Profit off other people's misery
November 20, 2008 4:52 PM Subscribe
Is now a good time to buy stocks? With my fourth grade level of understanding, I would think now would be a good time to buy cheap undervalued stocks if one wanted to make money. What about real estate? All those cheap foreclosed homes..? Is this a good idea?
Google the phrase "catch a falling knife".
posted by knave at 5:16 PM on November 20, 2008 [2 favorites]
posted by knave at 5:16 PM on November 20, 2008 [2 favorites]
I invested a regular contribution last week and am down 12%. Investment in October down 22%. That's why.
posted by a robot made out of meat at 5:27 PM on November 20, 2008
posted by a robot made out of meat at 5:27 PM on November 20, 2008
It is always a good time to buy cheap, undervalued stocks. Unfortunately, it takes some years to come up to speed with what counts as cheap and undervalued. If you have a fourth grade level of understanding, now is not a good time for you.
posted by i_am_joe's_spleen at 5:30 PM on November 20, 2008
posted by i_am_joe's_spleen at 5:30 PM on November 20, 2008
This is a fairly complicated question (if stock trading was easy, everyone would be doing it profitably). Many stocks are right now at 52 week lows. But just because they are cheap doesn't mean they're safe. The value of the stock could drop to zero and you'll lose all your money. However, with that said, there are stocks that are fundamentally strong but because of the gloomy economy in general are at low prices. While it is possible if you buy in to the market now your investment will shrink to zero, if you diversify properly the chances of this happening are quite small.
A plausible worst case scenario is that the stock market will fall further and you'll lose a bit of money. But if you're investing in the long term (meaning the terms of decades) these prices will eventually rebound. It really depends on your timeframe. Ideally you would want to wait until the stocks bottomed out to buy them. But realistically predicting a bottom is basically like winning the lottery.
posted by EvilKenji at 5:30 PM on November 20, 2008
A plausible worst case scenario is that the stock market will fall further and you'll lose a bit of money. But if you're investing in the long term (meaning the terms of decades) these prices will eventually rebound. It really depends on your timeframe. Ideally you would want to wait until the stocks bottomed out to buy them. But realistically predicting a bottom is basically like winning the lottery.
posted by EvilKenji at 5:30 PM on November 20, 2008
Best answer: It's a great idea if you're right about the market bottoming out, just as it's a great idea to sell your stocks if you're right if they're peaking. But at the end of the day it's all very, very complicated to determine when that might happen, and people have been trying to do so since there have been futures markets. If everyone was sure that this was the bottom, they'd be buying up stocks too, and the market would probably rebound.
posted by craven_morhead at 5:52 PM on November 20, 2008
posted by craven_morhead at 5:52 PM on November 20, 2008
You should be making regular, equal-dollar-amount contributions, and letting cost averaging take care of the rest.
posted by kindall at 5:52 PM on November 20, 2008
posted by kindall at 5:52 PM on November 20, 2008
Stick with the old standby -- index mutual funds. And think long term.
Today is a good day to invest. All respect to Dee, yesterday was too. But, for me, it's best to stay completely detached from market fluctuations. If you want to watch a number go up, set up a regular fixed dollar investment. Then only look at your number of shares, never at the "value". That "value" is not YOUR value unless you're selling today.
posted by mad bomber what bombs at midnight at 5:56 PM on November 20, 2008 [2 favorites]
Today is a good day to invest. All respect to Dee, yesterday was too. But, for me, it's best to stay completely detached from market fluctuations. If you want to watch a number go up, set up a regular fixed dollar investment. Then only look at your number of shares, never at the "value". That "value" is not YOUR value unless you're selling today.
posted by mad bomber what bombs at midnight at 5:56 PM on November 20, 2008 [2 favorites]
This is one of the realms where lack of knowledge is actually helpful. It lets you see the big picture more clearly. There are lots of wise guys with tons and tons of knowledge doing foolish things in the market. Always have been.
Buy low, sell high is what good solid investors do. There are extremely few of them.
The GENIUSES, thinking they can do even better, aim to buy at the BOTTOM and sell at the TOP. Not just low, it's got to be The Lowest. And not just high, it's gott to be The Top. And there are tons and tons of geniuses out there. The market is almost all geniuses.
Problem is no one ever knows where the bottom is, and you can do very foolish things aiming for that unfindable perfect point. But if "low" is what you're looking for, this market is really really freaking LOW. Will it get lower? Who knows! Maybe! But in the long run, you would NOT be a sucker to go in right now. Should you go in with your last dollar? No, that'd be foolish. But if you can wait a decade or two, you'll almost certainly make a handsome profit if you buy in now, and you won't regret missing the bottom by a bit.
Warren Buffett starting buying (not for his holding company, I mean personally) when the market was higher than it is now. He's an old fashioned solid investor, not a genius. The market might drop another 20%, but he's not trying to get every last dollar.
Same for houses. Do you have a nice long time window, and some extra bucks you wouldn't mind tying up? Sure, house prices might go down a bit. But you can't deny that this is LOW. So unless you feel like a genius, able to time the un-timeable, it's a great time to buy. Again...it could go down more first. And may not go up again for a long while. So don't invest anything you'll need soon. The only sure-fire way to make money in the short term is by working, not by investing. Investing is more long term.
"The Only Investment Guide You'll Ever Need", by Andrew Tobias, is the bible of sensible investing, and also a really great, entertaining read. I highly recommend it.
posted by jimmyjimjim at 6:10 PM on November 20, 2008 [13 favorites]
Buy low, sell high is what good solid investors do. There are extremely few of them.
The GENIUSES, thinking they can do even better, aim to buy at the BOTTOM and sell at the TOP. Not just low, it's got to be The Lowest. And not just high, it's gott to be The Top. And there are tons and tons of geniuses out there. The market is almost all geniuses.
Problem is no one ever knows where the bottom is, and you can do very foolish things aiming for that unfindable perfect point. But if "low" is what you're looking for, this market is really really freaking LOW. Will it get lower? Who knows! Maybe! But in the long run, you would NOT be a sucker to go in right now. Should you go in with your last dollar? No, that'd be foolish. But if you can wait a decade or two, you'll almost certainly make a handsome profit if you buy in now, and you won't regret missing the bottom by a bit.
Warren Buffett starting buying (not for his holding company, I mean personally) when the market was higher than it is now. He's an old fashioned solid investor, not a genius. The market might drop another 20%, but he's not trying to get every last dollar.
Same for houses. Do you have a nice long time window, and some extra bucks you wouldn't mind tying up? Sure, house prices might go down a bit. But you can't deny that this is LOW. So unless you feel like a genius, able to time the un-timeable, it's a great time to buy. Again...it could go down more first. And may not go up again for a long while. So don't invest anything you'll need soon. The only sure-fire way to make money in the short term is by working, not by investing. Investing is more long term.
"The Only Investment Guide You'll Ever Need", by Andrew Tobias, is the bible of sensible investing, and also a really great, entertaining read. I highly recommend it.
posted by jimmyjimjim at 6:10 PM on November 20, 2008 [13 favorites]
Oh, and mad bomber's right. Stick with broad mutual funds, don't hem yourself in with individual stocks in an economy where even blue chip companies may actually go out of business. Mutual funds let you spread your investment out over a much, much wider range of companies than you could ever buy into on your own.
And in real estate, remember that quality is good in any market. Don't buy junk, even if it's a steal. Buy something nice (remember, too, "location, location, location"), and you'll have a much better position in any market. If you could buy something you might imagine yourself maybe living in one day, so much the better.
posted by jimmyjimjim at 6:14 PM on November 20, 2008
And in real estate, remember that quality is good in any market. Don't buy junk, even if it's a steal. Buy something nice (remember, too, "location, location, location"), and you'll have a much better position in any market. If you could buy something you might imagine yourself maybe living in one day, so much the better.
posted by jimmyjimjim at 6:14 PM on November 20, 2008
I would think now would be a good time to buy cheap undervalued stocks if one wanted to make money.
What's "undervalued" mean? And undervalued to who? You? The "market?" I don't mean to be harsh, but were I you, I wouldn't be dabbling in things I don't really understand, particularly when it's money on the line, and especially in such unstable times. The good deals you find today could be the "I CAN HAS GOVT LOAN?" headlines of tomorrow. Hell, I wouldn't be surprised if 5% of the companies that make up the S&P 500 were bankrupt or bought-out in a year.
What about real estate? All those cheap foreclosed homes..? Is this a good idea?
Well, the numbers appear to still be going down in most markets. In general, that means you wait, because it's better to buy just after things have hit bottom and are starting to come back up then it is to buy when things are still falling.
posted by Civil_Disobedient at 6:17 PM on November 20, 2008
What's "undervalued" mean? And undervalued to who? You? The "market?" I don't mean to be harsh, but were I you, I wouldn't be dabbling in things I don't really understand, particularly when it's money on the line, and especially in such unstable times. The good deals you find today could be the "I CAN HAS GOVT LOAN?" headlines of tomorrow. Hell, I wouldn't be surprised if 5% of the companies that make up the S&P 500 were bankrupt or bought-out in a year.
What about real estate? All those cheap foreclosed homes..? Is this a good idea?
Well, the numbers appear to still be going down in most markets. In general, that means you wait, because it's better to buy just after things have hit bottom and are starting to come back up then it is to buy when things are still falling.
posted by Civil_Disobedient at 6:17 PM on November 20, 2008
Even though stocks are cheaper, they are still not cheap historically. And, as I saw on Yahoo, if they are so cheap, why do they keep going down?
posted by procrastination at 6:41 PM on November 20, 2008
posted by procrastination at 6:41 PM on November 20, 2008
How do dividends play into all of this? Some of these stock prices have dropped so low that their annual dividend is up to 7-8%. And this is for companies that have shown no particular weakness.
posted by smackfu at 7:13 PM on November 20, 2008
posted by smackfu at 7:13 PM on November 20, 2008
That assumes they won't cut the dividend. Bank of America, for example, slashed their dividend in half. And frankly I no longer trust that they'll be able to pay even THAT much.
posted by Justinian at 8:13 PM on November 20, 2008
posted by Justinian at 8:13 PM on November 20, 2008
note: I realize that a banking stock and "have shown no particular weakness" are not at all the same.
posted by Justinian at 8:13 PM on November 20, 2008
posted by Justinian at 8:13 PM on November 20, 2008
The S&P @ 750 is a buy IMO. Not instantly all-in, but dollar cost averaging in over the next 6 months or so.
Here is a chart comparing 4 bear markets. The present one is outpacing the 1929/30 crash at the moment.
I for one do not think we will find ourselves in such dire straits and think things will stop getting worse sooner rather than later.
However, here is a chart comparing the Nikkei 225 with the S&P since the mid 80s. Note the Nikkei shot up until 1989 and then fell, fell, fell and is still falling now.
I think there's a 50% chance the market will be back up to 1000+ by the end of the year, ie it's pricing in events that aren't going to happen.
But I could be wrong. Our financial sins of the past 10 years have been pretty serious, and another depression could be in the cards.
posted by troy at 8:54 PM on November 20, 2008 [2 favorites]
Here is a chart comparing 4 bear markets. The present one is outpacing the 1929/30 crash at the moment.
I for one do not think we will find ourselves in such dire straits and think things will stop getting worse sooner rather than later.
However, here is a chart comparing the Nikkei 225 with the S&P since the mid 80s. Note the Nikkei shot up until 1989 and then fell, fell, fell and is still falling now.
I think there's a 50% chance the market will be back up to 1000+ by the end of the year, ie it's pricing in events that aren't going to happen.
But I could be wrong. Our financial sins of the past 10 years have been pretty serious, and another depression could be in the cards.
posted by troy at 8:54 PM on November 20, 2008 [2 favorites]
PS: The Only Investment Guide You'll Ever Need is thoroughly informative and actually entertaining!
posted by santojulieta at 9:15 PM on November 20, 2008
posted by santojulieta at 9:15 PM on November 20, 2008
Addressing the real estate question: My husband invests in rental housing. Our plan was to stop buying after owning X number of houses about six months ago. This month he's paying about 60% less for the foreclosures than he was a year ago, and prices seem to continue to drop pretty dramatically every 45 days or so. Consequently, we are not stopping at our previously set goal. However, we no longer flip for resale, that market disappeared about a year ago.
posted by raisingsand at 5:34 AM on November 21, 2008
posted by raisingsand at 5:34 AM on November 21, 2008
This thread is closed to new comments.
Likewise with real estate.
posted by Dee Xtrovert at 5:05 PM on November 20, 2008