Investing, how to do it?

[thechoson]

If you see my other thread, you might realize I am not in any position to do any serious investing. But is something I am interested in, and am still learning. I figure I am still pretty young (22), and can afford some growing pains in terms of investing. I want to dabble, but I also don't want to be stupid.

So far, my plan has been to stick with individual stocks. My knowledge in general is pretty limited. Yet, I think it was Warren Buffet who warned against mutual funds, saying their managers usually had too much incentive for short-term growth, not focusing on long term.

I'd like to stick to stocks that are cheap (low P/E ratios) and pay good dividends. If they are also established companies, even better. Haha, so far the only decent find in this category seems to be Citibank, for me at least.

If I were to try to invest in individual stocks and start dabbling, can someone recommend a good internet brokerage (like E-Trade or Scottrade?) Since I am not going to be working with a lot of money, some companies may charge me fees, especially if I do Roth IRAs. Should I still try to stick money for stocks in Roths, or just do taxable accounts?

 

[laurence]

Have you done any reading first? I would suggest "4 pillars of investing" for one. If you introduce yourself under "Hi, I am" you'll get lots of starter advice. I wouldn't mess with individual stocks at this point, I'm a "dirty indexer" myself, there are several low cost mutual funds that index the marktet (S&P 500) for long term investing, CD ladders, Bond ladders, international funds, REITs etc. I have a small brokerage account to satisfy my male testosterone drive to pick individual stocks without hurting my real investments. Basically, it would be better to go with your thoughts on the other thread (CD's etc) for now and do enough research to come up with an investment philosophy that you are comfortable with before striking out and buying individual stocks. Read some (o.k. many) previous threads here. They'll have a lot of points of view to make you ponder. One bit of advice I have is if you really want to trade, whoever you go with (etrade etc.) make sure you have it in an IRA to keep you from incurring a tax burden as you buy and sell. You don't want to be learning two complex things at once....

 

[wildcat]

Index mutual funds should be the majority of your money, especially if you have limited knowledge.

 

[thechoson]

good suggestions, thanks. I do think I will polish up more on my investing knowledge and philosophy, while keeping most of my assets in cash

 

[grumpy]

thechosen,

You might want to try "Buy and Hold Securities". Here is the URL https://www.buyandhold.com/ They charge a flat rate of $8/month for two trades or $15/mo. for unlimited trades. They will reinvest divdends at no charge. You can only buy at three times during the day and market orders only. You can only buy stocks on their list (several thousand companies). I have built a 6 figure portfolio of 22 dividend paying stocks thru them over the last 10 years. I have the following stocks with these current yields:

Allstate 2.36%
American States Water 3.52
Aqua America 2.03
Avery Dennison 2.48
BankofAmerica 4.03
Conagra 4.02
Dominion Resources 3.56
R.R. Donnelley 3.32
Dow Chemical 2.73
ExxonMobil 1.80
Intel 1.37
Kellwood 2.25
May Dept. Stores 2.63
Pepco 4.81
Pfizer 2.86
Altria 4.46
Regions Financial 4.18
RPM 3.40
Sara Lee 3.63
Southern Co. 4.51
Washington Mutual 4.71
Washington REIT 5.36

With Buy & Hold's low fees you can buy on the dips in amounts as small as $50.

Grumpy

 

[Craig]

I'm not an expert, by any means.

However, I've learned a few lessons the hard way.  One of the best, and truest articles I ever read in the Wall Street Journal indicated the important thing wasn't the decision of what to invest in ... the important thing was to invest.  They didn't mean it didn't matter at all ... they meant within a reasonable spread of investments, the important thing was to set that money aside.

• Pay yourself first ... invest a little every month
• Live below your means ... smaller house, cheaper car, and invest the difference ... makes a huge impact while young
• As noted above, invest in index mutual funds with low expense ratios ... history is a reasonable (i.e. your only) barometer of the future
• Study the suggested tomes
• Use your mad money for individual stocks
• Buy a home when you're able, and after establishing a cash emergency fund, pay off the mortgage as quickly as practical (after securing a 30 year loan you can live with if necessary)
• Put a home equity line of credit on the home so you can tap your equity in an emergency

You didn't ask for all that, and I apologize if this is over the top. But, if I had listened to my own advice, I would have been miles ahead of where I am now.  I agonized way too much about the choices ... I should have taken the simple, index fund route long ago.

Oh yes ... and listen to the discussions on this board ... many successful people far wealthier in many ways than your average neighbor. I've learned a number of lessons here in short order, and reconfirmed a few things. Invaluable, friendly advice.

Best of luck.

 

[Berkshire_Bull]

Buying individual stocks is fun and profitable. If I had bought index funds when I started investing 5 years ago, I'd probably not even be interested in financial security because I would have lost BIG. Dabble in individual stocks as you learn about them, that will keep you interested in it. You will learn some costly lessons, but when the lesson stings, it sticks. Stocks are fun, mutual funds are a boring neccessity. DRIPs are fun like Grumpy said, do that to get your feet wet if you like. Citigroup is a great stock and was one of the early ones I bought. Learn as much as you can and don't stop and you'll be successful in individual stock-picking. EMT (Efficient Market Theory) doesn't exist! I do admit that I buy the S&P Index every payday though

 

[wildcat]

Hate to disagree with BB but the EMT does exist for the most part, just not quite a 100%. Small/micro cap stocks is the most common area where valuations do not always equal future prospects. Research shows that passive investing, i.e. index, works best for most individuals and I would reco that for you.

 

[Jarhead*]

Buying individual stocks is fun and profitable.  If I had bought index funds when I started investing 5 years ago, I'd probably not even be interested in financial security because I would have lost BIG.  Dabble in individual stocks as you learn about them, that will keep you interested in it.  You will learn some costly lessons, but when the lesson stings, it sticks.  Stocks are fun, mutual funds are a boring neccessity.  DRIPs are fun like Grumpy said, do that to get your feet wet if you like.  Citigroup is a great stock and was one of the early ones I bought.  Learn as much as you can and don't stop and you'll be successful in individual stock-picking.  EMT (Efficient Market Theory) doesn't exist!  I do admit that I buy the S&P Index every payday though  

Berkshire Bull:
If I remember right, from one of your previous posts you are age 21. Started investing 5 years ago. Age l6.

I was age 31 before I had any month left after bills had been paid.
Regardles of your investing style, the fact that you are doing it at all, is quite remarkable.
I would think it would be interesting (inspirational) to younger posters to hear your story.
Regards, Jarhead

 

[laurence]

BB, you're one of the few voices I've heard here who really roots for stock picking over indexing. I would love to see some posts on moves you are making on a regular basis, it would be very educational. That is, as long as you don't mind people free riding on your research

 

[rapoole]

So you want to make a small fortune picking indvidual stocks?

Here's how you do it:
.
.
.
.
.
(scroll down)
.
(drum roll)
.
.
First, you start with a large fortune, then invest!

 

[wildcat]

I invest in individual securities as well but I do hold index funds. I feel I am a tad more knowledgeable and patient than the average "Joe" off the street. I started investing when I was 20-21 and have about 6 years under my belt but I don't encourage the average person to buy individual stocks. A person in thechoson's situation should logically invest in index funds as a starting point.

 

[laurence]

I agree WC, I just thought it would be neat to see BB investment choices and the thought process behind it, always up for new ideas. But for thechoson at this stage, I would keep it simple. Hey, there are those equity traded index funds that trade like stocks (ticker symbol spy) to give you the "juice" of trading!

 

[wildcat]

L "dubya" -

I would be glad to post some stock analysis if I find something good to buy. The "if" can take some time though.

 

[Martha]

Well you young guys could buy Brewer's pick, STON, and bet on all of us baby boomers kicking off. But then again, I understand baby boomers are favoring cremation and those ashes might not get buried.




(Oh, you should really not take any stock investment advice from me, a rank amateur)

 

[laurence]

Everyone definitely needs to do their own DD. I was just coming from the angle of learning about what motivates investment choices (besides technicals or indexing). If some one has done a lot of industry research on a stock they want to buy, I'd be interested in what they learned.

 

[thechoson]

Thanks for all the advice folks.

Are there any good online brokerages where I can set up a Roth IRA index fund for low cost?

 

[wildcat]

I did my Roth IRA straight through Vanguard, the king of index funds. I recommend going straight through Vangaurd. You can view everything online, do transactions, change funds at no cost, etc. If you want to do it through an online brokerage many of them offer no-fee IRAs but Scottrade has been rated as one of the best. I think anywhere you look will give you a no-fee IRA...so Etrade, Ameritrade, etc.

 

[Berkshire_Bull]

Well I had a long post ready but my laptop likes to do it's own thing so it's now gone. I'll go on another, what I'm sure will be, a long tangent on stock picking after my accounting exam tomorrow evening, the unit being troubled debt restructuring. After learning all about that, I'm about ready to sell my bond funds! . Good night guys. Tell Dory to get my own section running. If ***** gets one I want one too!

 

[Martha]

Well I had a long post ready but my laptop likes to do it's own thing so it's now gone. I'll go on another, what I'm sure will be, a long tangent on stock picking after my accounting exam tomorrow evening, the unit being troubled debt restructuring. After learning all about that, I'm about ready to sell my bond funds! . Good night guys. Tell Dory to get my own section running. If ***** gets one I want one too!

"Troubled debt restructuring" is what I do for a living. Good luck Berkie.

 

[Mr._johngalt]

I never did "troubled debt restructuring" for a living like our good friend Martha, but I surely have a lot of experience with it. A lot was of dire necessity.
Anyway, for those of you who have not dealt with this,
it can be fascinating. Requires lots of creativity as
there are almost an infinite numbre of ways to skin the cat. It can be a very interesting and rewarding line of
work.

JG

 

[BUM]

A slice of life...Youngsters have a powerful tool that seniors don't - compounding time. Seniors have a powerful tool - wisdom. Take the hints: Invest, Vanguard, index, wait (a few decades).

BUM 8)