Let's talk about the stock market....

[oynaz]

It seems like a lot of people in here does not know what a stock actually is.

*Oynaz puts on his teacher's hat and elbow patches*

When you buy a stock, you buy a piece of the company in question. As such, a stock entitles you to influence the decision-making in the company, and to a part of the company's profit.
The genius part of stocks are that, while you get the benefits of owning part of a company, you are free from responsibility. A company's debt has no effect on your private economy.

In principle, it's as simple as that. Granted, there are ifs and buts, but that is no concern of the casual investor.

The stock market might resemble gambling to an outside observer, but it definitely isn't. Careful buying of stocks with an eye on long-term gains are, with very few exceptions, a very sound investment. There is a reason why retirement funds put such a big part of their money in stocks.

Short-term investment in stocks, however, is very much a gamble.

 

[dullard]

Point taken and I agree. Overall, there might be SLIGHT winnings, if you are a winner and not a loser. So overall, the average is that everyone wins money. However, for the most part it is very close to a zero sum game. If I am a break even player, I might make just a little bit of money. But for everyone who is a slightly above average player, there is someone who is slightly below average. So, although the math is skewed just a bit in favor of stocks over the market, the fact that some people have an inherent advantage, whereas in poker, at the start of the game you are on equal footing, it means that the stock market is a riskier endeavor than poker.... if that makes sense. Perhaps I'm not explaining myself very well.

The thing you have to realize is that about half of all stock market gains are from dividends. It is not SLIGHT winnings, but a massive gain for those who are in the market - even if they aren't seeing their stock prices going up. Dividends are about half of all stock market profits.

The other half of the profits are two-fold. (A) There is the part that you talk about: someone wins when someone loses. That is basically pure gambling. If you buy one stock, you may choose well or you may choose poorly. You may gain or you may lose. The beauty of the market is that the stocks are priced so that you will win about half the time and lose about half the time. (B) There is a pyramid-scheme effect. The more people that come into the game, the more that all the current players get. That is good as long as you get out before everyone else does. The pyramid-scheme historically has led to about half of all stock market profits.

So, you get 50% of your gains from dividends, 50% from a pyramid-scheme, and then there is a gambling factor. You can figure that you'll break even on the gambling side of things. The pyramid-scheme seems likely to continue for as long as population grows. Even if the pyramid-scheme profits end, you still are left with dividends which outpace inflation nearly 2-to-1.

 

[akshatp]

options can be used to lock in current gains w/o the use of limit orders. for example, if you bought stock at $10 and it is now at $12 you can buy call options for $13 (the right to buy at $13).

Now say the stock drops to $9. So if the stock drops and you lose the $2 profit and even are another $1 in the hole, but you make money off the right to buy the stock at $13, or $4 worth of profit (minus the cost of the call option and the $1 loss off initial).

HUH? Why would I want to buy the stock for $13 if its sitting at $9?

 

[gophins72]

in my arbitrary example, i think i messed up call/put terms

 

[iGas]

HUH? Why would I want to buy the stock for $13 if its sitting at $9?

He must have mixed up with put option. Some commodity player use option to stabilize their finances because they have a set budget and expected a set quantity/volume of goods for set price and it is difficult to balance the budget with price fluctuations.

But many people have been caught playing the option market and ended up with naked put.

 

[iGas]

Special Delivery

An excellent read if you have not read the article involving the Æxecor trading executive.

 

[SSSnail]

It's a zero sum game, money isn't made or lost, it's simply transfered from one perception to the next. Greed is good!

 

[alrocky]

I'm a bit of a noob when it comes to the stock market.

I do... matching 3% which is what I contribute...I'm most interested in the daily/monthly/yearly trading of stocks. The people who buy stocks for a couple of months and then sell. That is the aspect of the market that particularly intrigues me.

If 3% represents the extent of your retirement investing, then you're making a noob mistake.

Let's also assume that everything negative that feel about the stock market short term is true, that the odds are stacked against you and the little guy - the question becomes why would you even consider investing short term? And add to that your trading costs and the higher tax rate means that you're swimming upstream.

 

[rcpratt]

I've got enough cash and want to start doing a little trading...probably just mutual funds for now.

But the question...what online broker is the cheapest/best? Anybody have some suggestions?'

Looking around, kind of like ScottTrade and Schwab based on the fact that they only have short-term redemption fees of NTF mutual funds owned less than 90 days - Fidelity and TD Ameritrade are 180 days. Schwab's fee is higher, but in all likelihood I would never do that anyways. I dunno. ScottTrade's website sucks. Any thoughts between them?

 

[HopJokey]

I've got enough cash and want to start doing a little trading...probably just mutual funds for now.

But the question...what online broker is the cheapest/best? Anybody have some suggestions?'

Looking around, kind of like ScottTrade and Schwab based on the fact that they only have short-term redemption fees of NTF mutual funds owned less than 90 days - Fidelity and TD Ameritrade are 180 days. Schwab's fee is higher, but in all likelihood I would never do that anyways. I dunno. ScottTrade's website sucks. Any thoughts between them?

Zecco has 10 free trades per month if your account balance at any point in time is $25K or higher for the month. Also if you don't qualify for the free trades then commissions are $4.50 for stock trades which is the lowest I believe.

For Mutual Funds it's best to buy direct if possible (i.e. for Vanguard funds go to vanguard.com) as they are usually commission free. Scottrade seems to have a good pricing structure on Mutual Funds (2,800 funds are free to trade on there) although I've never bought Mutual Funds on there before.

I'm not fan of "trading" Mutual funds (more of a long term buy and hold guy, especially for Mutual Funds) but if you want to trade Mutual Funds probably the best way is to sign up for a Zecco account and buy/sell ETFs. ETFs are basically a more liquid mutual fund, in many cases it's a mutual fund that trades like a stock on the exchanges.

 

[Demo24]

I use Zecco and apart from some limitations (like no trailing stops, etc), no pre/aftermarket trading, and crappy tools it works well. My trades seem go through quickly as well and far more accurately than with Etrade. If all you intend to do is buy some stocks and let them sit, Zecco works very well for that.

 

[rcpratt]

Zecco has 10 free trades per month if your account balance at any point in time is $25K or higher for the month. Also if you don't qualify for the free trades then commissions are $4.50 for stock trades which is the lowest I believe.

For Mutual Funds it's best to buy direct if possible (i.e. for Vanguard funds go to vanguard.com) as they are usually commission free. Scottrade seems to have a good pricing structure on Mutual Funds (2,800 funds are free to trade on there) although I've never bought Mutual Funds on there before.

I'm not fan of "trading" Mutual funds (more of a long term buy and hold guy, especially for Mutual Funds) but if you want to trade Mutual Funds probably the best way is to sign up for a Zecco account and buy/sell ETFs. ETFs are basically a more liquid mutual fund, in many cases it's a mutual fund that trades like a stock on the exchanges.

It would probably be more like 6mo-1year trades on the mutual funds. I am interested in the ETFs as well, it seems like each broker charges for any ETFs that are not owned by them. ScottTrade is $7, Schwab is $8.95...not too bad, and I wouldn't be starting with ETFs in all likelyhood. If another broker has NTF ETFs, I'd be interested in it. Not going to have $25k to trade for a bit.

ScottTrade and Schwab both have a pretty good list of NTF mutual funds...looking at a list of 20 that I'm interested in, both had 11 NTF.

 

[thepd7]

I'm not fan of "trading" Mutual funds (more of a long term buy and hold guy, especially for Mutual Funds) but if you want to trade Mutual Funds probably the best way is to sign up for a Zecco account and buy/sell ETFs. ETFs are basically a more liquid mutual fund, in many cases it's a mutual fund that trades like a stock on the exchanges.

Agreed. My financial adviser won't recommend buying a true mutual fund unless the time line is 2+ years.

It would probably be more like 6mo-1year trades on the mutual funds. I am interested in the ETFs as well, it seems like each broker charges for any ETFs that are not owned by them. ScottTrade is $7, Schwab is $8.95...not too bad, and I wouldn't be starting with ETFs in all likelyhood. If another broker has NTF ETFs, I'd be interested in it. Not going to have $25k to trade for a bit.

ScottTrade and Schwab both have a pretty good list of NTF mutual funds...looking at a list of 20 that I'm interested in, both had 11 NTF.

If you go the ETF route just make sure you get one with enough volume to actually trade. I was into one for a while, made some money but there was barely enough action to sell when I wanted to get out.

 

[Imp]

So AIG went belly up. Who would have guessed a bailed out company still 92% government owned, reporting quarterly losses in the hundreds of millions, holding toxic assets, and actively liquidating its holdings could be so volatile.

I was up 10% just last week, and cut my losses ($1.70 plus $39 commission) on Friday. Thought I'd go semi-long, but I just don't like waiting.