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 special_k Ketamine is myLS  Registered: 08/04/06 Posts: 242 Loc: TX |
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I honestly believe that learning the stock market is one of the most financial beneficial things a person can learn and can over the long run earn you more money than working your entire life in a salary/hourly job. There are so many stigmas surrounding the stock market such as you have to be extremely intelligent to make any money. After all average mutual funds earning 10-15% a year are managed by some of the most knowledgeable people in the market. How could some average joe expect to compete with mutual fund? Not only do I believe that an average joe can meet the returns of a mutual, I believe that can greatly exceed a mutual funds return.
So what are the possibilities? Lets say you are a long term investor who buys great stocks for the long term. Say you start out with $10000 without adding any additional money. If you can make a 28.5% yearly gain with 33% taxes, you will effectively double your money every 4 years. After: 4 years $20,000 8 years $40,000 12 years $80,000 16 years $160,000 20 years $320,000 24 years $640,000 28 years $1,280,000 32 years $2,560,000 36 years $5,120,000 40 years $10,240,000 Lets say though that you wanted to be more aggressive a be a day trader or a swing trader. With in any given day most stocks with jump up and down 1%-5%. If you can effectively make a 1.5% gain every day on your money and assuming 33% taxes, than you would double your money every 70 market days. Can a person be that good? possibly, but a more realist goal would be to make an average of 70 1.5% gains in a year, allowing you to double your money every year. At this rate if you started with $10,000 your money would look like this. 1 year 20,000 2 year 40,000 3 year 80,000 4 year 160,000 5 year 320,000 6 year 640,000 7 year 1,280,000 8 year 2,560,000 9 year 5,120,000 10 year 10,240,000 A swing trader can expect to make around the same kind of gains as a day trader. Lets say that this still isn't fast enough for you. Now this is something I haven't got into yet, but its something I started looking into. Basically the idea is applying the principles of day trading and swing trading with the use of options. Basically an option is the a contract that allows you to buy or sell a specific stock at a specific price in the future. Its a way of leveraging more money. If a stock went up by 1.5%, than the stock's option would go up something like 6%. If we apply this to day trading where we make a 6% gain per day, than we could double our money every 18 trading days! To be more realistic, we could assume a 39% gain every month.With 33% taxes this leads us to doubling our money every three months. If we start up with 10,000 than in: 3 months 20,000 6 months 40,000 9 months 80,000 12 months 160,000 15 months 320,000 18 months 640,000 21 months 1,280,000 24 months 2,560,000 27 months 5,120,000 30 months 10,240,000 Once you got into say a $2,000,000 dollars, you could use a conservative strategy that earns you 20% a year. Assuming 33% taxes and 5% inflation every year, you could spend the equivalent of $160,000 every year until the day you die and your million dollars would never lose its value. It would increase in value if inflation ends up less than 5%. Of course the bigger the gain, the more you could spend. Lets say you still wanted to be a day trader once you had $1,000,000. If you could make a 1.5% gain, thats $15,000 you make in that one day or $10,000 after taxes. Some of you may be saying thats great but aren't we going into a recession? Isn't this a bad time to try and make money through the stock market? The answer is no. Traditionally most people try to make money by buying low and selling high. Well you can actually sell high and than buy low. Its called a short. Pretty much by going short on a stock, you make money when the stock price goes down. The way it works is you tell your broker i want to short a stock. They than let you borrow some one's shares which are than sold immediately at the price you specified. You promise to buy back the shares at a later time. If you short a stock at 100 shares of a stock at $50 and than bought to cover the shares at $40, than you just made $1000- transaction fees. With the ability to buy or short, you can make money in both a market going up and a market going down. Now once you get into the millions, you may not be able to make as much of a percentage because buying large lots of options or stocks would make their prices rise more than you would want. The more money you have to play with, more of a problem this becomes. Thats why mutual funds have trouble making large gains. These are only possibilities, you can most definitely lose all the money you invest. I do believe though that when you make any stock pick, you make it with the odds in your favor. You analyze as many stocks as you can and pick only those that you feel are the best bet out of all of them based on their technicals/fundamentals/anticipa After you feel you have a small grasp on the ideas of the stock market, than I suggest you go to fool.com. Its a community of investors that have accounts in which they make stock picks and earn points based on their stock picks. If you have a score of a 0 than you are doing just as well as the sp500. You get a point for every percent a stock goes up beyond that of the sp500. Stocks have scores based on how people rated the stocks. Set up an account and see how well you do at picking stocks. Also you can view the stock picks of any member. So you can view the picks of the best performing players and get an idea of investing strategies. Their emphasis is on long term investing though. You could also try your strategies on paper and see how well you did. I hope I at least got you some what interested in attempting to research the stock market on your own.
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badchad Mad Scientist  Registered: 03/02/05 Posts: 13,388 |
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Good advice, except that the average annual return on the stock market is about 10%.
Your numbers are extremely inflated. -------------------- ...the whole experience is (and is as) a profound piece of knowledge. It is an indellible experience; it is forever known. I have known myself in a way I doubt I would have ever occurred except as it did. Smith, P. Bull. Menninger Clinic (1959) 23:20-27; p. 27. ...most subjects find the experience valuable, some find it frightening, and many say that is it uniquely lovely. Osmond, H. Annals, NY Acad Science (1957) 66:418-434; p.436
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 Cyanic not that guy   Registered: 10/30/06 Posts: 47 Loc: buckeye Last seen: 17 years, 30 days |
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Badchad- yes the average is around %10 but there are tons of terrible investors out there that don't have a clue what there doing. many people lose money so you have to assume there are people making quite a bit over %10 to make that the average. He's not talking about being average.
Theoretically you could make that kind of money in that time frame but knowing what your trying to do and actually doing it are two different things. The toughest part of the stock market is actually finding the stocks and reading them. You have a sound plan now you just need to make sure you pick the right stock every time. Options and Calls are a great way to make money but you need to have a better understanding on how a stocks price will act. Some of it is unforseeable but most can be predicted by the stocks recent activities as well as other market factors. I have tried my hand at day trading and had some pretty good success, but unfortunately I don't have the time for it now. But I still keep an eye on it have have a few investments. Most recently I just sold all of my stock in a company called First Solar. bought in last april around $55/share. I sold and rebought twice during between then and december when I pull out at $280. Once you learn what to look for its suprisingly easy. before you get the wrong idea, I don't really care about money, but it can make life a little easier. But please don't just go buy a couple stocks and hope to get rich. Just as easily as you make money you can lose it, if you don't know what your doing. -------------------- "Dream as if you'll live forever, live as if you'll die today"-JD I know that I'm not perfect And I don't claim to be. But before you point your fingers, Make sure your hands are clean. -bob marley Edited by Cyanic (01/21/08 01:08 PM)
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special_k Ketamine is myLS Registered: 08/04/06 Posts: 242 Loc: TX |
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look at individual stocks and not the stock market as a whole. When you look at the stock market as a whole you are also including the stocks that you wouldn't buy. This also includes all the time the stocks goes up and go down. A big rule of thumb is that you exit a stock if you find a better opportunity. For instance, if a stock goes up irrationally and there is a stock that has been beaten up for some stupid reason, than selling the first stock and jumping into the second stock makes more sense. By doing this you potentially avoid the losses that a stock will suffer.
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Asante Big Moissanite shill   Registered: 02/06/02 Posts: 92,927 |
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Like your currency 
What if purchasing power drops as dramatically as some allege? How much net gain would be left? Will there be net gain at all? -------------------- personal empowerment for the world Onehomemission.org truly make a difference
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badchad Mad Scientist Registered: 03/02/05 Posts: 13,388 |
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If purchasing power drops as some alledge, it would (usually) be an indicator of excessive inflation.
If this is the case, then it would be a good idea to hold onto stock. While a dollar bill may lose value, many would argue the intrinsic value of a company is more stable. -------------------- ...the whole experience is (and is as) a profound piece of knowledge. It is an indellible experience; it is forever known. I have known myself in a way I doubt I would have ever occurred except as it did. Smith, P. Bull. Menninger Clinic (1959) 23:20-27; p. 27. ...most subjects find the experience valuable, some find it frightening, and many say that is it uniquely lovely. Osmond, H. Annals, NY Acad Science (1957) 66:418-434; p.436
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special_k Ketamine is myLS Registered: 08/04/06 Posts: 242 Loc: TX |
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Wiccan Seeker, I guess you are a gold bug and certainly its understandable. If I'm not mistaken, gold has appreciated at about 25%-30% a year since 2001. But there are facts that support both sides of the arguement. When it is said that the stock market appreciates on average 10% per year, it means that since the early 20th century, the stock market as a whole with all its recessions and depression has gone up on average 10%. If we look at gold starting from 1930 to 2007, gold has appreciated only about 5% a year.If you bought gold back in 1980 when it was 800 dollars an ounce and held on until today, you'd be pretty pissed. If you bought gold in 1996 when the gold was 400 dollars an ounce, it would have taken you 11 years to make a 120% gain.
I caught gold fever myself last summer and bought something like $4000 dollars worth of precious metals. I got into the stock market about September. This month I sold all my precious metals to use it in the stock market. For me the stock market is more profitable. I am reminded of the saying that you use the stock market to create wealth and the use precious metals to maintain wealth. The big thing about me is I am a trader. I buy and sell on the ups and downs of the market. Doing this with physical precious metals would be difficult because the bid/ask spread. with the stock market an exchange happens as quick as you can click on a few buttons with a small bid/ask spread. If I feel like being a gold bug I could easily trade mining stocks. In fact I'm holding one right now. If I feel that gold will go down I can short mining stocks and make money. There is so much more things you can do with the stock market over physical precious metals.
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