I’ve just decided to start investing in the stock market. I’m going to buy low and sell high.
I just thought of this scheme. I think it’s brilliant! It’s amazing nobody has thought of this before. I’m going to clean up.
How sure are you of your stock picking record? Did you carefully write down (and date) specific stocks (down to the exact ticker symbol) you wanted to buy? Did you also carefully write down – at the time – when you would have sold them?
I’m just saying, it’s really, really easy to remember years ago when you sort of vaguely thought “Yeah, Apple stock would be a good investment”, and assume you thought it at a very good time to buy; and it’s just as easy to forget the times you vaguely thought Enron would be a good investment. It’s not just you – this is something everybody does.
So unless you wrote specific things down at the time, I really wouldn’t assume you really do have a history of making stock picks.
I can dig it. I had a specific ticker symbol I wanted to buy over 15 years ago. I got in an auto accident and that derailed my investment plans. The stock increased 2000%+. Typo? Let’s see: 2000%+.
Why don’t we have an ongoing, epic (possibly) thread about investing? I can’t believe it wouldn’t have legs.
You have a good idea. personally, i would be looking to buy companies that supply drilling equipment, serving oil rigs, etc. these stocks should show the most volatility, once we have hit rock bottom. the last oil boom was instructive-a guy in Oklahoma bought up bankrupt drillers-five years later, he sold them for 120X what he paid for them. Where is the bottom? Figure that once Europe recovers, and China begins growing again, demand for petroleum will go up.
It’d probably have its ups and downs.
I like Schlumberger for oil-service picks (you might go with Halliburton. I may be a little irrational avoiding this pick since Dick Cheney is so icky. But they also had a role in the BP disaster, so screw them). Take a look at their 1-year chart (you have to click 1-year yourself in this link). They went from a high of over 90 to resting at $67.34 yesterday, and looking to test new lows it seems. Assuming you have the right information (and you could research day and night and still not know something really important), investing in these guys seems pretty straightforward. When demand for rigs picks up again, their revenues pick up, they make more profit and their stock goes back up. If I’m looking to make 10% off of them, they can gain that much while easily staying below their 52-wk high.
So that play seems doable on the face of it. Rig counts rose slightly this week, but it seems more like volatility to me than a rebound, with oil prices hitting new long-term lows. OTOH, Congress just voted to end the US oil export ban, and I’m not sure what the effect of that will be. Globally it will probably contribute to the glut, but in the short term it could cause the price of WTI to rise until it is more in line with Brent, now that it trades on the international market again. But then they’ll both be stuck in the global glut, with Iran increasing production along with US exports coming to the market.
The glut has to end before drilling really picks up again, IMHO. Demand doesn’t look to be set to increase much- China’s growth is slowing, and the US and Europe are growing only slowly. Plus, the trend is for more fuel-efficient vehicles (or electrics), so we could potentially see peak demand for oil (…maybe? not too sure about this).
Supply dropping will come from companies getting squished. Look at the 5-year chart for Petrobras- it has lost almost 90% of its value :eek: These guys get a lot of their production from deep offshore wells, which are too pricey to be profitable right now. Brazil’s credit rating is getting cut, see here, which will probably mean less money for new projects and a drop in production from this major. PBR is too risky for me to trade- they could go all the way to zero.
Compare to Chevron. They’re rebounding right now- buying them at their bottom would already have yeilded better than 10% in just a few months. I’ll have to dig more into this pick before I decide, but I doubt these guys will go bankrupt. They are still making a profit, even at these prices, but they are struggling. This article seems right on board with my thesis: Wait for the Bottom in Crude Oil, Then Buy Chevron Stock
Looks like they are willing to cut capex to maintain their dividend, which means less production out of them, eventually. If/when oil prices rebound, that capex will come roaring back. Seems like these guys are contracting for now.
Where will supply cuts come from, and when? That’s the million dollar question. You might think a lot of smaller US producers would be going bankrupt now or in the near future, but this article is skeptical of that idea, forecasting a measly 4% default rate in 2016. The bottom could be a year or more away as, right now, the glut seems to be getting worse. Global oil supplies are rising faster than global demand.
I don’t know why people treat this as such an outlandish concept. When things crash, investing in the survivors can pay off big time. You can say, “well sure, hindsight is 20-20”, but if you try, often you can see it coming in advance.
Click on the “all” link (to the right of 5-year) on the chart of UPS, for example. After the financial crash, this stock got crushed- there just wasn’t as much commerce, there wasn’t as much stuff to ship, and it fell to below $40. It seemed obvious to me that the company wasn’t going anywhere, that things would get better again, and with the rise of e-commerce they would probably come back bigger than ever. And they pay a decent dividend. So I bought it up, from the 40s to the 80s, and took some profits at $104 and $110 or so. I’m still sitting on about half my stake, reinvesting the dividends for the long haul. I did great with it and turned some of it into this piece of real estate I like to hang out in.
No guarantees oil stocks will follow the same trajectory, and investing is always risky, but geez, we’re looking at a major wipeout in the oil industry. That things will rebound seems obvious.
Perhaps it’s because the plural of anecdote isn’t data, and some of us have read books like “A Random Walk Down Wall Street.”
I don’t think that people can consistently pick stocks or tell when a market has hit top or bottom. I think that it is easier, smarter, and much more tax efficient to choose a diversification plan, invest in a few (like three) ultralow cost index funds, and occasionally rebalance.
When the market crashed in 2008-2009, just like when the tech bubble crashed in, what 2001, I automatically bought more shares of the total market fund, just to keep my diversification within parameters. As the stock market overheats, again I rebalance. No muss, no fuss, no broker fees.
YMMV, of course.
I wonder if people touting index funds are fully aware that with increased investment in index funds, the market becomes dysfunctional. (As an extreme case, if all investments were into such funds, stock prices would be dictated completely by the index designer, e.g. Standard & Poors for the popular S&P 500.) I read claims that about 20% of shares are now held by index funds! This is double the figure 15 years ago.
But that describes a systemic problem. For an individual investor, index funds may remain the “percentage play.” Still, it gets tiring to hear the same clichés when a Doper wants an intelligent discussion of individual stock ideas.
My own meager portfolio has left me calmer than an index fund would. My largest holding is Johnson & Johnson (JNJ), one of the most respected companies, with a long history of increasing dividends, and with associations (BandAids, Baby Oil!) that make it almost a familiar friend. It’s outperformed the S&P 500 and, as a non-cyclical, done so with much less volatility than the index. Frankly I’ve given almost zero attention to my holdings throughout the vicious swings since 2000. JNJ offers me a sense of security that even an index fund would not. (And confidence in one’s holdings is very important; otherwise it’s easy to end up buying high and selling low due to greed and fear.)
But I wish I’d followed my mentor’s advice and bought mostly the non-cyclical Philip Morris/Altria (MO). According to money.cnn.com , $100 invested in the S&P500 in 1968 would now be $8700; $100 invested in MO would have grown to $663,800.
Returning to petroleum, I’ll make no big move, but might add to the few shares of SLB I already have. Chevron seems OK, but I’d like OP’s opinion of Occidental (OXY), the stock I was thinking about.
Will you consider changing your opinion if my timing is close enough that I succeed in earning 10% in 6 months or less on my picks?
It is not as bad as it looks. Sure, more money is going into index funds, but they aren’t all going into S&P 500 type funds. There are more index funds than ever, focusing on specific industries or other strategies. If you want to invest in, say, the whole gold industry, you can buy a gold ETF. The rest of the market doesn’t get unbalanced, but investing in gold would indeed become meaningless if nobody picked any gold stocks but instead were buying the ETFs.
From here:
They are effectively paying money to drill and sell each barrel of oil, and I think oil prices are going lower from here, not up, and not back to $60 especially soon. They can’t quit pumping oil and hand all their customers over to their competitors, wait for oil to go above $60, start up again and hope they can get their customers back. No, they gotta keep pumping to keep their stake in the oil industry. But other producers can achieve neutral cash flows at far lower than $60, so I like Chevron better.
Look at the 1-year for OXY. Eyeballing the top and bottom trend lines, there is a definite downward trend. I don’t see what is going to change that, unless Occidental changes and produces oil for less money per barrel. They’ve done that, yes, but not as fast as the price of oil has dropped. I just think a producer could be better positioned than this.
OTOH, there is a lot of volatility in this stock. If you could understand what was driving that, you might profit off short-term plays. But I think volatility is sometimes meaningless noise, like water sloshing around in a bucket.
If you believe oil is going to rebound to above $65 in the next month or two, then OXY is a great pick.
IANAEconomist, but from my layman’s understanding of the issue there are at least two good reasons that the proportion of shares held by index funds doesn’t really matter.
[ol]
[li]At the extreme case it becomes easy to beat the market. If the entire market is determined by the index designed, then you only have to beat one entity to beat the market. More people trying to do this easy task will decrease the share of investments held by the index funds.[/li][li]Prices are set at the margin, e.g., by those people doing the buying and selling of the stocks. The active investors are the ones you need to beat, and the only way to beat them (other than luck) is to realize something that none of them have yet realized. The proportion of investors who are active isn’t that important provided that there are enough of them, in absolute numbers, to have explored all of the hypotheses you’re likely to come up with. Given the first reason, this is likely to remain true even if index funds hold 99% of all stock.[/li][/ol]
Anyone can be lucky. The question is what higher return you would get from your effort and risk, compared to the return I would get by my passive strategy, and how consistently you can get that higher return. My experience and study indicates that most active investors can’t.
Trying to time a market isn’t easy, and trying to time one that is heavily influenced by state actors seems remarkably risky.
Brilliant!
Well, I just sold some shares this morning. I had a little extra money in September, I picked up some solar shares, and sold them for a profit of over 10%. Annualized we’re looking at 40%+. Now, the actual profit was less than $150, but if I’d had a million to play it would have really been something.
Can I do that consistently? I don’t know. I have. This year I am 4 for 4 in selling stocks for a profit (and this morning’s was the smallest %profit, though the other 3 trades were large, long term holdings I was selling to raise money for a down payment on this townhouse). In 2014 I was 6 for 7, and my one loser lost a couple of percent after I got tired of waiting and gave up. My best performer (and biggest investment) gained 400%+ in two years. The year before that I don’t think I had a single losing trade.
But I realize all that can change. My biggest reason for being confident is that I have a college minor in mathematics- I can be very good with numbers when I want to be.
But don’t get me wrong. I am not against index funds. My 401k is all index funds, and as my non-retirement portfolio grows I will almost surely diversify there. But for now I like to have my non-retirement portfolio in stocks, it just works for me and I have done a good job identifying opportunities.
I’m not above taking some criticism, I know there is more for me to learn. Maybe I will read the book you mentioned.
As to the difficulty of calling this bottom, I think it depends on how it plays out. If US storage capacity is reached, for instance, there will suddenly be nowhere for some oil to go and prices will drop dramatically. This kind of bottom would be pretty obvious IMHO- it would be sudden and have a clear cause.
Getting back to the line of thinking I was on discussing Occidental, here is an article promoting Conoco Phillips. The key point:
The article claims that Conoco has the lowest production costs in the US. Still, I don’t agree with that author that now is the time to buy it, they are still losing too much money right now and I don’t see how they can do much besides contract some more. Gotta wait until that turns around, then, well, I’d have to look into this one more.
Read this article today, thought of this thread.
OPEC: The world wants less of our oil:
OPEC's Market Share to Shrink by 2020 As Rivals Keep Pumping Despite Oil's Collapse?
Timing the bottom is a fool’s errand, but more importantly, its not necessary.
The mantra is “buy low, sell high” not “buy at the bottom”. If you believe an industry that is in decline will have survivors that thrive, why not start buying them now? Your overall gain will be less, but you’ll still end up gaining, and the likelihood that you’ll buy at the bottom is increased, because you’re buying every week.
For one, if the bottom comes in the next 3 months it will be too fast, I don’t have a lot of cash till later. Other than that, it may not be the bottom that we are looking for, but more likely a point within some % of a given company’s cost of production, accompanied by other factors like is the company still bleeding cash like a stuck pig?
As oil rebounds to, say, $45, it might seem like we’ve passed bottom, depending. If it looks like market forces will drive oil higher for awhile after that, that might be a good time to buy. I did say I would trade oil after the bottom.
There are a lot of interesting news items this week about the oil biz. Here’s one I found extra interesting: National Oilwell Clipped By Petrobras; Is General Electric Next?
Interesting because 1) it supports my view that Petrobras is a sinking ship and 2) this is what cuts in production look like- a distressed oil company cancelling projects.
If GE drops significantly as a result of low oil prices, it might be a play. But later, so far production has not dropped nearly enough to jump in IMHO.
General Electric is a giant conglomerate that gets only about 12% of revenues from the oil and gas business. Do you really think its stock is going to drop significantly because of low oil prices?