… “DON’T TRY TO BEAT THE STOCK MARKET“.
This advice has been out there for a long time but I am one of those people who don’t learn except through experience. Rest assured, my son hopefully won’t repeat my mistakes and will take my word for it. I have been burned by investing in stocks and have been pretty dormant this year (and still managed to lose money). When people have asked me for advice on how to advice my reply has been to short every stock I go long on and they would have done pretty well for themselves. In some ways, I am glad I learned this lesson (relatively) early in my life.
When I first started investing, I did decently and made small profits and thought I was really good at it (look out for this and understand that you are not really good at it and you just got lucky). So, I put in more money and invested and did decently until I tried digging into options (greed) and lost significant amounts of money overnight (thanks Dendreon). After this depressing incident, I still didn’t lose faith (guess it takes quite a bit of experience for me to learn my lesson) and invested in other stocks and options and continued to lose money. Tax filing season is when I am forced to face reality and remember how much I have lost – but I still tried to see the positive side of it through tax deductions (although that is limited to $3,000 loss an year).
Over the past year, I decided “CASH is KING” and remained pretty dormant on the stock front and still managed to lose money. Over the past week, I have read some interesting articles in support of investing in index funds and I plan to do that in 2011. I am just going to go with some low expense ratio Vanguard funds and probably do 60% in equities and 40% in bonds. I will probably keep my current balance in the stock market and play with it and consider it “sunk” for all financial purposes (and satisfy the little devil on my left shoulder). Hopefully, I won’t do as badly. As the first linked article notes, just be consistent and stick with it so that you don’t miss the “10 best days” of trades as that can make all the difference. I am quite pleasantly surprised with the simplistic and useful information displayed in Sharebuilder‘s Mutual Fund screeners.
Hope this helps someone (or at least my son) someday.
P.S. I should mention that if I held every single stock I lost money in till today, I would have made some money but hindsight is always 20/20 and holding Options is not an option.
tldr; Screw yahoo, screw starbucks, screw microsoft, screw dendreon, screw chipotle and screw all the other screwy stocks you get screwed on… just go with a low expense ration index fund to minimize your chance of getting screwed.