Definitely invest “long-term”, but that is a relative statement. I prefer to invest until a stock at least doubles. That might be 10 years, or only 2 months. Sell off half, and you’re home free. Use the money to invest in another stock.

Invest at least $320 in one stock so that a $16 real-time trade only represents 5% of expense. Once stock is up 10%, commissions are covered. (5% on buying end, 5% on selling end).

ETF’s make LESS money than well-researched common stock. ETF’s are like “middle men”. Just pull up 5 year graphs and see for yourself. More stable growth, but slower. Stocks with high volatility have ability for great increase. Just DON’T SELL until increase is achieved. Risky, but profitable. Offset risk with investment in ETF’s or more stable stocks.

There is a large and well established body of research that demonstrates that when you take trading costs and other fees into consideration, index fund investing will generate higher returns than stock picking for a majority of investors.

They’re free now, yes. But what happens if, in a year’s time, they introduce an account maintenance fee? Or high fees for selling or transferring stocks?

All power to them, but for now I’ll wait and see. Sometimes it’s better to *not* be an early adopter.

“(earning interest)”

(At 1%.)

I happened to have $500 in my cash account yesterday at Zecco (earning interest), so I threw it all in there on one of my index ETFs that took a big hit. Totally free.

You guys are boggling my mind with this refusal to accept free trades!

This is absolutely what is going on, especially after big declines. This is a case of hearing all of the advice, and intellectually knowing what I ought to do, but being wrapped up in the emotional “I can do better” thinking. That’s a way to “get poor slowly” or to “maintain the status quo”, eh?

in the meantime, some very good stocks will likely get cheaper or remain on sale

That is because this entire sell off was sparked by a move towards more regulation in China. There has been concern for a while about the ‘too quick and easy’ growth in China backed by sub-prime loans and the way that capital is being thrown around.

The Chinese government made it harder for people to get at this capital, meaning that growth should slow a bit. But that is better than explosive unsustainable growth resulting in a crash. This isn’t exactly a surprise, but the financial markets are so mind-blowingly short sighted that it rattled the world. Financial analysts never ask for rate hikes, because that hurts the market right now when their bonuses are on the line, regardless of the future ramifications that easy money can have on an economy.

The simple fact is that not much has changed in the world since this news broke. China is still a power house, but their growth will be sensibly controlled. Before this regulation speculation and manipulation was able to run wild and unchecked through their markets (think Enron style corruption, but on the investment side). People should be thanking them. All of the financial markets and analysts just got too excited, as per the norm.

Sorry for the long post, but I did a lot of reading on this (3.5% in a day isn’t something that ebb and flow) and wanted to add my 2 cents

And J.D., hadn’t you arrived at a realization that index funds were the way to go for you? Is there a bit of a head-vs-heart struggle here — the sensible-but-safe index fund vs the go-on-let’s-have-a-punt lure of individual stocks?

It also implies that if the volatility of a particular stock (UPS, in this case) is such that you’re willing to sit it out and attempt to second-guess the market, maybe there’s too much risk associated with this particular stock for your taste. If you think about it, there is a direct correlation to your risk preference.

On the other hand, if you’re a short term trader and don’t subscribe to the Efficient Markets Theory… nevermind.

It’s refreshing to hear some common sense after having to watch yesterdays obscene display of the most embarrasing aspects of human and crowd behavior at its worst -hysterical, irrational and overreactive.

Fortunately, this is the exact recipe that allows level headed traders to profit massively from mass stupidity. I imagine there will be some unreal buying opportunities in a few days.

Time to make a shopping list…

Cheers,
Ralph
http://www.successfulonlinetrading.com/

By choosing the $15.95 now rather than the $4 next week, you’re paying an extra $1.70 per share.

That’s essentially an option premium. You are betting that the stock will be over $71.80 by Tuesday.

The options market can give you guidance on this. You can buy a March 70 call for $1.50, which means the market doesn’t expect the stock to be over $71.50 by mid-March, much less $71.80 by next Tuesday.

So the numbers would argue strongly against paying the extra transaction fee.

EXACTLY!

This is a great illustration of why transaction costs are so important.

By using a market order, you’re paying $2.23 over the actual stock price — or more than 3%. The normal transaction fee of $4 is much better, but still almost 1% on $500.

Every percent counts, especially in an era of expected mid-single-digit returns for most asset classes. For this reason, I generally suggest stock trades only for larger amounts ($9.95 or $15.95 is a much smaller percentage if you trade only when you have saved up $5000). For periodic investing, I recommend using ultra-low-expense, no-load mutual funds (especially index funds). Avoiding transaction fees will avoid a significant drag on performance, and you have the added benefit of diversification.

Thanks for the reminder!

By the next Tuesday, JNJ was down another $1. Totally not worth trying to time the market, in my estimation. I realize now that it wasn’t worth putting an extra 15.95 in to try to time this.

Considering how irrational the short term market is, how can you predict it? I think you made a good choice on this one. Even if you’re a little off this time, over the long term, this decision will probably make you money.

What you want to look at, when buying a stock or a mutual fund, is how it did the last five years or more. Also do research. Read up on company, if it’s a retailer, go take a walk in the stores. Walking through Walmart vs Target, you can see which one is the better buy. You’ll see the same thing reflected in the graphs and preformance of the stock. For a mutual fund, see what it holds.

What is nice is a stable rising trend in value. What is not nice, is if the stock had a sudden upsurge or drop over a period of time. Means something funky with management.

Also, the news of what goes around in the world and at home does affect your earnings. My mutual funds are heavy on international and energy, especially Exxon/Mobile. If something is happening in Venezuala, or Nigeria, or the Persian Gulf, and if the weather is colder then normal, or everyone decided to drive one weekend, I make money. If the dollar is having a bad day, I make money.

It’s not hard to make money if you just do the research. Lots of research.

One says, “You have to look at days like this as an opportunity.” He says to buy. “Nothing has changed fundamentally.”

But another expert says, “Stocks are not as expensive as they were at the peak of the bubble in 2000, but they are not cheap. …I’d be pretty cautious here.”

A third professional investor says, “Any pullback will be more of a buying opportunity than an indication of more to come on the downside.”

This is like the blind men feeling different parts of the elephant. I suggest that all three “experts” are probably right.

1. Nothing has changed fundamentally. This is true. Of the stocks which fell yesterday, how many announced earnings, new products, sale of divisions, mergers, acquisitions, etc?

2. Stocks are not as expensive as they were at the peak of the bubble in 2000, but they are not cheap. The fact that stocks continue to be highly valued by historical standards has been widely commented on.

3. A pullback is a buying opportunity rather than an indication of more to come. It is commonly accepted that in the long term, stock prices will rise faster than inflation. Given that stocks are cheaper today than they were yesterday, if you accept that stocks will rise in the long term then this is a buying opportunity.

Interesting note: Of yesterday’s top price losers by percentage, four of the top five are Chinese, and the fifth is South African. Even when you look at market capitalization (which weights any results heavily toward the large US companies in the DJIA), two were Chinese and one was Brazilian (?).

in fact that may be over soon as futures indicate. I sure hope not, because I’m waiting for funds to clear to pick up some discount.

What does it mean to me? Well, mostly it means that Thursday’s 401(k) contribution will buy me a few more units. Nice. Cue the Buffet hamburger analogy.

(It also means my 401(k) is worth a little less than it was the day before. But what’s a day and a few percent worth worrying about given a 35-year horizon?)

On the other hand, there’s always some market timing involved with investments.

Well, yes; but the statistics show that most attempts to time the market fail. Better to pick a plan and stay the course.

The question becomes: how likely is this to happen?

The real question is: how likely are you to guess right?

I suggest going back in at a lower price point below your first. The volatility may give you another buying opportunity. Buy on dips. I think this is a god-send buying opportunity to pick up some quality stocks.

Dow Down 400 points: Why You Shouldn’t Care