There's a lot to unpack here, but I'll give it a go.
Disclaimer: Nothing in this post should be construed as individual investment advice. Do your own due diligence.My father owns some shares in blue-chip companies, shares he bought decades ago. He wants to sell them but is waiting.
Why does he want to sell, and why is he waiting? Have these stocks been going up over the past year, or have they been declining? Anyone getting involved in trading should have both a buy strategy and a sell strategy. "Buy and hold and hope for the best" isn't a strategy. It's blind faith. Just ask the folks who lost their shirts on Enron stock. They rode it all the way down because they had no exit strategy. Always have an exit strategy!
Even before the virus hit, the share market in India was down for over a year.
There's always a bull market somewhere. If stocks are going down across the board, then something else--bonds, precious metals, real estate, cash, foreign stocks, etc.--is going up. It's just a matter of finding it.
“This could be a good time to buy more shares,” I suggested to him. “Buy when low, sell when high.”
If the stock has been declining and shows no sign of strength, then the result of buying low would probably be to watch it go even lower. Make the stock prove itself to you. Wait for it to demonstrate strength.
“But when will the economy recover?” he said. “It could take years.”
True. Don't try to time the market. Even Warren Buffet doesn't try to do that.
I started rebuilding my own portfolio on March 24, the day after the market bottomed. That's the only time in my 17 years of active investing that I've managed to successfully time the market. I doubt it will ever happen again.
"Markets can remain irrational longer than you can remain solvent." --John Maynard Keynes
He listens to business news channels every day and studies the prices of shares that they flash on TV.
Tell him to turn off the tv. It's there to entertain, not inform. He needs to use the internet instead. Investopedia is a good place to start for a novice investor. Yahoo Finance has always been an excellent resource for statistics, and it has a good stock screener. Stockcharts.com is great for charting with indicators. And whatever online broker one decides to use should have its own research resources available.
“Since you know so much about shares, why did you never invest big and make a ton of money?” I asked him.
“I know something about shares,” he said. “Many know far more than me, invested big, and also lost big. For every Warren Buffet, there are many who went bankrupt and even killed themselves. I invested conservatively in reputed companies. Had I taken big risks, I could have lost big too.”
Wise words. Your father knows enough to know the risks and his own limitations.
Novices look for stocks that can deliver big returns. Pros focus on managing risk. When you properly manage your risk, the returns will come.
Before the lockdown, I invited a friend of my brother’s to my place to give me investment advice. This guy, let’s call him Jay, is an MBA, sometimes teaches investment at a business school, and works for a big company that sends him all over the world to study investment opportunities or something.
He himself doesn't invest much in shares, which I found odd. I asked if he could suggest any start-ups to invest in but he said it was risky. Many start-ups fail.
He's right. I don't touch startups or IPOs. Too risky. A stock should have to prove itself before you give it your money. The price action and the fundamentals tell the tale.
I naively hoped since he’s the expert, he might know of some start-ups that are based on such brilliant ideas that they’re bound to make it big.
There are lots of stocks out there with appealing stories but no real business plan. Most never pan out.
Some are even frauds. Avoid "story" stocks.
Sure, we’d all like to have been in on the ground floor of Microsoft, FB, and Twitter. But no one knows what the next big thing will be.
You don't need the next big thing. Well-established companies sometimes get beaten down, and when they recover, they can provide huge returns, too. It's all about the fundamentals and price action.
He also told me many great ideas are suppressed by big business. He gave a couple of examples:
someone invented a new, very comfortable to use keyboard. It would have made all existing keyboards obsolete, so some computer giant paid him millions for his design, only so they could then ensure no one could manufacture it.
And someone invented a less painful way to deliver injections, which would have put all the big syringe manufacturers out of business, so he too was bought out.
If these stories are true, theyre very depressing.
This sort of thing happens all the time--even in our industry, publishers sometimes buy books from authors for the purpose of keeping them off the market--but it's irrelevant as far as investing is concerned.
I hoped he would give me some great investment advice, but he seemed to mainly discourage me from trying anything. He felt everything was too risky. He did suggest I start playing about with small sums and buying shares to get some practice playing the market. Again, that was before the lockdown. I’m not sure anyone would advise investing in the market now.
Again, he sounds like a wise man. You sound focused on hitting a home run on the stock market when instead you should be focused on managing risk, and your father seems to recognize that, hence his efforts to warn you off. I agree with him about starting small, too. Only play around with money you're willing to lose, but if you
do have some money you're willing to lose, then by all means give it a shot. This is a golden age for investors and traders. Zero-dollar commissions! Who can believe it? I still can't believe it. I thought I was getting a screaming deal back in 2003 when I only paid Scottrade seven bucks per trade.
Some people suggest buying houses to rent out, but during this time, I wonder how profitable that would be. Is anyone here doing well with real estate at this time? Do you think it’s a good time to buy properties and rent them out? Is it easy to get renters now?
I have no desire to be a landlord, and I have no experience with this. The only real estate investments I've made have been via REITs.
We do have at least one member here, though, who is a landlord, so maybe someone will chime in.
I’d love to ask writers who earn millions of dollars what they invest in but I guess they won't answer. I’d like to ask ANYONE who earns millions of dollars what they invest in.
Jeff Bezos invests primarily in his own company. The bulk of his net worth--pre-divorce, I mean; I don't know what his situation is now--is/was in Amazon stock. He believed in himself and his company when other tech companies were failing and other investors were skeptical about Amazon's long-term viability.
Warren Buffet's wealth is in his company, Berkshire Hathaway, a holding company that invests in boring things like consumer staples and insurance companies.
https://www.investopedia.com/articles/investing/011216/where-does-warren-buffett-keep-his-money.aspJohn Templeton was already rich--and 88 years old--when he bet on a tech-stock crash at the height of the tech bubble. He made out like a bandit.
https://www.forbes.com/forbes/2001/0528/054.html#467e12fd2f3eGeorge Soros made a killing by famously shorting the British Pound.
There are many ways to get rich investing. What the best investors have in common is they tend to look for bargains and go against the crowd. That's the hard part: going against the crowd. We're herd animals, and it's our nature to run with the herd, even when we know there's a cliff ahead.
Knowing what to do intellectually and being
psychologically able to do it are two different challenges. There have been many times when I knew what I should have done but didn't do it because I couldn't get over the psychological barrier.
if my father and Jay, who know so much more about business than I do, had no good suggestions for what to invest in, does that mean there is nothing?
You can put together a basic portfolio of ETFs and then sit back and collect dividends. You won't get rich that way, but it'll help you get your feet wet, and you'll collect a little income along the way.
There are as many ways to invest as there are stars in the sky.
I get the newsletter of Simon Black, who often claims he has inside information on good companies to invest in. the catch is, we have to pay for this info.
And I figure, if he has such good intel, why isnt he investing big himself? Why would he sell this info to strangers?
It's not an either/or thing. A successful investor might publish a newsletter for the same reason a successful indie author might publish a how-to-self-publish manual. It's a good way to capitalize on the brand one has already built.
(That's not an endorsement of Simon Black. I don't anything about the guy. Just speaking generally.)
At present in India, the only safe place to put your money is in fixed deposits [what you guys call CDs]. We get a 6% rate of interest. Used to be 8%. but I’m looking for something that yields better returns.
Your biggest challenge is your nation's currency. Inflation is going to eat away at that six percent.
https://tradingeconomics.com/india/inflation-cpiAlmost anything would be better than putting your money in a Rupee-denominated asset.
Well, there you go. Hope I've given you some food for thought.
