The Random Comic Strip

The Random Comic Strip

Words to live by...

"How beautiful it is to do nothing, and to rest afterward."

[Spanish Proverb]

Ius luxuriae publice datum est

(The right to looseness has been officially given)

"Everyone carries a part of society on his shoulders," wrote Ludwig von Mises, "no one is relieved of his share of responsibility by others. And no one can find a safe way for himself if society is sweeping towards destruction. Therefore everyone, in his own interest, must thrust himself vigorously into the intellectual battle."

Apparently, the crossword puzzle that disappeared from the blog, came back.

Wednesday, August 31, 2011

Buy, sell, and run around in circles

It's a calculated risk, a gamble where your odds are improved by knowledge. At least, that's what we'd like to believe. And what we are told by the brokers and investment counselors and money managers. They are lying, of course. The only knowledge that would make the odds in your favor is knowledge of the future. Outside of that lady at the amusement park that predicted I would grow older in time, nobody really knows the future.

I have done well enough in the market in the last year or so, making a profit of approximately 27% in that time period. Surprised? Yeah, so am I. I had no idea until I went through and checked my withdrawals from my stock market stash. By the way, that "stash" is money I could live without so we aren't talking about great wealth here.

I am not bragging about this. I had no idea how much I was making although I knew I was ahead of the game. I couldn't offer you any advice in how to beat the market and I wouldn't even try. Mostly, I ignored the advice I read in various financial periodicals and websites. In fact, I often did the opposite of what was recommended. This strategy is one I learned while going through a period of ill health back in the late 90's. Toward the end of that period, after not improving in 18 months, I started "firing" doctors and going my own way. To my surprise (and the doctors', if they had known), I got better.

I didn't apply this to financial matters until well after I found myself in charge of my parents' finances. At first, not knowing much about investing, I followed the recommendations of a financial adviser at Merrill Lynch. And, to be honest, it seemed to work well. In a short period, their investments increased by more than 20%. Looking back, I realized that that was much less than others were doing during the same period. It was the period of the Dot.Com expansion and it was a major bull market.

When the market stagnated in the mid-2000's, all of those gains disappeared. In truth, they had mostly disappeared when the Dot.Com bubble burst. But the growth should have returned. The market was going up but my mother's investments weren't. I stopped listening to the financial adviser and began learning on my own.

One of the basic premises of investing is "buy low, sell high." The only problem with that is knowing when to buy and when to sell. And having the nerve to do it when the time comes. Not to mention resisting that voice of greed that hinders good judgement.

If I was to distill my strategy down to something almost as simplistic as "buy low, sell high", it would be "buy at 40, sell at 80." What that means is: look at the target stock's last 12 months, find the (52 week) low and high; buy when the stock at 40% (or less) of its 52 week high and sell at 80% of that high. Of course, it is not that simple. Some stocks tank completely. Do not ask me about my purchases of GM stock a few years ago (just about a year before they declared bankruptcy), for instance. Or about my not buying Ford at about $2... which my "idiot" brother did.

I got interested in high dividend stocks at one point (after the GM debacle); first delving into municipal bond funds and later into others when it looked like governments at the state and local levels were contemplating defaulting.

There is one other thing one needs when investing.... Incredible luck. It is, after all, a gamble.

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