example, during the dotcom bubble, some companies were not profitable, as in a P/E ratio of zero…nada…big fat doughnut…yet these stocks were selling through the roof at overvalued levels. Which brings us to the most important metric you can use. It resides in a six-inch-wide analytic that hides between your two ears.
Warren Buffett said, “Invest in what you know.” For example, perhaps you agree that the population has been aging since World War II. What does that mean? This could mean that companies that sell services or products for the elderly will do well in the coming years. You can invest in a startup called FN Walkers Inc. (fictional) who designed a compact titanium walking device with a built-in espresso maker. The company is reporting backorders through the roof. Or you could consider government bonds. These are generally the safest investments on the planet and tend to perform well during times of turmoil. why? Because investors run to safety faster than gophers on the golf course. When the world starts firing missiles, investment dollars flow in rivers to safe havens, and the price goes up accordingly. With bonds, forget stochastic oscillators and 10-year moving averages and pray for volatility and bad news!
After all, you don’t need an expensive investment guide or chimpanzee poop.
Diversification by putting your eggs in one big basket
There is another way to buy stocks and bonds. It is through mutual funds. A mutual fund is simply a managed collection of stocks, bonds or commodities held in one big basket and managed by really smart guys. Mutual funds come in different packages, such as funds based on Dow industrials, or growth companies, or corporate and government bonds, or pharmaceuticals, or emerging markets such as China or Brazil. The theory is that owning a small fraction of a hundred stocks is safer than owning a large amount of just one stock. Another advantage of owning mutual funds is that they are fully liquid, meaning you can exit your position almost immediately. Mutual fund performance is largely based on the fund manager’s experience, and in many cases, performance can be closely monitored using a 1-year, 5-year, 10-year, or even 20-year moving average.
This author’s Pet Peeve requires anger management counseling
Always, Always, Always, be aware of your stock broker advice or advice offered by so-called experts. On October 9, 2007, the Dow Industrial Average industrial index reached an all-time high of $14,164. After that, it began a free fall like a base jumper without a parachute, eventually hitting a low of $7,062 on February 27, 2009. The investment gurus told us to hang on… that the market would recover. Poppy, Fubar!!! It’s better to sell the stock as high as possible to get out, then jump back in when it’s convulsing on the floor. If you got out a little while after the market started to sell off and then got back in after the dust had settled, you would be in a much better position than just letting it invest even though the market is now dancing around 12,000 will still be 15% BELOW the market high of $14,164. Isn’t that what brokers are supposed to do?
Anyway, I’m sick of fast roller coasters.