In this post, we just see some of the terms that are there and would be thrown out by many "experts".
Loss aversion: the principle of hesitating to book losses out of fear that it would be a judgement on you that you failed in your guess or research about a particular stocks.
Tax loss harvesting: book losses and then deduct that from your adjusted gross income in the tax year. A way to buttress your losses that is all.
Technical terms from statistical world such as P/E ratio ( generally lower is good and higher mean it is expensive), beta ( low means low risk ), variations, technical indicators predicting movements, various other self-explanatory measures, employee numbers and so on.
Should I sell the winners and book profit and stay with the losers? Or stay with the winners and sell losers and put their money in the winner? A combo of such strategy would be good rather than one or the other?
Index funds have their own virtues. They can form the base of your portfolio but you need to have your own stash of individual stocks too. I would say on a 100k fund, 15-20% cash for future opportunities, 40-50% stock index funds, 10% stock and balanced active funds, 10% bonds, 10% your own individual stocks and rest again in margin cash. Maybe as time goes and if you have confidence up the individual stock to go to 20-25%.
It is better to own niche. There are people out there with strong knowledge in the technology sector or the oil sector or the real estate or finance sector. They play only one sector and do it well while the remaining sectors can be handled via the ETFs. For instance, consumer discretionary or even staples consumer sector is one of them. There is constant consolidation and horizontal movements in this sector. It is better to hold this sector in ETF format which also frees up your time to do something more worthwhile than dwell in the stock world.
Some blurbs that I gathered from Money CNN and WSJ over time, sorry it is unformatted:
"Be humble,Take calculated risks, Have an emergency fund, Mix it up, It's the portfolio - asset allocation, Average is the new best: The best way to own common stocks is through an index fund.--Warren Buffett Practice patience, Don't time the market, Be a cheap skate, Don't follow the crowd, Buy low, Invest abroad, Just do it, Borrow responsibly, Exit gracefully, have a planning for unforeseen" or "unexpected things in life" or "life curveballs" bucket in your plan or group of funds. you can't plan for them so hope for the best but prepare for the worst... invest in yourself. live below your means whenever possible : frugal but not deprived usual things like plan for unexpected, or atleast keep some money on the side, be an investor and not gambler, never stop being a student."
Keep expenses low is the mantra of the index fund and their main selling point. At this point, there is nothing to combat it and you are better off owning some index funds as they are also there in your retirement plans.
Have your own stock screeners at places like Google Finance, T Rowe Price or Fidelity. Fidelity is awesome when it comes to stock or mutual funds research. Indispensible I would say .. just like T. Rowe Price.
Have your own stock cutoff price. As in I never buy stocks under $5 or something that is over $1000. Now I know this is relative and stock price has nothing to do with value of the company or this should not be a core decision. But I just feel uncomfortable with penny stocks. So look for your own comfortable points and your structures are essentially made of this. But have flexibility. So if I were to find a stock which has done stock joins and hence the price is over 2000 and they just want less volatility in this stock but I find said stock to be a good long-term buy I would still buy it.
I used to dabble in all kind of stocks. Big, medium and small and used stay away from known names but look at obscure ones. You see, I thought I would be able to find some small company and then heap the rewards as it transforms itself into a mid-sized firm and then to a blue chip behemoth. Yeah, that is possible but that takes some years. But in 2000s and mid 2000s there were many companies which went big rather quickly. Apple went from near bankrupt in late 90s to the most valuable firm in about 10 years. Same with Facebook or Google or many tech firms. I tried to do this with some oil firms or industrial companies. Then I have learnt that this does not really pay off very hugely. Once time is better spent with concentrating on a small sector and small amount of stocks.
Also remember, that stock and public investment is not the only way. There is also private equity and the large private investment sector though parts of it are opaque to the general public. For instance. Geico is owned privately by Berkshire which is a public owned firm. You can invest in a Geico only thru Berkshire shares. So maybe earmark a portion of your portfolio for secondary market or private market where you can directly put the money with a company rather than thru some banking intermediary.
To be continued ...
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