stocks Archives — Page 2 of 3

The Case for Buy and Hold Investing (#AAPL)

December 9, 2013 By Shane Ede 5 Comments

I’ve always been a proponent of the buy and hold method of investing. If you’re unfamiliar with the concept, it’s basically the method of buying a stock (or bond, mutual fund, etc) and holding it forever. Well, maybe not quite forever, but certainly for as long as you don’t need any liquidity. For most, that’s pretty much right up until retirement.

I’ve been playing at investing for many years. Over a decade. To say that I’m successful would be stretching the truth just a bit. I remain a buy and hold method advocate however. Let me give you a couple of examples.

My investing history goes a bit further back than this example, but these are both examples from when I got a bit more serious about investing. But, also a time when I was still very new to real investing and learning the world of investing the hard way; by trial and error.

Let’s start with what could be one of the strongest reasons why you should do your research, pick a stock, buy it, then hold on to it.

In October of 2000, I bought 3.95 shares of stock in a company you might be familiar with. Apple Computers. (AAPL) For those 3.95 shares, I paid a grand total of $47.25 (including $5.98 in trading fees). The stock had recently split, so the price was down. As an IT professional (or at least a future one at the time), I was pretty familiar with Apple and thought well of the company. I bought the stock with the idea that it was a company that I liked, and wasn’t likely to disappear. That’s about the extent of the research I had done. Back then, I invested with a company called BuyandHold (define irony, eh?) but I mostly invest in stocks through Sharebuilder and Kapitall today.

Somewhere around April of 2001, I began thinking that I really should be buying stocks that paid a dividend if I wanted my portfolio to grow. Note: I still believe that the majority of your portfolio should be giving you income in the form of passive income (e.g. dividends). At the same time, the Apple stock that I had purchased not only didn’t pay any dividends, but it’s price per share really wasn’t going anywhere at all.

Of course, all of this was before the coming of the iPod, iPhone, and iPad. Those didn’t come around until a few years later. At the time, Apple was just a computer company that made some pretty cool machines, but not much else to speak of. On May 1st, 2001, I sold my entire position in Apple for a grand total of $47.25 (after $2.99 in trading fees). If you do the math (I have), I sold it for a profit… of $0.29. Yep. Not even thirty cents.

But, that’s not the lesson. Here’s the real lesson.

In 2005, riding the success of the iPod, iPod Shuffle, and iPod Mini, and the iPod Nano, the stock of Apple began to rise. And then they released the iPhone in 2008. And the iPad in 2010. And their stock has never looked back.

The Buy and Hold Lesson:

If I had held on to those 3.95 shares of AAPL, and reinvested the dividends that Apple began paying in 2012 (bringing the total to 3.978 shares), they would be worth $2227.83. The difference? $2180.58.

It’s no small amount. And a painful (to the wallet and ego) lesson.

Of course, hindsight is 20/20. There was no way, back in 2001, that I could have possibly foreseen the successes that Apple would have nearly 5 years later. But, if I had stuck to my buy and hold policy, and not worried about the details, I’d have a better looking portfolio now.

What about you? What stock did you sell that you shouldn’t have?

Investing Made Simple

November 26, 2012 By Shane Ede 4 Comments

Investing Made Simple: Index Fund Investing and ETF Investing Explained in 100 Pages or Less

By: Mike Piper (ObliviousInvestor.com)

I had the opportunity to meet Mike at the first FINCON in Chicago last year. He’s a thoroughly nice guy. I knew him from his blog and website, but for some reason I hadn’t known the extent of his authorship. I found out at FINCON that he’s written several books (9 of them if I count right) on personal finance. They mostly lean towards the topics of investing, but even encompass Social Security and business structure. After meeting Mike, and learning about his books, I made it a point to pick one of them up to read and review. Well, over a year later, I finally made it to the reading and reviewing part.

Since I’m not much of an investor, I thought that it would be a double good idea to pick up the Investing Made Simple title he wrote. I can review something he’s written, while probably learning a few things along the way. Investing made Simple is an excellent book. It’s short, which makes it an easy read, and the writing style is light, without all the technical investing jargon that’s typical to investing books.

It’s not an in depth book on investing, but it wasn’t intended to be. What it is intended to be is a short (100 pages or less) book that will give anyone the basics of investing while setting them on the right track to a successful investing portfolio. I think he accomplished that.

I think one of the things that many beginning investors, including myself, get bogged down in is that the world of investing is a pretty big world. There’s all these different ways to invest in something. There’s shorts, longs, calls, margin, options, commodities, ETF, bonds, and the list goes on. And on. But, when the beginning investor, who knows little to nothing about investing goes looking for information to get them started, it’s a whole lot of overwhelming. Piper lays it out simple and easy. He gives you the meat of what you need to successfully invest for the long term, while quietly informing you that you’ll likely be better off ignoring most of the stuff that’s confusing you.

What you end up with is a book with all the basics of investing in a small package. But, you also end up with something that, for most people, is also a complete investing manual. Keep it simple, and invest wisely is the order that I took away from reading Investing Made Simple. I think it should be recommended reading for all beginning investors.

Has Stock Trading Ruined the World?

October 20, 2010 By Shane Ede 5 Comments

The very basic essence of stocks is that you buy a “share” of a company in order to own a portion of the company and “share” in it’s successes. If the company decides to not reinvest it’s profit into itself and instead pay a portion, or all, of that profit to the owners, you get a bit of it in the form of a dividend. It the company does reinvest the profits into itself, it increases the value of the company, and your “share” of the company increases in value as well. You can then sell your “share” of the company to realize that increase.

But, that’s only at it’s most basic level. Today, the world of stock investing is so much more. There are options, short selling, margin trading, ETFs, mutual funds, hedge funds, and a myriad other ways that you can partake in this sometimes exciting, and always risky world. It isn’t just simply owning a portion of a company anymore. You can sell shares of companies that you never owned in the first place. You can buy on margin with money you never had. And you can do it all whenever you want.

But, has this evolution of the stock market become a cancer on the world? So much of our economy relies on the stock market as an indicator of the world economic health. If stocks drop, so too does much of the rest of the economy. And if a company does poorly, and many of it’s shareholders sell, causing the price to drop, it can have a ripple effect on the rest of the industries companies, or even on the stock market as a whole. In May of 2010, just such a sell off caused a drop in the stock market that had the entire world trembling in fear of a worldwide economic collapse. It was caused by a trigger in an computer algorithm that was mistakenly set wrong. Many of the stock markets closed early to try (unscheduled rather than one of the normal stock market holidays) and curb the crash and hold off a more drastic drop.

The way the stock market works has evolved so much in order to optimize the buying and selling of shares of companies merely for the profit of the brokers and day-traders. Very few investors will buy a share with the intention of holding it for more than 5 or 10 years. That’s a drop in the bucket for companies that have been around for over 100 years.

Events like the crash of May 2010 and the crash in 2008/2009 due to the real estate bubble bursting give us all pause when we think about investing. For those of us who don’t want to try and “beat” the market and who proscribe to a more long term approach to investing, the drastic ups and downs of the market are cause for concern. What happens if the crash can’t be stopped?

Is it fixable?

Perhaps, but I don’t think that the many brokers and traders who make their money with the newer methods of investing will allow it to happen. To truly fix the market, it needs to revert to it’s much more simple state. Simple buying and selling of shares. No options, no shorting, no margin. Just ownership of a company. After all, that’s what it’s really about. And if it can’t be fixed (or won’t be allowed to be fixed), perhaps it’s time the investors who don’t like the way it’s working move our money someplace else. There are plenty of opportunities in your local communities to invest in start up companies and other investment vehicles.

A word of warning though. Those local opportunities are generally much more risky than buying a share or two of a company like Proctor and Gamble who have been around for decades. Only about 10% of start-ups still exist 5 years later.

Risky as it is, the stock market can still be a sound place to keep your money. Yes, you do run the risk of losing your investment. Nothing there is insured or guaranteed like you would see if you had your money in a savings account at a NCUA insured Credit Union or a FDIC insured Bank.

Has stock trading ruined the world? Not yet. Will it? Let’s hope not.

Image Credit: Bear Market by AZRainman, on Flickr