A lot of traders and stockbrokers actually aren’t very educated. But they aren’t getting paid on being right. They are getting paid on having the desire and ability to screw over some other ignorant chump who doesn’t have the information they have. Most of the time that chump is you (or some other broker or trader).
Also, Citibank is over $6 a share. So if the OP bought 1000 shares at $5 when he started the thread, he’s be up $1000. If he sells now. Let’s wait a few days and see what happens.
Nitpick: As someone who trades for a living, I feel the need to point out the difference between traders and brokers. Brokers are salesmen that make a living on commissions. There are various types of traders. Institutional traders are the guys/gals that are paid half million dollar salaries and make huge bets with other people’s money. If the trades work out, they take home multimillion dollar bonuses. If they blow up, they still take home $500k. The whole system presents an asymmetric risk/reward system for the individuals on the trading desks. A step “down” from institutional trading desks are smaller proprietary trading firms that provide substantial trading capital to the firms’ traders, but don’t guarantee a lavish lifestyle. Rather, the traders eat what they kill (after sharing some with the firm). Finally, there are the retail traders who, generally, get killed and eaten.
What I was trying to say is that according to every book I have read, very, very few people have been able to consistently beat the market long term. In any given year, yes a third or so of the people will beat the market. But the next year there is little overlap with the previous years group and so forth. So I think it’s silly to seek out brokers or traders to actively manage funds for you. And these people typically do this stuff for a living (ie, have a heck of a lot more time to study it than me and you). And they don’t even consistently beat the market. So why is it that virtually everyone (particularly men) thinks they have some kind of special insight that allows them to time the market and find the next Google or Microsoft? Why not invest in passively managed index funds with low expense ratios and take what the market gives you and beat virtually everyone else? Is it because you feel “average” if you are only taking the market returns each year even if getting the average each year makes you better than most everyone else over the long term?
Maybe I don’t know my own ass from a hole in the ground. I have been investing for less than two years and am only 24, but every book I have read makes it seem this simple. There’s no sense wasting time reading company reports etc (that are likely cooked in some way anyways).
This has been very much my understanding from the research. Something like only 10% of managed funds beat the index funds they’re comparable with after fees. Of course, I’m very much influenced by books like “Random Walk Down Wall Street” and a lot of the books I’ve read pretty much go with efficient market hypothesis. I don’t 100% buy into efficient market hypothesis, and I think there is a strong behavioral/mass psychology component to market fluctuation, but I have yet to read a convincing enough critique of Random Walk that convinces me to invest in anything but a buy-and-hold, dollar-cost-averaging, 30-year-time-frame manner. So, if any one has any reading suggestions, I’m all ears.
Warren Buffett argues that the market is inefficient to some degree. Further, he feels that this inefficiency can be reliably exploited as evidenced by the sustained performance of some successful investors. See his talk The Superinvestors of Graham-And-Doddsville.
That said, the ability to consistently beat the average through active investing is probably fairly rare and difficult to cultivate. Having stumbled my way though Security Analysis by Graham and Dodd, there are a substantial number of aspects than need to be weighed against one another in order to perform a thorough analysis of a company.
Yea, pulykamell I have that book, too. The books I am referencing are:
for anyone who is interested in doing more controlled gambling (ie, investing).
That’s pretty much my understanding of what they do. Or a simpler example is a broker is like one of the guys from Wall Street or Boiler Room who calls up people and tries to sell them stock. Traders are the guys you see screaming in the pits (or silently staring at the computer screens) making trades.
dgrdfd - My understanding is that there are funds who beat the market consistantly, however they are actively managed and when you take the fees into account, you are better off just going with an unmanaged index fund.
BRRRRAAAAAAIIIINNNNNNSSSSSSS!!!
Actually, I was thinking about my post in this thread earlier today and wondering what would’ve happened if I bothered to take my own advice. In a single word:
Shit!
Here’s the salient part of my original post:
So, looking it up just a few minutes ago, these stocks are now:
Ford: (then $1.25), now $5.62
GM: (then $3), now $1.15
Yahoo: (then $9), now $15.76
Starbucks: (then $7.40), now $14.54
AIG: (then $1.65), now $1.47
Alcoa: (then $7.00), now $10.75
Citigroup: (then $5), now $3.01
Sprint/Nextel: (then $1.50), now $4.95
Motorola: (then $3.35), now 6.61
E-Trade: (then .95), now 1.28
Idearc: (then .05), now $.16
Time-Warner: (then $7.45), now $24.95
Portfolio value (not taking into account trading fees or taxes) rose from $4,805 to $9,169.
Shit!
Well, yeah, but again, the trading fees would have eaten quite a bit into the profits. And it’s kinda funny that, of the 12 stocks you chose, CitiGroup, the one that started this whole thread off, was one of the two that fell. So buying CitiGroup at the low low price of $5 would have yielded a $2000 loss.
According to E-Trade, trading fees would’ve been $13 per trade, or $156 to purchase, $156 to sell, or $312 in total. So you still would’ve made out OK with a $4,052 profit (less $650 for cap gains tax (I’m not going to bother figuring out how the losses affect that)), leaving one with a $3,350 profit on a $4.8k investment over a 7 month period.
Which isn’t shabby by any stretch. 
I ended up buying a small amount of Citi shares when it first hit $3.00. A risky maneuver, but then the bulk of my assets are in quite prudent index funds and real estate, so why not walk on the wild side?
It’s in the high twos today. Ten years from now I will either be hailed as a genius or…a slightly less smart kind of genius.
So I’ve been tracking the above portfolio ('cause it’s really easy on Yahoo) and it’s been proving the adage that you make money when you buy, not when you sell.
Following is the above list with current valuations (Current Price, Current Market Value of shares, $ Increase/(Decrease), % Increase/(Decrease)):
100 shares of Ford at $1.25 ($125) ($16.10, $1610.00, +$1,485, +1,188%)
100 shares of GM at $3.00 ($300) (Bankrupt, lost everything)
100 shares of Yahoo at $9.00 ($900) ($17.20, $1,720, +$820, +91.11%)
100 shares of Starbucks at $7.40 ($740) ($33.18, $3,318.00, +$2,578, +348%)
100 shares of AIG at $1.65 ($165) (Bankrupt, lost everything)
100 shares of Alcoa at $7.00 ($700) ($17.40, $1,740, +1,040), +148%)
100 shares of Citigroup at $5.00 ($500) ($4.91, $491, ($9), (1.8%))
100 shares of Sprint/Nextel at $1.50 ($150) ($4.46, $446, +$296, +197%)
100 shares of Motorola at $3.35 ($335) ($9.11, $911, +569, +166%)
100 shares of E*Trade at .95 ($95) ($17.88, $178, +83, +87% (Stock performed 1:10 reverse split)
1000 shares of Idearc at .05 ($50) (Bankrupt, lost everything)
100 shares of Time-Warner at $7.45 ($745) ($36.69, $3,669, $2,924, +392%)
Total portfolio value: $14,083, a gain of $9,787 and 228%.
I’m sure that, with hindsight, one could put together a far better portfolio (I know! We’ll invest everything in Ford!), but almost tripling your money during the Great Recession is not bad either, especially for a thrown-together mix as the above was (after all, my financial analysis of the above stopped at the question of “put together a list of famous companies under $10/share”).
I hope the OP didn’t put all that money into Citigroup. 
For comparison’s sake, the S&P rose 76.5% since then and the DJIA rose 61.8% in the same period (11-20-2008 to 2-15-2011).
My mother bought some of these stocks back then. She bought 500 shares of Ford at $1.19, along with a similar number of shares of AIG, Fannie Mae, Freddie Mac and a couple of other stocks that I can’t remember but were trading very low. Ford was of course the big winner although I think even the AIG is up from there.
My friend uses this strategy. His idea is to target “cheap” stocks as well, but actually “cheap” means under 50 cents/share. 25 cents would be ideal.
Those would be called “penny stocks.” To put it lightly, these are generally discouraged as a sound investment strategy.
And the above wasn’t really a penny stock strategy, it merely took advantage of the panic pricing that was depressing a lot of sound companys market value.
You are talking about your own strategy, right, not Superhal’s friend’s? That’s the only point I was replying to.
Yes, I’m talking re: my brilliant new stock picking plan. I will have the book plus companion DVD-ROM available soon for a mere 3 easy payments of $69.95.
Available at Borders? (Price on 11/20/08, $1.11. Price today, 0.23)