Monday Reading Mark Cuban has written some interesting articles on investing. I think they’re a good read; it’s not the typical stuff you would hear from other investing pundits. – My Investment Advice for 2006 – The Stock Market is for Suckers – Long Tail of Investing Main takeaways: – When you buy stock, someone (more…)
First, my apologies to those of you who are not geeks (and just wish you were).
Because… it’s a good time to be a geek. Tech stocks are performing well, and there is no one better to take advantage of this rally than fellow geek investors like you. Even the NASDAQ is back with a vengeance.
There is a lot of talk these days about a new tech stock rally. Below are just a few of the reasons tech stocks are getting so much attention these days.
In my last article, I discussed starting my portfolio, and a strategy for allocating assets efficiently while keeping the number of accounts and fees manageable. As I stated in that article I think it’s very important for those of us who want to eventually become more involved with individual stock investing to have only a small portion of our funds in a brokerage account. Because we’re very inexperienced, risking too much of our portfolio with individual stocks can leave us open to a lot of unnecessary risk. That’s why I advocate starting simply by learning the basics then building a foundation of a few stock and bond mutual funds, before allocating more to individual stocks.
This strategy may not be exciting, but to paraphrase Ben Graham, author of The Intelligent Investor, true investing should be boring. By learning the basics we can understand the full range of investments available and how to maximize their returns. We can then invest in relatively safe but consistently well-performing mutual funds. Not only do mutual funds provide instant diversification, but they also give us focus as we continue to learn about more advanced investing topics. As I will mention again, we have a lot to worry about when we’re just starting out. There’s no need to add risky investments to that list before we’re ready.
If you have less than $50,000 to invest in securities you kinda get screwed. All of us here at InvestorGeeks are just starting out, in our Mid-20s and have less than $50k in investments. Now I love to learn about investing, but I’m nobody’s fool, and so I want to build a foundation of safe diversified funds until I master selecting value stocks. However, because of my low account balances, I get whacked with maintenance fees that can be pretty stiff. This is a problem because I’d like to diversify my portfolio, but lose more and more of my returns because of these fees. So I’ve come up with an action plan, and I’m hoping you’ll provide feedback before I go ahead an implement it in the next couple weeks.
I’ve become very interested recently in fellow investment blogger Phil Town’s site, and so I’ve been reading it from start to finish. After reading much of his site, I’ve come to enjoy his style of writing and investing. Ever the skeptic though, I wanted to make sure he’s not just some shill on the web hawking his wares to an unsuspecting public. Everything I found has been good, and I was even able to find a new resource that he recommends frequently called the INVESTools Investor Toolbox.
About Phil Town
It’s important when investing to pick your advisors carefully. I have kind of a rating system for investment advice.
Poor – Any guy on the web. Pay little attention.
Fair – What he says passes the reason test. I’ll listen skeptically.
Good – Good track record, good advice. I’m listening, but still fact checking.
Last week we heard the news that Google would pay $1 Billion for 5% ownership in AOL. Here are some bullet points from Google’s press release:
- Creating an AOL Marketplace through white labeling of Google’s advertising technology – enabling AOL to sell search advertising directly to advertisers on AOL-owned properties;
- Expanding display advertising throughout the Google network;
- Making AOL content more accessible to Google Web crawlers;
- Collaborating in video search and showcasing AOL’s premium video service within Google Video;
- Enabling Google Talk and AIM instant messaging users to communicate with each other, provided certain conditions are met; and
- Providing AOL marketing credits for its Internet properties.
Last Thursday, Chris wrote about Big Mother Mutual Funds and pointed out some reasons why you might not want to buy the “biggest and best” when it comes to mutual funds. Another problem with large mutual funds is that they lose their flexibility to invest in small-cap stocks. These funds are making investments in the tens of millions, which could add up to a sizable percentage of a small-cap’s total shares. It’s hard for a larger investor to make (or pull out of) an investment worth 5% or more of a company.
If large mutual funds won’t invest in small-caps, who will? We will.
Relatively new investors may have heard about ETFs but are still unsure what they are. Well, ETFs, or Exchange Traded Funds, are a type of investment fund that is traded like a stock on the open markets, but typically track an index such as the Nasdaq-100 or S&P 500. First introduced in 1989, ETFs have grown in popularity over the last decade because of their ease to buy and sell, and low expense ratios. However, like any investment, there are pros and cons that the prospective owner should be aware of.
Over the long-term, the S&P 500 beats 80% of actively managed mutual funds (before tax benefits). Because of this fact, prominent investors such as Warren Buffett and Benjamin Graham recommend index funds for defensive investors and those looking to diversify their portfolio. Not only do they provide instant diversification, they also offer the benefit of being simple to own, as it represents owning an already established group of securities selected by finance companies such as Standard & Poor’s, Dow Jones and Nasdaq.
Pulling out of Index Funds?
In last Tuesday’s article, I talked about John Mauldin’s book Bull’s Eye Investing which speculates that we are in the beginning of a secular bear market. I’m just now getting to the part of the book where he talks about what to do about that situation. Among other things, Mauldin suggests buying small-cap stocks for value. Ben Stein suggests this kind of investing in any market: Want Big Returns? Think Small by Ben Stein.
SIRI is Downgraded After a Recent High
I was getting snug in my SIRI investment. Then some bozo at Bank of America downgraded the stock from “neutral” to “sell”.
I’m now four chapters through Bull’s Eye Investing by John Mauldin. I’ll post a full review once I’ve finished the book, but the basic message is that we are in a secular bear market1. What that means is that, despite the fact that in any given year the market could be up or down, over the next 7-15 years the market will post a loss overall. Mauldin asserts that broad investments in the stock market over the next 10 years should expect returns of 0% (if we’re lucky).
Ouch.
