Ask HN: Do you invest in the stock market?
Im curious to know: Which companies are HN users invested in?
And if not: Which companies WOULD you invest in?
And if not: Which companies WOULD you invest in?
Approximately 50% of my liquid net worth is Chipotle. I bought back in 2006/2007 and just held.
My other individual picks include Bank of America (yeah, ouch), Microsoft, and Nintendo. Chipotle more than pays for the shellacking I took on all the rest. It is ultimately irrelevant though as I still have 25 ~ 30 years before I'll start selling anything.
I have, consistently (over 10 years) invested in individual companies and beat the market, but I found that it just wasn't worth the time. So now I put my money in index funds.
By the way: the biggest predictor of your returns is not which individual stocks you invest in, but your asset allocation-i.e., the percent of your money that's in stocks, bonds, etc. If you want to invest I would first learn about asset allocation before trying to pick individual companies.
I'd say the advantage the individual investor has over the investment professional, is that the professional has a time-frame of 1-3 years. So a lot of a stock's price reflects how the company is expected to grow/pay out over that period.
If you are willing to take a longer term view, asking what's this company going to be doing in 10-20 years, and how is it priced relative to that, then I think you've got a much better chance to beat the market (see Buffet for example)
1. Most individuals do consistently worse than the market (so do most mutual funds, actually)
2. Most of Buffett's major successes, especially the early ones, have had nothing to do with his predictions of how a company would perform in the future. They were based on the difference between a company's current assets vs. its current stock price. Eg one of his major successes was in buying shares of Sanborn Map company when Sanborn had assets of $65 per share, but shares only cost $45 each [1].
It's still possible to invest using this method-known as value investing-but it's much harder today. The reason is that information is much more freely available. Eg in the Sanborn example above, it took Buffett a significant amount of research to find Sanborn and to realize that they were undervalued. Today all of that information is available to anyone online.
[1]: http://en.wikipedia.org/wiki/Warren_Buffett#Business_career
They asked (I don't have the exact numbers at hand) 1000 people to answer the following question:
Do you think that you are better informed about the companies that stocks you hold than the average stock holder who also invests in the same company.
In a rational/non-chaotic market about 50% would say "yes" and 50% would say "no". If I remember correctly 90% said "yes" and only 10% said "no". When you buy stocks you should be aware of that because I think its very important to know...
Seriously though, of course the average investor cannot beat the market, it doesn't mean it isn't possible for an individual to do so, or that it is all down to chance.
One approach is to focus on small companies.
Most active funds will not invest here (it is not worth the time when they would only be able to invest a tiny fraction of their funds).
As such these companies tend to be under-researched (not necessarily the same as under-valued though), so if you're willing to put in some leg-work and a lot of patience, there can be some good opportunities.
No, it is all down to chance.
I've started a blog where I'm going to detail more of my trades and thoughts. To start with, I'm doing a short interview series with established financial traders about their day-to-day work, if anyone is interested: http://trading.martinrue.com
Index funds are an easy, conservative, way to get it. They also require the least time. Vanguard seems to make the best products here - money in VTI, VWO and BND will give you a nice balanced portfolio.
But you can beat the market - the key is that you must be patient, not swayed by opinion, or market trends, and spend a lot of time looking into business fundamentals.
I'd advise staying pretty liquid in the short term. It looks likely that there'll be another large correction in the short term as we see another wave of potential sovereign defaults. When everyone is panicking is the best time to buy.
Initially it was how you got incredibly rich incredibly fast (my YHOO, for instance, went up 70% during the first three days that I held it). Then for a short period it transformed into a source of immense sorrow and despair. Then for several years it was just a convenient way to dispose of any excess salary that was left lying around at the end of the month.
Now it's back to being the way you turn the $XX,000 you put in today into the $YYY,000 you'll get back out in twenty years. Index funds (as discussed everywhere else in this thread) will pretty much do that for you without you ever having to think about it.
(Based on reading Nassim Nicholas Taleb and conversations with people that worked on trading floors.)
For every hitting it big, there is an opposite (and often larger) story of losing it big. Often by the same people -- except they are happy to tell you about their wins and don't talk so much about the losses.
It's not even a zero sum game -- the fees and spreads ("friction") are non-trivial.
There's a risk/reward balance in every asset, I don't think ruling out stocks based on the perception that they're risky is necessarily wise.
Stock market is a fool's game by its nature.
see: dynamic hedging by nasim taleb--a book that sits on many professional traders desks in which taleb makes more than a few points about trading.
Anything else is illegal, as my wife works in finance (HFT). Unlike congress, employees of trading firms and their families are forbidden from trading any instrument related to what their firm does.
Well, to actually answer the question, I am invested in BAC, PFE, GE, and VZ. All of which are for testing purposes for a new strategy that makes us of technical analysis over a long(er) term.
I realize my knowledge is minimal, but I hope it helps.
http://assetbuilder.com/blogs/scott_burns/archive/1991/10/01...
Having said that, here's some tips if you're going to try and pick stocks anyhow:
0) Don't listen to any tips you see on the internet, including these. If they're actually any good (and not just part of a pump n' dump scam), they'll already have been taken by everyone else. (Honestly you're probably better off shorting anything you see recommended in a public forum.)
1) Pick investments that are likely to go up and down at different times. If you want to invest in an oil company, also invest in an airline; they often go up and down opposite each other. (Note: Again, any obvious tip like this has been exploited to the point that it's no longer helpful. See para 1, above.)
2) Your career is also an investment. Don't, for the love of god, invest in the company you work for. In fact, don't invest in any company that is likely to go under around the time you get fired. Work for Amazon? Invest in Barnes & Noble. Or anyone else you can think of that might do well if Amazon does poorly, and visa versa. And make sure to toss some money at foreign investments; if your country does poorly, maybe some other country will do well.
3) Spread investments out as broadly as possibly. Don't be stupid and say "hey, the whole market can't go down at once!". It can! But it's less likely than a single stock going down, and this is a numbers game. There's never ever a sure thing, but if you can just be a tiny bit smarter than everyone else, it'll pay off in the very long term. (The easiest way to spread investments out is an index. See para 1, above.)
4) And don't just spread your investments across an industry, or a stock market. Try and split investments across multiple asset classes. Stocks, bonds, commodities, foreign stocks, etc. (Via multiple indexes. See para 1, above.)
5) Fees will kill you. Anything with active management is more expensive than its worth. Yes, all active management, no matter how good their track record. At a micro level, past performance is no predictor of future results, and at a macro level past performance is actually negatively correlated. A very common pattern is to do better and better until you do so badly that it wipes out every gain you've ever made (e.g., the entire hedge fund sector when the financial crisis hit). (In other words, see para 1, above.)
6) On a similar note, don't be too active in managing your investments yourself. Reacting to every little dip and spike will waste your time and attention, rack up huge fees, and guarantee bad results. Once you've figured out your strategy (hopefully involving index funds), figure out how much you can save per paycheck, and just do that, with as much automation as possible. Maybe your strategy is "save 20% of every paycheck, with 2/3 going into an S&P 500 index, 1/6 into foreign stocks, and 1/6 in commodities". That may be a terrible strategy, but it doesn't matter if you can just stick to it, and (this is important) don't check to see if it's working for at least a decade.
7) Individual investors persistently WAY underperform benchmarks, because of timing issues. They will hear some hype about a stock, or an asset class, or the idea of investing, and they'll enter the market at or near the peak. Then when things go pear shaped they'll panic and exit, locking in their losses. It's routine for "the market" to have a higher return than the average investor gets; often much higher. Unless you want to lose all your money, don't follow the herd. Your best bet is to just leave your investmens alone (in an index fund) and don't even look at them. If you can't bring yourself to do that, then be as contrarian as possible. If everyone is talking about how awesome gold ETFs are, or the growth potential of tech stocks, get OUT. On the other hand, if a sector crashes, buy!
8) Finally, one more bonus tip: Go for passively managed index funds. (But if you really want to pick stocks, go for ones with low volatility.)
You've done a good job at highlighting that investing isn't as simple as picking stocks and buying them. That's a fool's errand. Instead, it's understanding the risks you're undertaking (and mitigating them), eliminating emotion from your decisions (but understanding how emotion affects the market), knowing when to exit a trade, and most importantly, having a plan and sticking to it.
"We do this type of fund, and that type of fund... But that's just for the clients. If it's your own money buy Index Trackers."
Previously: HP (+50%), BBEP (+180%)
Prospects: HPQ, MSFT, MKC, DSX
I'm 30 years old, so still chasing growth a bit. I've also got a bunch of money in a 403b account that's invested mostly in an S&P500 index fund.
I believe wholeheartedly in Mark Cuban's advice here:
"The first step to getting rich is having cash available. You arent saving for retirement. You are saving for the moment you need cash. Buy and hold is a sucker’s game for you. This market is a perfect example. Right at the very moment when cash creates unbelievable opportunity, those who followed the buy and hold strategy have no cash."
Emphasis mine.
Full article: http://blogmaverick.com/2008/10/04/how-to-get-rich/
Actually. No I'm wrong stocks are not classed as equivalents due to risk. But the point is there.
My approach is closest to technical analysis, swing trading, and the CANSLIM method: http://en.wikipedia.org/wiki/CANSLIM
Current favourite that might interest the HN crowd is:
Monitise (MONI.L): Run backend systems on which on a lot of mobile banking and payment systems operate. Growing really quickly, and recently bought Clairmail, a US based company doing much the same. Wouldn't be surprised to see a NASDAQ listing in the next couple of years.
(None of the above is advice!)
- easily invest in the whole market through index ETFs
- no need to do the research and choose which stocks or funds to buy
- automatic deposit set up to seamlessly transfer money every month from my checking into my betterment account and have every dollar invested (no need to worry about shares)
- automatic rebalancing
- no minimum balances/deposits, no holding periods, money is easily accessible and can be withdrawn at any time without penalties
(Disclosure: I work here)
To an extent, the current share price will be factoring in future growth on the same trajectory as we've observed over the last few years.
E: I'd like to clarify I'm including stuff like no USB ports in walled garden.
I think people have accepted the walled garden model and they like it.
In a perverse way, their success is partly because of the PC era itself. The lowered expectations people have of computational devices from windows makes. Having something that "Just works" such a blessing, for such a ridiculous portion of all consumers, that their "walled garden" translates into "sanctuary" for most human beings.
IF in the future mature market, other tablets have also reached a stage where "it just works", then its an even playing field.
At that point,the walled garden will be just another field to walk between.
Edited for clarity
It's not the same for, say Amazon. They'll need to earn 5x more to get back in the "standard zone". So investors seem to think Amazon still has a huge growth forward.
For a retirement fund, I still think tech gives the best 50 year returns, as a sector.
Why's that?
Take a mature industry - what are the sources of potential upside?
Growth, more customers, perhaps from new geographies/product categories
Efficiency improvements and thence profitability
Occasionally new product innovation.
Being a mature industry though, the chance of a break out innovation, that changes the face of the industry, is low. So your growth path for the industry tends to be tied to GDP growth in the end.
With tech though, you can have a revolutionary product, which doesn't do it by redistributing power, but by increasing the share of the pie for everyone.
And while doing this, tech still keeps the possibility of growth through diversification/geographical expansion AND efficiency improvements which will be discovered over time.
Sorry I am a bit tired, so I may not have made the most educational of responses.
Aviation is kind of the diametric opposite of this -- heavily regulated, capital intensive, and exposed to commodities and union labor.
I don't invest exclusively in tech, but I understand tech better than most other sectors, so I feel more comfortable with individual stock picking. I do index funds in most other segments (with the exception of oil, which I also understand, and transport/logistics). I do index funds for S&P 500, international, MCSI 3000, and specific other sectors.
It is a fair question to bring up.
How does back-testing tech as a sector work out over the past 40 years or so?
From everything I've seen, beta for tech stocks has been positive for basically all of the past 40 years, and S&P has been up by a lot, so yes, tech stocks did well. That doesn't really say it did better than other sectors individually, but better than average.
Plus railways are cap intensive as well - tech investment comparatively is far lower, with a greater pay off.
I think that tech is certainly a growth sector, but does that translate into buying into stocks in the whole sector and coming out ahead? There is some pretty vicious competition, no? DEC, SGI, Yahoo, Altavista, Wang Laboratories, Commodore International... the list of companies that once flew high and then tanked is fairly long.
That said I had similar misgiving about the original: " invest in tech" thesis. In theory I see the merit, but what is the practical implementation?
Maybe he could use an indexed fund or another instrument which matches a composite of stocks focused on tech.
If that's worrying, you can find "equal weighted" funds, that use the same funds as the index but weight everything equally -- essentially betting against AAPL and XOM in favor of slightly smaller companies. I offer no opinion as to whether that's a good idea or not.