A Newfound Knowledge

I'm in a new class, and I am finding out something about investing that surprises me very much.  The class is called Investment Principals, and it mainly deals with real estate investing, but it also is an introduction to investing in general.  What surprised me was how little people know about investing.  I guess that's why the college offers this course.
In the class, we were discussing what would be a good way for a novice investor to get into stock trading.  I started thinking about all the ways I could think of that would work for someone who hadn't ever done any investing, let alone trading in the stock market.  Hmmm...mutual funds?  That's pretty safe, would keep a novice from investing in something that might have devastating consequences.  Not a lot of return, though. You are pretty much relying on the mutual fund to go up, and, as we know, what goes up generally comes back down again.  When do you sell if it goes up?  And most mutual funds have at least some management fees.
Well, I kept coming back to using this AIM for Dogs method.  It's fairly simple, and really, would work even if someone only checked it every quarter.  I've also been thinking lately that someone with a very small account could start with 3 or 4 stocks instead of 5.  That would make the increments smaller when it cam time to sell or buy.  The other rules would stay the same, though.  No more than one transaction a month, nothing less than $100.  There's no difficult decisions about what stocks to buy - it's all there in the Dogs for the Dow.  Now, my sons only had like $1000 to invest, so, since even the small Dogs were prices a bit out of their budget, I found some low-priced, dividend-paying stocks.  They've worked pretty well so far.  They aren't as volatile as I'd hoped, but I'm sure they work out.  I wouldn't recommend doing that if I was a novice, though.  Just stick with those small Dogs, even if you have to just do 3 stocks.  You can always add another one if your cash level gets real high.  I would say it would need to be high enough that you can buy enough of the extra stock to about match the value of the other stocks, plus still have enough cash to have it at 50% of the total portfolio value. Ideally, though, to use individual stocks, an investor should have at least $2000 - $1000 for stock, and $1000 to start with in cash.  That way no matter which way the market goes, they'd be prepared.  If they only have like $1000 to invest, they should just get a mutual fund.  Find a volatile one, though.
I'll have to talk to the class about this...

Too Big to Fail

In class today, we watched the movie Too Big to Fail, and it took me back to the early days of the 'Dogs' account and how it mirrored so much of what was going on in the days of the Big Bank Bailout and ensuing stock market bottoming.  The account was only a few months old at that time.  I was thinking the market was coming up from the post-2000 techno-bubble, and would continue, so I didn't go a full 50% cash as I should have to begin with, then when the stocks dropped, I was so thrilled that I would be able to invest in low-priced stocks that I did every time I got a signal, instead of playing by the rules and waiting until the end of the month, I went ahead and bought more.  Citigroup alone about broke me before stopping their dividend, causing me to exchange it for a healthier stock.  Out of greed, just like the banks, I bent the rules and ended up paying.  The other similarity was that I kept adding extra money to the account in the months that followed because I didn't then have the cash to invest when the stocks continued to go down.  A kind of privatized 'TARP' if you will.
The lesson to learn here - if you have a good system, stick with the rules.  No guarantee it will always save your butt, but it will usually at least make things a lot better.  I'd have a lot higher balance in my account right now if I had.  Fortunately, I learned to follow my rules early enough to make it so I have as good of a balance as I do.

Some Wavering

The market has wavered a bit in the last couple weeks, but before that, it was continuing its tear.  We've seen some significant day-drops over the last two weeks, but it always seems to recover.  Today was my adjustment day and the day was one of those big drop days.  It was down well over 200 early but Cathy's account had a big sale last month, so she and I both are starting to get a significant amount of cash in our accounts - close to 40%!  Considering that, at the beginning of 2009, I had to add cash just to do anything in the account (we were truly at zero.)  Now I feel we have enough to withstand a significant drop.  Especially since I am confident I would play by the rules (as opposed to last time...see the history.)  I'm still not convinced that it would have helped in 2008/2009, but I know I would if that scenario were to repeat, regardless.
I'm taking business classes now, and just today we had a discussion about whether the stock market affects the economy and vice-versa.  I maintain that it does not, since a majority of people affect the economy, but a small minority of people affect the stock market.  Just my take.  The economy is just now starting to show signs of life, whereas the market has been going blockbuster since mid-2009.
All of the accounts were down a bit this time, although I believe they were all probably up a couple weeks ago.  I don't know for sure, because I tend to not check them mid-month.  I think that's the better way to go - that way there's no temptation to cheat.
Something did happen that hasn't happened before in our accounts - Whole Foods split at the end of las month, so now Cathy has twice the number of shares.  It had reached the $100 mark, which many companies split at, because there is a perception that a company is too expensive to buy for the average investor at that price.  Again, just my opinion, but probably not far off.  I had to go back in the history of the stock on the spreadsheet and adjust all of the prices to half, so the chart wouldn't show a huge fall.

A New Push

The market has found new wheels!  Today I sold some stock in all four of my family's accounts for the first time since I had four accounts.  Actually it's the first time either of the boys' account have sold any.  None of the accounts sold a huge amount, but considering just two months ago, Cathy's had a $400+ sale, and this month it sold another $180, the stocks are doing very well.  It had been 6 months since my account sold anything - it got close a couple times, but this month it finally broke through.

The market just seems to march on, no matter what the economic news is, no matter who wins the presidency, no matter what is happening in the rest of the world.  I doubt people are to the point yet of thinking that it can't go down significantly, so that is probably a sign that it will, at least for a little while, keep going up.  But we never really know, do we?  That's the beauty of AIM.  Like I've said before, the only sure thing about the market is that eventually, it will change.  I'm starting to feel comfortable that I have enough cash in my account to withstand a fairly hefty correction.  I don't know if it would withstand a disastrous downfall, but hopefully it will be awhile before we have another one of those!

A Bit of a Rebound

Just as I start getting nervous about stocks in Cathy's account, they rebound with gusto. Sony's gained almost 50% since that last post, and HPQ is up quite a bit as well. The whole market is showing some strength these days - signs it's still fairly healthy.
An unusual post for me, just ahead of Review Day (which for me will be Monday - I always review my family's accounts the fourth Monday of the month.) It's okay though, since I haven't posted since November (sorry about that.) I've learned not to even check to see if I have a possible trade, even if I see the stocks in the accounts are doing particularly well. It's just useless work, and sometimes contributes to disappointment on Review Day.
We passed the 1 year mark on my boy's accounts, and nothing much happened with them. They have fairly small accounts, though, and it really shows that the market hasn't really done a whole lot in the past year. I think almost all of these accounts take awhile to develop in the first bunch of time in their life, unless something drastic, or fantastic, happens in the market soon out of the gate.
If either Cathy or my account have a transaction in it Monday, you can be pretty sure you'll see another quick post, even though I'm going to be getting busy here next week - I'm starting college for accounting. I know - nuts huh? At almost 54? Oh, well...