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I am considering making a small initial investment of about 1k into a few stocks. I have an emergency fund set aside and if I don't do well, it won't "break the bank."
I am interested in making some investments in companies that have once experienced high stock prices, but are down now. Some of the companies that I am considering (for now) are C, MGM, and several companies in the solar industry.
Is it a good stategy to bet that companies that have done well (before this economy) will eventually recover as opposed to them going BK or something similar? What do you think about the stocks I have chosen? After watching Mad Money today, MIPS looks promising. Any advise is appreciated!
The strategy of buying stocks that are out favor can work, some folks, like the guys from Motely Fools, have used it pretty effectively.
The trick / catch, and it is a big one, is that you have to be sure that there is SOMETHING that will lead to a turn around. If that means they have new strategy internally to turn things around you really ought to be able to do some comparisons as to how instutional investors and the overall market has been reacting to news from the firms you are considering investing in. If the trend is still for more folks to sell off the stock even on somewhat positive or neutral news you will not make money with a strategy of holding / buying...
Personally I think that widely held stocks like C and MGM are not a good play for turn arounds. You shoul look for a stock that is less widely tracked. Odds of misprocong are much better...
I do think that there are all kinds of firms that once were riding high that are still more affordable than they ought to be. I hate to buy individual stocks unless they represent a tiny amount of my "fun money" be use at my age I can afford to see big losses. If you are younger your perspeective may be very different...
I look for 'out of favor' stocks and sectors. Maybe one who 'missed the number' or timber companies or housing stocks when no one wants them. Granted I buy with a multi-year holding plan.
Any decent stock broker, adviser, or analyst will tell you that having a diverse portfolio is the way to go. Although this will hold true in the long-long run, recent economic activity has turned me away from that vision and it has been profitable.
When we pretty much bottomed in March of 09', I went against everything and put almost all of my money onto the words of Obama when he said that he would not allow another large company of the U.S. to fail.
That's when I shoved all my money into banks and airlines. BAC at $4, C for under a dollar, GE for $5, IRE for under a dollar, LLC for $1, UAL for $1, and they gained 400%-1000%+.
Obviously I pulled out. My point is, even though "investing in companies that historically had high stock prices" sounds really bad and not thought-out, if you stick in there long enough, I'm confident it would look good on paper.
C is looking good. But I am betting it will come down to 3.5 again for sure, if the big bank collapse hits, right after elections. And then I'll load up. I also have similar wishful thinking on BAC
Any decent stock broker, adviser, or analyst will tell you that having a diverse portfolio is the way to go. Although this will hold true in the long-long run, recent economic activity has turned me away from that vision and it has been profitable.
When we pretty much bottomed in March of 09', I went against everything and put almost all of my money onto the words of Obama when he said that he would not allow another large company of the U.S. to fail.
That's when I shoved all my money into banks and airlines. BAC at $4, C for under a dollar, GE for $5, IRE for under a dollar, LLC for $1, UAL for $1, and they gained 400%-1000%+.
Obviously I pulled out. My point is, even though "investing in companies that historically had high stock prices" sounds really bad and not thought-out, if you stick in there long enough, I'm confident it would look good on paper.
That is precisely what I was thinking about doing (but not with that level of success). Congrats on the picks.
It's quality, not the quantity. $1000 investment still a $1000 investment regardless how many share you have. If you believe that more share mean better, by all mean, get some penny, I meant selling for pennies, and you can have so many shares.
I am considering making a small initial investment of about 1k into a few stocks. I have an emergency fund set aside and if I don't do well, it won't "break the bank."
I am interested in making some investments in companies that have once experienced high stock prices, but are down now. Some of the companies that I am considering (for now) are C, MGM, and several companies in the solar industry.
Is it a good stategy to bet that companies that have done well (before this economy) will eventually recover as opposed to them going BK or something similar? What do you think about the stocks I have chosen? After watching Mad Money today, MIPS looks promising. Any advise is appreciated!
I have more questions for you than answers.
1. How will you feel if you lose everything?
2. How much research have you done on these companies? Do you know what their balance sheets look like? Do you even know what a balance sheet is?
3. What are your short, intermediate, and long term savings goals?
4. How long will your emergency fund support you?
5. Do you have other savings/investments besides the emergency fund?
IMO, this strategy is fine IF
--You have a retirement account that is broadly diversified across asset classes (large & small company stocks, bonds, real estate stocks, perhaps gold) with a healthy balance in it in addition to your emergency savings.
--You have a good sized emergency fund.
--You really have read and understand the balance sheets of these companies.
I suspect the 3 main reqirements I outlined are probably not true for you, so I would say you shouldn't do it.
1. How will you feel if you lose everything?
I would feel like I picked the wrong strategy, but it would be a learning
experience that I would value. Thus, that is why I am "limping" in with
1k.
2. How much research have you done on these companies? Not enough
to invest in them today. Just wondering if stategically makes
sense. Do you know what their balance sheets look like? Again, I
am just contemplating this right now, not making picks tomorrow.
But I do understand the importance of looking at their finances.
However, due to the nature of the risk I am looking at taking, I
assume that their balance sheet does not look very impressive
right now; however, it once did, and I am betting that over the
landscape of a 3-5 years (or more) it will again. Do you even know
what a balance sheet is? Yes
3. What are your short, intermediate, and long term savings goals?
Short - be a bit aggressive with money I can stand to lose.
Intermediate - Take the results/knowledge gained through the
years and apply it.
Long term - Conservatively invest the nest egg that I have
accumulated.
4. How long will your emergency fund support you? 6 - 12 months
5. Do you have other savings/investments besides the emergency fund?
Yes
IMO, this strategy is fine IF
--You have a retirement account that is broadly diversified across asset classes (large & small company stocks, bonds, real estate stocks, perhaps gold) with a healthy balance in it in addition to your emergency savings.
--You have a good sized emergency fund.
--You really have read and understand the balance sheets of these companies. I suspect the 3 main reqirements I outlined are probably not true for you, so I would say you shouldn't do it.
At my age, I am willing to take a bit of a risk. It is just intriguing to me to invest in a company, for example, that once was at $50, now is at $5, and hope that over 4 years it gets to let's say $20. Buying it at only $5/ share with money that I am willing to lose, seems like a risk that I might want to take. I do appreciate your advice.
The first thing you hafta realize is that the stock market is manipulated
by market makers on the floor, hedge fund managers, etc.
Not so much the big board but the Nasdaq, AMEX, and OTC to be sure.
I've had more than one broker and the CEO of Vector Vest himself tell me this.
They have a variety of methods at their disposal to that end.
Forget balance sheets, cash flow, debt ratios, etc.
It's all smoke and mirrors nowadays.
The boiler room crowd will vehimently deny this but it's true.
I would suggest you watch the market for awhile before jumping in.
You will spot patterns in how they do this and use it to your advantage.
DO NOT buy stocks pumped on message boards, websites, etc.
They are usually stocks poised to fall.
Rather, wait a coupla months after the pump n dump when it bottoms out
and then jump in.
Do your own research before you buy.
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Sounds a little like "dogs of the Dow"...
