Ready to invest in the stock market for the first time in my life

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
NoobInvestor123
Posts: 31
Joined: Tue Dec 24, 2019 10:18 pm

Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:21 pm

DesertDiva wrote:
Wed Dec 25, 2019 1:10 pm
Many people believe they can beat the markets or develop some kind of secret process to produce above-average returns. They may realize that many before them have failed, but they still believe it won’t happen to them. “This time it will be different.”

The problem is that no one can predict the future. Any individual stock can suffer severe losses. Look at what’s happening to FedEx right now. All is takes is a negative headline, a management misstep, loss of competitive advantage, etc, and the downfall to an individual stock can be sudden and swift. Indexing removes the shock of these events and stabilizes your portfolio.

You need to learn more about Indexing. Go to the “amazon” link at the top of this page. Read Bogle’s book carefully. Then read “The Bogleheads’ Guide to Investing”. This approach may not give you the adrenaline-rush you are seeking, but it will give you a solid, disciplined approach to managing your investments.
Hey, thanks for the response and sorry for the delay!

You know, that's so interesting, how you talk about the psychological reasons for believing one can "beat the market" even though no one else can... to be honest, that's exactly how I feel, haha! I'll be honest with you... I'm totally new to this world, and I can acknowledge that my feelings are probably coming from a place of naivety, but I still can't help to stop feeling them, haha... This reminds me a lot of something else - have you ever played poker? Texas holdem poker? I played that game for years, and in that game, stems a very similar philosophy or mindset - the mindset that "I can beat the house, because although this game is largely luck, there is still a great deal of skill involved" ... you know, one of the best arguments these poker guys like to use is - if poker is all luck, then how come the same 10 players show up to the final table each year in the world series of poker? It's a good argument, but it falls apart when you realize that those 10 players are exceptionally gifted, mastermind players, one in a million, and even the extremely good veteran poker player wouldn't come close to them... maybe in the same sense, there are a few, small number of people who can consistently trade individual stocks and beat the market over and over again, and those people are just mental freaks of nature that no one else can even come close to.. would you agree with that comparison?

Also, about indexes - what do you think about dumping all my money into XLK? the tech ETF?

finite_difference
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Re: Ready to invest in the stock market for the first time in my life

Post by finite_difference » Sun Jan 12, 2020 8:21 pm

The plural of index is indices.

My advice is to buy a low-cost S&P 500 ETF and concentrate on growing your business and saving (buying more S&P 500 ETF). Whatever you do playing around with stocks, that is the benchmark to compare your performance against.

I wish you the best of luck if you decide to try to beat it. You may be able to for a year or two, but it’s probably luck. Get back to us once you have beat it over 30 years.

Unless you are a professional trader, you will be at a disadvantage. Whereas if you are running a business successfully, that’s a playing field where it sounds like you have an advantage. And I would allocate my efforts toward those endeavors where I am at an advantage.

Personally I choose to save myself all the time and stress that accompanies stock picking and market timing, but it’s your money and you get to decide what to do with it.

And don’t forget, staying the course with an S&P 500 ETF sounds simple but it’s not. Most people can’t do it. It’s actually really hard to stay the course. On the other hand, everyone thinks they can time the market. But studies show they can’t. There is now an entire field called “behavioral economics” devoted to these paradoxes.

Here is one of my favorite quotes from Jack Bogle:

“When the dumb investor realizes how dumb he is and buys a low-cost index fund, he becomes smarter than the smartest investors.”

See here for more quotes: viewtopic.php?t=62003
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:24 pm

Ferdinand2014 wrote:
Wed Dec 25, 2019 1:15 pm
NoobInvestor123 wrote:
Tue Dec 24, 2019 10:30 pm
Hello awesome people of the internet,

I am starting my stock market investing journey very soon and wanted to share my overall thoughts and a few questions I had about what I learned before actually getting my feet wet investing stocks. I'll jump right into it:

I read over and over from many different sources that the vast majority of people (and CERTAINLY beginners) would do best to simply invest everything in the S&P 500 and wait as long as possible instead of investing in individual stocks and trying to "time the market". But, well, to be honest, I have doubts about this advice... last year, the S&P 500 had a return of about 35%... looking at a few stocks that are majorly popular and recommended by financial advisers (like Microsoft, AMD, Roku, Apple, Shopify, Mastercard, and so many others, you can literally just google "best stocks" to find them), their 2019 performance looks amazing! They had returns that absolutely crushed the S&P 500's 35%! Most of them were over 100%... Investing in any one of those single stocks ALONE would have yielded substantially higher returns than the S&P 500.

Here's my question: is me doubting this advice (that its best for noobs to invest in S&P 500 rather than individual stocks) coming from a place of naivety? Is it actually in reality a LOT harder to "beat the market" then I think it is? Is what I am doing right now (cherry picking individual stocks that had great performance last year and then expecting they'll have great performance next year) a recipe for disaster? Would I do best to simply invest everything in the S&P 500 like everyone is saying, even though I feel like I can do so much better with those few stocks mentioned above?

Thanks for any insight!
Yes. Yes, way harder, if not impossible. Yes, it is a recipe for disaster. Yes you would.
Oh noooo, I didn't wanna hear this... even if I should :mrgreen:

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:28 pm

bertilak wrote:
Wed Dec 25, 2019 1:19 pm
The S&P500 return is the average of all the stocks that make up the S&P500. There will always be about half of those stocks that are above average and about half below average. Which is which is easy to determine looking backwards, but impossible to determine looking forwards.

The fallacy is thinking the backward look is the same as the forward look.
Hey, thanks for the response and sorry for the delay!

Ugh, you know to be honest I really hate reading these answers!! Haha... I want to read just one answer that says, "Yes, you can beat the market, screw the boring advice, you can swing trade/day trade/whatever and beat the market with effort and energy and practice"... it just seems counter-intuitive to say that you can make more money doing the EASIEST thing (holding SP 500) than you can doing the HARDEST thing (trading stocks)... bare with me guys, I'm new and it's very hard for me to hear this kind of advice from legitimate forums like this one

Topic Author
NoobInvestor123
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Joined: Tue Dec 24, 2019 10:18 pm

Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:38 pm

arcticpineapplecorp. wrote:
Wed Dec 25, 2019 1:53 pm
NoobInvestor123 wrote:
Tue Dec 24, 2019 10:30 pm
Hello awesome people of the internet,

I am starting my stock market investing journey very soon and wanted to share my overall thoughts and a few questions I had about what I learned before actually getting my feet wet investing stocks. I'll jump right into it:

I read over and over from many different sources that the vast majority of people (and CERTAINLY beginners) would do best to simply invest everything in the S&P 500 and wait as long as possible instead of investing in individual stocks and trying to "time the market".

But, well, to be honest, I have doubts about this advice... last year, the S&P 500 had a return of about 35%...
First off, are you talking about "this year" or "last year"? Because last year, the S&P500 was down 4.5%, not up 35%

source: https://www.callan.com/wp-content/uploa ... e-2019.pdf

And if you're talking about over "this year", the S&P500 is up 28.58%, not 35%
source: https://www.marketwatch.com/investing/index/spx)

So I think it's important to get the numbers right, other wise you can believe just about anything somebody says.
NoobInvestor123 wrote:
Tue Dec 24, 2019 10:30 pm
looking at a few stocks that are majorly popular and recommended by financial advisers (like Microsoft, AMD, Roku, Apple, Shopify, Mastercard, and so many others, you can literally just google "best stocks" to find them), their 2019 performance looks amazing! They had returns that absolutely crushed the S&P 500's 35%! Most of them were over 100%... Investing in any one of those single stocks ALONE would have yielded substantially higher returns than the S&P 500.
Sure, and I just heard if you'd bought netflix over the last decade you'd be up 4000%.

So what, you know what else could've happened? You might have gotten so spooked after three years of extraordinary volatility with netflix (much, much higher than the total market) that you would have sold out in fear and done not much better than the market (which looked like a smooth ride in comparison. netflix in orange below, total market in blue):

Image

source
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
NoobInvestor123 wrote:
Tue Dec 24, 2019 10:30 pm
Here's my question: is me doubting this advice (that its best for noobs to invest in S&P 500 rather than individual stocks) coming from a place of naivety? Is it actually in reality a LOT harder to "beat the market" then I think it is? Is what I am doing right now (cherry picking individual stocks that had great performance last year and then expecting they'll have great performance next year) a recipe for disaster? Would I do best to simply invest everything in the S&P 500 like everyone is saying, even though I feel like I can do so much better with those few stocks mentioned above?

Thanks for any insight!
there's reversion to the mean and Jack Bogle wrote a chapter in his little book of commonsense investing where he showed (for mutual funds) that often the best past performers are often the future underperformers. You can't go back and get the growth that occurred. Hoping it continues is not a strategy. Recency bias/hindsight bias is a danger for investors.

look at how much has changed with the biggest U.S. companies (based on revenue) just over the past 24 years:

https://americanbusinesshistory.org/lar ... 1994-2018/
Oh sorry, I was talking about "this year, year to date" (from January 1 2019 to December 24, 2019) ... I think what was happening was that my broker's online account (Robinhood) was showing me the S&P 500 performance for the "last 365 days", not the "year to date"... I think that's why the percentages were off... I'm still learning how to use stock analysis technology

Oh wow, that's a very interesting thing that you pointed out with Netflix... yea, I can see that in that time frame you would've just done the same (with a lot less stress) just by holding the SP 500!

That's the second time someone here has brought up reversion to the mean... so by that rationale, if I wanted to invest in a tech ETF, like XLK, because I see that XLK has had excellent growth last year (2019), would I be potentially walking into a trap, because, according to reversion of the mean, XLK should be more likely to UNDERperform this next year (2020) since it did so good in 2019? Is all that correct?

If that is all correct, would I then, therefore, just do best by putting everything into the S&P 500, like VOO?

southerner
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Re: Ready to invest in the stock market for the first time in my life

Post by southerner » Sun Jan 12, 2020 8:40 pm

My advice as someone without tons of money and no background is to be honest about the motives for stock picking that are only too human: it's "interesting", "I'm up for the challenge", "I'm really excited about X", "This feels like a winner". This is called gambling. This is the brain circuitry that comes on at a roullette table. It's the thrill of high risk.

Reals not feels.

The best thing I did was finally decide that I was interested, excited, intrigued, feeling awesome about.... being able to take care of my family and get a few more acres when I got older.... and I got rid of individual stocks. And yes, I was "doing well". I decided I wanted to be doing well when I was 65, not on the returns for that day, month, or year. If you have the resources to have that and do some trade gambling for fun, very well. If not, pick a course and stick with it.

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:44 pm

dru808 wrote:
Wed Dec 25, 2019 1:55 pm
If you think amazon is gonna secure your retirement go for it. :sharebeer
Haha I'm not sure about just Amazon, I would wanna do other stuff as well but yea I understand that it's risky to do individual stock picking :mrgreen:

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:46 pm

Mactheriverrat wrote:
Wed Dec 25, 2019 2:12 pm
If your going to buy individual stocks , then you should have a system for buying them . Don't blindly follow financial advisers as they have their own agenda.

May I suggest Guppy Multiple Moving Average (GMMA) by Daryl Guppy .

His book trend trading https://www.amazon.com/Trend-Trading-se ... 0731400852
You can also find his book in PDF form by searching google - daryl guppy trend trading pdf-
You can download the whole book for free.

A great video that boils the GMMA to simple terms https://www.youtube.com/watch?v=kjfW2BaeldU

Now a lot of bogle heads don't trade stocks as they just rather invest in the buy , hold and forget John Bogle way of trading.
Hey, thanks for the response and sorry for the delay!

Oh wow, I will look at these links right now, first time I am hearing of this name... What do you personally think about this? Do you do this method (GMMA), or do you prefer to pick index funds like the S&P 500 and just set it and forget it? Cheers!

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:48 pm

HawkeyePierce wrote:
Wed Dec 25, 2019 2:27 pm
Managing a portfolio of individual stocks takes a lot of time. Finding stocks to buy, deciding when to buy *and* sell, staying on top of their performance, etc.

A three-fund Boglehead portfolio takes about 15 minutes a year. You can use all the time you save to do something more interesting.
Hey, thanks for the response and sorry for the delay!

Yes, this is a very good point... even IF I am able to manage to beat the market for one year, or two, or even three, at what cost was I able to do so? Maybe I will come to find that the stress and time and energy isn't worth the extra ~10% gains I could get... interesting to think about!

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:49 pm

macheta wrote:
Wed Dec 25, 2019 2:44 pm
dru808 wrote:
Wed Dec 25, 2019 1:55 pm
If you think amazon is gonna secure your retirement go for it. :sharebeer
My college financial class made me pick stocks in March of 2001 for my financial portfolio. I decided to invest 25k in amazon at $10.13 per share. We were not actually investing in the real market. I wish I had invested in them since was buying stuff from them around that time and I worked full time so I had some cash.
Hey, thanks for the response and sorry for the delay!

Oh wow, that must have felt rough... but at the same time, nothing is for sure and Amazon could've tanked! I guess what I am learning about reading through these comments is that no one has a crystal ball... it's hard to accept that reality, though lol

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:50 pm

Elena wrote:
Wed Dec 25, 2019 2:55 pm
Behavioral question for your class:
You invest $25,000 in whichever stock or mutual fund. It does not matter. Within a week, portfolio value drops to $3,000. What would you do?
I know you directed this at macheta, but I would say... buy more?

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:52 pm

sambb wrote:
Wed Dec 25, 2019 3:10 pm
To the OP: if you can confidently and consistently pick stocks to beat the market, then go for it. Most of us cant, but you may be gifted at this. We just dont know. its up to you to decide if you can do it.
I have no idea if I can either... I suppose, I will try, with, at the very least, a thousand dollars (out of the 30 thousand dollars I have to invest), and if I lose it all, then I will probably never stock-pick again... LOL! The rest would go to index funds...

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:53 pm

dru808 wrote:
Wed Dec 25, 2019 3:34 pm
macheta wrote:
Wed Dec 25, 2019 2:44 pm
dru808 wrote:
Wed Dec 25, 2019 1:55 pm
If you think amazon is gonna secure your retirement go for it. :sharebeer
My college financial class made me pick stocks in March of 2001 for my financial portfolio. I decided to invest 25k in amazon at $10.13 per share. We were not actually investing in the real market. I wish I had invested in them since was buying stuff from them around that time and I worked full time so I had some cash.
Yup, and I wish I had fanngd. I wish, I wish, i wish. Lol :sharebeer
What is "fanngd" ? facebook, amazon, netflix and google?

Monsterflockster
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Re: Ready to invest in the stock market for the first time in my life

Post by Monsterflockster » Sun Jan 12, 2020 8:56 pm

NoobInvestor123 wrote:
Tue Dec 24, 2019 10:30 pm
Hello awesome people of the internet,

I am starting my stock market investing journey very soon and wanted to share my overall thoughts and a few questions I had about what I learned before actually getting my feet wet investing stocks. I'll jump right into it:

I read over and over from many different sources that the vast majority of people (and CERTAINLY beginners) would do best to simply invest everything in the S&P 500 and wait as long as possible instead of investing in individual stocks and trying to "time the market". But, well, to be honest, I have doubts about this advice... last year, the S&P 500 had a return of about 35%... looking at a few stocks that are majorly popular and recommended by financial advisers (like Microsoft, AMD, Roku, Apple, Shopify, Mastercard, and so many others, you can literally just google "best stocks" to find them), their 2019 performance looks amazing! They had returns that absolutely crushed the S&P 500's 35%! Most of them were over 100%... Investing in any one of those single stocks ALONE would have yielded substantially higher returns than the S&P 500.

Here's my question: is me doubting this advice (that its best for noobs to invest in S&P 500 rather than individual stocks) coming from a place of naivety? Is it actually in reality a LOT harder to "beat the market" then I think it is? Is what I am doing right now (cherry picking individual stocks that had great performance last year with and then expecting they'll have great performance next year) a recipe for disaster? Would I do best to simply invest everything in the S&P 500 like everyone is saying, even though I feel like I can do so much better with those few stocks mentioned above?

Thanks for any insight!
I invest in the S&P 500 because I believe that that will have a greater likelihood of full recovery than an individual stock. If Netflix goes out of business you lose everything. If you hold that part of a S&P500 mutual fund it will drop but you’re still in the game.

Remember Sears? They were the Amazon of their time. As were Blockbuster for videos. Who knows what the future holds.

On another note a buddy told me when I was starting out to invest in the S&P500 until you hit 100k. It will give you time to learn your tolerance for the ups & downs.

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 8:58 pm

JPH wrote:
Wed Dec 25, 2019 3:45 pm
If you believe it is possible to beat the market by picking individual stocks then just buy a managed fund and let a professional do it for you. There is a relatively small cost for doing it this way, but you almost certainly will make money in the long term.
Oh, but from what I've read, the vast majority of financial professionals are not able to beat the market consistently...

Wait, did I just make myself look really dumb?

dru808
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Re: Ready to invest in the stock market for the first time in my life

Post by dru808 » Sun Jan 12, 2020 9:04 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:53 pm
dru808 wrote:
Wed Dec 25, 2019 3:34 pm
macheta wrote:
Wed Dec 25, 2019 2:44 pm
dru808 wrote:
Wed Dec 25, 2019 1:55 pm
If you think amazon is gonna secure your retirement go for it. :sharebeer
My college financial class made me pick stocks in March of 2001 for my financial portfolio. I decided to invest 25k in amazon at $10.13 per share. We were not actually investing in the real market. I wish I had invested in them since was buying stuff from them around that time and I worked full time so I had some cash.
Yup, and I wish I had fanngd. I wish, I wish, i wish. Lol :sharebeer
What is "fanngd" ? facebook, amazon, netflix and google?
Apple too 🍎. Faang

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Sun Jan 12, 2020 9:31 pm

I'm taking a break right now guys from answering responses to just write a bit... I think what this all comes down to is that for me, personally, it is very very hard to admit that I am not able to beat the market by investing in individual stocks... that is a very difficult thing for me to digest, and I just want to write about it for a bit, and explain why it's so hard for me to digest. You don't even have to read this, this is kind of just for my own therapeutic gain rather than adding any meaningful contribution to this discussion.

I have been self employed for the past 3 years. I am totally used to being in complete control of my financial destiny, and I am used to managing companies and other human beings and achieving a desired outcome, through time, effort, patience, and sacrifice. I have also played poker for many years and although I have lost money in the long run from playing poker (maybe like... $800?), during that time, I have held a belief that I have just now come to realize is STARKLY similar to the belief I have about the stock market right now.

This is the belief that I have:

It is possible to beat the market. It is possible, through time, patience, sacrifice, effort, and energy. It is possible, even though nearly everyone else who has tried to do it, has failed. I am able to do it, because I was able to run a successful business for 3 years. I can do it, because I am a smart, capable, hard working human being living in the 21st century with an unbelievable amount of tools and resources in the form of software and technology available that I can master and use to my advantage in order to beat the market. Everyone else who has tried to beat the market and failed, failed because they simply did not try hard enough. I will find those who have beat the market, and I will learn from them, so that I can beat the market, on my own.

Now, just reading this, I can tell you, it's EXACTLY the same belief that I had while I was playing poker, all the time. I always had this mentality at the poker tables - it's all in your head, don't give into the swings, it's about playing the player not the cards, the pros always win, if they can do it I can, etc etc etc. ALL my poker friends also told themselves this, yet somehow, after years of playing, we all were down money! Actually, I was down one of the LEAST! Out of everyone!

So, I think that the primary reason why it is SO damn hard for me to accept what must be true, is because I am so new to the world of investing. Simply put, I am so new, and I am watching the stock market day to day, because it fascinates me... I see in the "biggest movers" section of my app, that some stocks move so much as 30% or 40% in one day! That's so crazy!! I think to myself - "damn, if only I put all my 30k in there, I would have had a huge gain!! All I have to do is invest in ONE of these "ultra movers" when they move that much and I'll get rich!" If anyone is reading this, did you have these thoughts when you got into investing? Did you feel a pain in your chest when you realized that you "missed out" on a humongous gain from one stock or the other? Do you NOW not feel those pains, because you realize that in the long run, that kind of mentality will get you killed?

It is very, very, very hard for me to accept the fact that there is an astronomically low chance of me being able to beat the market due to SKILL (not chance). It feels exactly the same as the belief I held for those years at the card table. If everyone on this forum is correct, and every article I read online is correct, and it IS really that difficult to beat the market, then I would obviously, absolutely do best to heed the advice of them, and hold long term in an index like the S&P 500... it's just so damn hard to admit that...

Are my beliefs normal to a 27 year old completely new to the stock market? Have any of you ever held my same beliefs before? Thanks anyone who has read for this far.

dru808
Posts: 277
Joined: Sat Oct 15, 2011 2:42 pm

Re: Ready to invest in the stock market for the first time in my life

Post by dru808 » Sun Jan 12, 2020 9:58 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 9:31 pm
I'm taking a break right now guys from answering responses to just write a bit... I think what this all comes down to is that for me, personally, it is very very hard to admit that I am not able to beat the market by investing in individual stocks... that is a very difficult thing for me to digest, and I just want to write about it for a bit, and explain why it's so hard for me to digest. You don't even have to read this, this is kind of just for my own therapeutic gain rather than adding any meaningful contribution to this discussion.

I have been self employed for the past 3 years. I am totally used to being in complete control of my financial destiny, and I am used to managing companies and other human beings and achieving a desired outcome, through time, effort, patience, and sacrifice. I have also played poker for many years and although I have lost money in the long run from playing poker (maybe like... $800?), during that time, I have held a belief that I have just now come to realize is STARKLY similar to the belief I have about the stock market right now.

This is the belief that I have:

It is possible to beat the market. It is possible, through time, patience, sacrifice, effort, and energy. It is possible, even though nearly everyone else who has tried to do it, has failed. I am able to do it, because I was able to run a successful business for 3 years. I can do it, because I am a smart, capable, hard working human being living in the 21st century with an unbelievable amount of tools and resources in the form of software and technology available that I can master and use to my advantage in order to beat the market. Everyone else who has tried to beat the market and failed, failed because they simply did not try hard enough. I will find those who have beat the market, and I will learn from them, so that I can beat the market, on my own.

Now, just reading this, I can tell you, it's EXACTLY the same belief that I had while I was playing poker, all the time. I always had this mentality at the poker tables - it's all in your head, don't give into the swings, it's about playing the player not the cards, the pros always win, if they can do it I can, etc etc etc. ALL my poker friends also told themselves this, yet somehow, after years of playing, we all were down money! Actually, I was down one of the LEAST! Out of everyone!

So, I think that the primary reason why it is SO damn hard for me to accept what must be true, is because I am so new to the world of investing. Simply put, I am so new, and I am watching the stock market day to day, because it fascinates me... I see in the "biggest movers" section of my app, that some stocks move so much as 30% or 40% in one day! That's so crazy!! I think to myself - "damn, if only I put all my 30k in there, I would have had a huge gain!! All I have to do is invest in ONE of these "ultra movers" when they move that much and I'll get rich!" If anyone is reading this, did you have these thoughts when you got into investing? Did you feel a pain in your chest when you realized that you "missed out" on a humongous gain from one stock or the other? Do you NOW not feel those pains, because you realize that in the long run, that kind of mentality will get you killed?

It is very, very, very hard for me to accept the fact that there is an astronomically low chance of me being able to beat the market due to SKILL (not chance). It feels exactly the same as the belief I held for those years at the card table. If everyone on this forum is correct, and every article I read online is correct, and it IS really that difficult to beat the market, then I would obviously, absolutely do best to heed the advice of them, and hold long term in an index like the S&P 500... it's just so damn hard to admit that...

Are my beliefs normal to a 27 year old completely new to the stock market? Have any of you ever held my same beliefs before? Thanks anyone who has read for this far.
Yes, it’s normal, maybe it’ll take you winning in this market for a bit and realizing catastrophic losses in the mid term or underperforming for a bit. Who knows though? Maybe you’ll be one of the few that beats the market consistently.

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1789
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Re: Ready to invest in the stock market for the first time in my life

Post by 1789 » Sun Jan 12, 2020 10:01 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:08 pm
1789 wrote:
Wed Dec 25, 2019 12:23 pm
You can buy any of those and beat SP500 easily for a couple years. Problem is historical data (future maybe different) shows that over 25/30 years it is almost impossible to beat SP500. Investing in SP500 brings diversity of sectors and eliminates individual stock risks.

(....like Microsoft, AMD, Roku, Apple, Shopify, Mastercard, and so many others)

Lets assume you picked AMZN stock last year

AMZN YTD: 20%
SP500 YTD: 30%

You see the risk now?
Hey, thanks for the response and sorry for the delay!

Oh yea, when you put it that way it does seem harder to "beat the market"... my friend who worked on wall street for 8 years told me that if he were to invest in any one single stock, it would be amazon, but amazon didn't even beat the SP 500 last year! So I definitely get that it just "looks easier" than it actually is to pick winning stocks, haha...

What is your opinion on tech ETFs, and in particular, XLK? I am thinking of investing in that ETF because it looks like it has been beating the S&P 500 for a long time...

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Tech ETFs are good until they are not that good anymore. (aka: They are horrible) I am surprised to see historical performance of XLK came close to VTSAX. I was expecting XLK to under perform significantly. It is still lower than VTSAX (this fund is 80% SP500 and 20% small+mid caps). Why do you want to invest in this fund with double the risk and get matched return? Don't you think you need like +5% CAGR if you are taking more risk than market beta (ie: investing in VTSAX). Very hard to say which is a good tech fund if there is any. If you are serious about this you need something that was robust during dot com bust. This means, you probably don't have any :) I think you will get very good feedback for tech funds from the people who experienced dot com bust. I am not one of them but i work for a high tech company.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Re: Ready to invest in the stock market for the first time in my life

Post by HawkeyePierce » Sun Jan 12, 2020 10:28 pm

I would not consider Apple, AMD, Shopify, Nvidia and Microsoft "stable" companies. They only look stable if you limit yourself to the last couple years.

Apple nearly went under in the 90s. For a looooong time AMD was getting whooped by Intel. Microsoft nearly missed the internet and then stumbled heavily with the move to the cloud. Tomorrow Amazon could announce their Shopify killer.

Since the AMD IPO in 1985, $10000 invested in AMD would now be $31,628. The same amount invested in the S&P500 would be $315,169.

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Re: Ready to invest in the stock market for the first time in my life

Post by Mactheriverrat » Sun Jan 12, 2020 10:38 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:46 pm
Mactheriverrat wrote:
Wed Dec 25, 2019 2:12 pm
If your going to buy individual stocks , then you should have a system for buying them . Don't blindly follow financial advisers as they have their own agenda.

May I suggest Guppy Multiple Moving Average (GMMA) by Daryl Guppy .

His book trend trading https://www.amazon.com/Trend-Trading-se ... 0731400852
You can also find his book in PDF form by searching google - daryl guppy trend trading pdf-
You can download the whole book for free.

A great video that boils the GMMA to simple terms https://www.youtube.com/watch?v=kjfW2BaeldU

Now a lot of bogle heads don't trade stocks as they just rather invest in the buy , hold and forget John Bogle way of trading.
Hey, thanks for the response and sorry for the delay!

Oh wow, I will look at these links right now, first time I am hearing of this name... What do you personally think about this? Do you do this method (GMMA), or do you prefer to pick index funds like the S&P 500 and just set it and forget it? Cheers!
Well right now I only in my employer 401-k plan and I've pared down my holdings to just TRLGX and PMEGX. My plan is when I retire is to rollover to Vanguard and do the 2 or 3 fund portfolio. I do use GMMA in my making money of the side with picking stocks.GMMA is the best system I've found and come to use. Most bogleheads don't mess with daily stock trading as you have to be more on your game daily.
Everything evolves. | May Every Sunrise Bring You Hope. May Every Sunset Bring you Peace.

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Re: Ready to invest in the stock market for the first time in my life

Post by 1789 » Sun Jan 12, 2020 10:42 pm

HawkeyePierce wrote:
Sun Jan 12, 2020 10:28 pm
I would not consider Apple, AMD, Shopify, Nvidia and Microsoft "stable" companies. They only look stable if you limit yourself to the last couple years.

Apple nearly went under in the 90s. For a looooong time AMD was getting whooped by Intel. Microsoft nearly missed the internet and then stumbled heavily with the move to the cloud. Tomorrow Amazon could announce their Shopify killer.

Since the AMD IPO in 1985, $10000 invested in AMD would now be $31,628. The same amount invested in the S&P500 would be $315,169.


Excellent comments
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Re: Ready to invest in the stock market for the first time in my life

Post by DanFrancis » Mon Jan 13, 2020 1:48 am

It is harder to beat the market than you think! Start by investing in total stock market index or S&P 500. After you have 500k socked away, then take 5% out and buy individual stocks if you still think you can buy winning stocks from just googling it! BTW, everybody thought Boeing was going to be flying high...instead, down 5%! Some people make money fast from pork bellies and corn! (that's sarcasm in case it was lost in translation.)

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Re: Ready to invest in the stock market for the first time in my life

Post by retiredjg » Mon Jan 13, 2020 8:19 am

Noob, many people here have had the same thoughts you are having. Many people here have learned this the hard way. You can listen or you can learn the hard way as well. It's your choice.

The trouble with investing is that much of what seems logical is just wrong. A lot about investing is counter-intuitive...until you've been doing it long enough to see how it actually works.

Everybody here is telling you the same thing. Do not invest in individual stocks. Do not invest in sectors of the market (like tech). Invest in the entire market. Concentrate on how much you can save rather than how fast you can make money with what you have.

Investing really is all about saving and not doing stupid stuff. All you have to do is save money and avoid a few mistakes.

Stupid stuff includes stock picking, day-trading, trying to pick the hot sectors, etc. Once your portfolio is large and you are on track for a comfortable retirement, then you can take a little of your money and play with it. But don't play with anything you cannot afford to lose.

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Re: Ready to invest in the stock market for the first time in my life

Post by HawkeyePierce » Mon Jan 13, 2020 8:31 am

retiredjg wrote:
Mon Jan 13, 2020 8:19 am
Concentrate on how much you can save rather than how fast you can make money with what you have.
This is truly so important. Savings rate is something that a) investors can control and b) will have a bigger impact than returns anyways.

Focus on things within your control and let the market do whatever the market's going to do. We can't control it. Boosting your savings rate will certainly improve your long-term financial outlook. Taking on uncompensated risks has no such certainty.

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Re: Ready to invest in the stock market for the first time in my life

Post by geniekid » Mon Jan 13, 2020 9:34 am

It's important to remember that beating the market isn't just picking better performers - it's getting a better overall return, which includes tax considerations. Broad index based funds/ETFs tend to have relatively low turnover, and therefore relatively low capital gains realization. If you aren't holding your positions for over a year you'll need to do that much better to overcome short-term capital gains tax.

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Re: Ready to invest in the stock market for the first time in my life

Post by HeelaMonster » Mon Jan 13, 2020 10:52 am

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:21 pm
You know, that's so interesting, how you talk about the psychological reasons for believing one can "beat the market" even though no one else can... to be honest, that's exactly how I feel, haha! I'll be honest with you... I'm totally new to this world, and I can acknowledge that my feelings are probably coming from a place of naivety, but I still can't help to stop feeling them, haha... This reminds me a lot of something else - have you ever played poker? Texas holdem poker? I played that game for years, and in that game, stems a very similar philosophy or mindset - the mindset that "I can beat the house, because although this game is largely luck, there is still a great deal of skill involved" ... you know, one of the best arguments these poker guys like to use is - if poker is all luck, then how come the same 10 players show up to the final table each year in the world series of poker? It's a good argument, but it falls apart when you realize that those 10 players are exceptionally gifted, mastermind players, one in a million, and even the extremely good veteran poker player wouldn't come close to them... maybe in the same sense, there are a few, small number of people who can consistently trade individual stocks and beat the market over and over again, and those people are just mental freaks of nature that no one else can even come close to.. would you agree with that comparison?
First of all, it's great that you are asking questions, reading, and learning. That bodes well. It's also a good sign that you have enough self-awareness to be thinking about and acknowledging your personal philosophy/mindset; not everybody is built (or thinks) the same way.

I was just coming here to make an analogy, as I read through page 1, and now I see that you did it for me! GAMBLING is a good analogy for investing in individual stocks, both in terms of likelihood of success and the behavior of the gambler/investor. You may win occasionally at games of chance (or picking individual stocks), but over the long haul, the house (or broad market) always wins. Someone above referenced play money, and that means money you could afford to lose. That brings us to mindset: some people can go to a casino with $1000, and when they lose that (as the odds suggest they will), walk away and consider it the cost of the evening's entertainment. Others will tell themselves that the next hand will turn things around, and keep going back for more chips, digging an ever deeper hole. The former (chalk it up and walk away) are mentally equipped to gamble and/or invest in individual stocks, and not get themselves in trouble. The latter (always one hand away from the big winner) should probably stay away from casinos and individual stocks.

Keep reading and learning, and you'll do fine.

[Disclosure: I am speaking as someone who started out chasing individual stocks, but now have a portfolio chalk full of low-cost index funds, which have done much better with much less attention and much less stress. I just wish it hadn't taken me so long to learn those lessons and make that transition, but Bogleheads didn't exist back then!] 8-)

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Re: Ready to invest in the stock market for the first time in my life

Post by Keenobserver » Mon Jan 13, 2020 11:10 am

I know many people who tried beating the market, had some lukcy runs but they were short. Tou cant keep getting lucky. You can buy and hold a single stock, hoping thst it will moon and make you rich overnight. It can happen, however, its the same as playing the lotto. Dont call it investing.

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Re: Ready to invest in the stock market for the first time in my life

Post by DesertDiva » Mon Jan 13, 2020 11:47 am

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:21 pm
DesertDiva wrote:
Wed Dec 25, 2019 1:10 pm
Many people believe they can beat the markets or develop some kind of secret process to produce above-average returns. They may realize that many before them have failed, but they still believe it won’t happen to them. “This time it will be different.”

The problem is that no one can predict the future. Any individual stock can suffer severe losses. Look at what’s happening to FedEx right now. All is takes is a negative headline, a management misstep, loss of competitive advantage, etc, and the downfall to an individual stock can be sudden and swift. Indexing removes the shock of these events and stabilizes your portfolio.

You need to learn more about Indexing. Go to the “amazon” link at the top of this page. Read Bogle’s book carefully. Then read “The Bogleheads’ Guide to Investing”. This approach may not give you the adrenaline-rush you are seeking, but it will give you a solid, disciplined approach to managing your investments.
Hey, thanks for the response and sorry for the delay!

You know, that's so interesting, how you talk about the psychological reasons for believing one can "beat the market" even though no one else can... to be honest, that's exactly how I feel, haha! I'll be honest with you... I'm totally new to this world, and I can acknowledge that my feelings are probably coming from a place of naivety, but I still can't help to stop feeling them, haha... This reminds me a lot of something else - have you ever played poker? Texas holdem poker? I played that game for years, and in that game, stems a very similar philosophy or mindset - the mindset that "I can beat the house, because although this game is largely luck, there is still a great deal of skill involved" ... you know, one of the best arguments these poker guys like to use is - if poker is all luck, then how come the same 10 players show up to the final table each year in the world series of poker? It's a good argument, but it falls apart when you realize that those 10 players are exceptionally gifted, mastermind players, one in a million, and even the extremely good veteran poker player wouldn't come close to them... maybe in the same sense, there are a few, small number of people who can consistently trade individual stocks and beat the market over and over again, and those people are just mental freaks of nature that no one else can even come close to.. would you agree with that comparison?

Also, about indexes - what do you think about dumping all my money into XLK? the tech ETF?
I'm a card player, however my game of choice is not poker :happy

The XLK ETF has a better expense ratio than an actively managed fund, however, I don't like the idea of putting all my eggs into a single sector. An S&P 500 fund has the advantage of 1) having the lowest expense ratios around (and I believe that costs matter), and 2) sector diversification. About 20% of its holdings are in technology, plus it benefits from holdings in other important sectors -- financial services, healthcare, real estate, utilities, etc. Back in the late 90's, the Munder NetNet fund was the hot fund to own until the dot com bust came along. Although a technology fund may not suffer the same outcome, and it has had a great run, we all know that past performance doesn't guarantee future results.

Regarding single-sector plays, Bogle said it best in "The Little Book of Common Sense Investing":
While investing in particular market sectors is done most efficiently through index funds, betting on one winning sector and then another is exactly that: betting. But betting is a loser's game.

Why? Largely because emotions are almost certain to have a powerful negative impact on the returns that investors achieve. Whatever returns each sector may earn, the returns of investors in those very sectors will likely, if not certainly, fall well behind them. There is abundant evidence that the most popular sector funds of the day are those that have recently enjoyed the most spectacular recent performance. As a result, a strategy of trading based on after-the-fact popularity is a recipe for unsuccessful investing.

When trying to pick which market sector to bet on, look before you leap. It may not be as exciting as gambling, but owning the traditional stock market index fund at rock-bottom cost is the ultimate strategy... Avoid complexity and rely on simplicity and parsimony, and your investments should flourish.

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Re: Ready to invest in the stock market for the first time in my life

Post by wolf359 » Mon Jan 13, 2020 12:26 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:28 pm
bertilak wrote:
Wed Dec 25, 2019 1:19 pm
The S&P500 return is the average of all the stocks that make up the S&P500. There will always be about half of those stocks that are above average and about half below average. Which is which is easy to determine looking backwards, but impossible to determine looking forwards.

The fallacy is thinking the backward look is the same as the forward look.
Hey, thanks for the response and sorry for the delay!

Ugh, you know to be honest I really hate reading these answers!! Haha... I want to read just one answer that says, "Yes, you can beat the market, screw the boring advice, you can swing trade/day trade/whatever and beat the market with effort and energy and practice"... it just seems counter-intuitive to say that you can make more money doing the EASIEST thing (holding SP 500) than you can doing the HARDEST thing (trading stocks)... bare with me guys, I'm new and it's very hard for me to hear this kind of advice from legitimate forums like this one
Think of it this way -- would you play a pick up game of tackle football where everyone else playing is a professional football player for the NFL, and you've personally put $1,000 on the line? Who do you think is going to win, you or them? Are you going to get out with your money intact? Have you seen the size of those guys, or what they're capable of?

You're proposing to put yourself against professional stock traders who do this all day long, have the best computer systems money can buy, pay for the best executions due to volume, backed by research from the smartest analysts they can afford on an institional budget, and have the money and resources to wait out any market downturns. Who do you think is going to make better market predictions, you or them? Do you know something that they don't know? More specifically, do you know that something that they and all the other professionals on the market do know, is wrong?

If you throw money into an individual stock and you lack any special insight or do any research, you might well make money. In fact, you might make a lot of money. But don't fool yourself -- it'd be due to luck. Picking stocks because you've heard of them or have a feeling isn't investing, it's gambling.

I did start out my investing by putting money into individual stocks. I even beat the market for more than a decade. Then I ran into the tech bubble buzzsaw. All my gains evaporated. In fact, I learned that individual stocks can go to zero (out of business.) I was pretty good at picking stocks that would go up. I was not so good at knowing when to exit. The best stocks were the ones to buy and hold. But if you hold onto the wrong ones, you can lose everything.

When I discovered index investing. I just accept market returns. Most active investors can't beat the market, so I outperform most active investors. It seems almost magical to me. If you're constantly feeding a healthy savings rate into an index, and never withdrawing, the balance just grows and grows. Make an investor policy statement, and write out your investing plan. Stick to it.

If you want to try it with individual stocks, write a prediction for a specific stock with the current date and price. The next year, see how you did, comparing your returns to your actual index portfolio. (Keep in mind that everybody's a genius during a bull market). If your stock picks hold up after a 20% decline, then you might have a skill. Set up a play account involving no more than 10% of your portfolio.

Alternately, play with http://stockchoker.com. This site lets you see what would have happened if you really had invested $X on any given date. Don't forget to pursue EVERY idea you thought of, not just the ones that you know did well. Yes, this works for mutual funds as well as individual stocks.

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Re: Ready to invest in the stock market for the first time in my life

Post by arcticpineapplecorp. » Mon Jan 13, 2020 5:59 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:38 pm
That's the second time someone here has brought up reversion to the mean... so by that rationale, if I wanted to invest in a tech ETF, like XLK, because I see that XLK has had excellent growth last year (2019), would I be potentially walking into a trap, because, according to reversion of the mean, XLK should be more likely to UNDERperform this next year (2020) since it did so good in 2019? Is all that correct?

If that is all correct, would I then, therefore, just do best by putting everything into the S&P 500, like VOO?
since you're taking a break, you might not read this, but here goes anyway:

1. the problem is you don't know when things will revert. Case in point, for many years now people have been saying the market is due for a significant downturn. Yet the market has gone higher since then. Sometimes stocks can go up (or down) longer than you might think.

2. individual stocks can go to zero. market's have generally bounced back, because stocks that go bust are replaced with other newer stocks that create value.

So yes, you'd probably do best just putting everything into a total market (however you define that. The S&P500 is not the total market, but rather around 80% of the total U.S. market).
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Ready to invest in the stock market for the first time in my life

Post by climber2020 » Tue Jan 14, 2020 4:19 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:12 pm
but in all seriousness, I was actually looking at tech ETFs, in particular, XLK... what do you think of that? XLK has outperformed VOO for a crazy long time... would I do well to just "dump everything in" to XLK?
Sorry for the delay. Didn't see this until now.

I'm not very knowledgeable about individual sectors and would probably choose poorly even if I did, so my stock funds consist of one total US fund and one total international fund.

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Re: Ready to invest in the stock market for the first time in my life

Post by 2marshmallow » Tue Jan 14, 2020 8:01 pm

NoobInvestor123 wrote:
Sun Jan 12, 2020 9:31 pm
I'm taking a break right now guys from answering responses to just write a bit... I think what this all comes down to is that for me, personally, it is very very hard to admit that I am not able to beat the market by investing in individual stocks... that is a very difficult thing for me to digest, and I just want to write about it for a bit, and explain why it's so hard for me to digest. You don't even have to read this, this is kind of just for my own therapeutic gain rather than adding any meaningful contribution to this discussion.
...
Are my beliefs normal to a 27 year old completely new to the stock market? Have any of you ever held my same beliefs before? Thanks anyone who has read for this far.
Reminds me of when I was fresh out of college in the 80's and had accumulated a few bucks. Read the magazines (no internet of course), talked to knowledgeable people, etc. Thought I could beat the market, but it didn't work out that way. Over the next 10 years or so I lost 100's of $K compared to just buying the market.

You know what I would suggest? You take most of your money and put it in the conservative portfolio, a-la BH. But you dedicate a certain percentage (you decide) to play with. I think the amount you play with should be somewhat substantial, so the decisions you make have some impact. Try to beat the market, see how you do.

Good luck!

2m

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Re: Ready to invest in the stock market for the first time in my life

Post by hightower » Tue Jan 14, 2020 8:23 pm

NoobInvestor123 wrote:
Tue Dec 24, 2019 10:30 pm
Hello awesome people of the internet,

I am starting my stock market investing journey very soon and wanted to share my overall thoughts and a few questions I had about what I learned before actually getting my feet wet investing stocks. I'll jump right into it:

I read over and over from many different sources that the vast majority of people (and CERTAINLY beginners) would do best to simply invest everything in the S&P 500 and wait as long as possible instead of investing in individual stocks and trying to "time the market". But, well, to be honest, I have doubts about this advice... last year, the S&P 500 had a return of about 35%... looking at a few stocks that are majorly popular and recommended by financial advisers (like Microsoft, AMD, Roku, Apple, Shopify, Mastercard, and so many others, you can literally just google "best stocks" to find them), their 2019 performance looks amazing! They had returns that absolutely crushed the S&P 500's 35%! Most of them were over 100%... Investing in any one of those single stocks ALONE would have yielded substantially higher returns than the S&P 500.

Here's my question: is me doubting this advice (that its best for noobs to invest in S&P 500 rather than individual stocks) coming from a place of naivety? Is it actually in reality a LOT harder to "beat the market" then I think it is? Is what I am doing right now (cherry picking individual stocks that had great performance last year and then expecting they'll have great performance next year) a recipe for disaster? Would I do best to simply invest everything in the S&P 500 like everyone is saying, even though I feel like I can do so much better with those few stocks mentioned above?

Thanks for any insight!
Remember that hindsight is always 20/20. Which stocks will perform best this year? Are you willing to bet your entire life's savings on guessing which will perform best this year? What about which will perform best over the next 20-30 years? Past performance doesn't guarantee future returns. At least with index funds you're guaranteed to get what the market returns, which for the last 100+ years has been pretty darn good. It's a lot easier for me to make a bet on a 100+ year stock market history, then it is to make a bet on a company that's only been around for 15 years or so (Facebook for example). But, too each his/her own. Our index funds depend on people making bets on companies, so if you want to play that game you won't be alone, go for it:)

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Re: Ready to invest in the stock market for the first time in my life

Post by Elena » Fri Jan 17, 2020 11:28 am

NoobInvestor123 wrote:
Sun Jan 12, 2020 8:50 pm
Elena wrote:
Wed Dec 25, 2019 2:55 pm
Behavioral question for your class:
You invest $25,000 in whichever stock or mutual fund. It does not matter. Within a week, portfolio value drops to $3,000. What would you do?
I know you directed this at macheta, but I would say... buy more?
That would be an indicator of investor behavior. Could you actually do it? Some people know the theory but cannot stomach the action. I think that is when the value of robo advisors and automation kicks in.

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Re: Ready to invest in the stock market for the first time in my life

Post by langlands » Fri Jan 17, 2020 12:43 pm

I'm going to go against the grain and say you don't have to put it all in index funds and you should give stock picking a shot. You seem pretty level-headed with a good attitude, and I'm sure you'll learn quick. I'm not saying you'll definitely succeed at stock picking, but just saying that something you posted above resonated with me: If you never try at it, you'll never know if you can do it. To me, there are good reasons to believe that a diligent and savvy individual investor could beat the market in the long term. I do not suggest "swing trading" or short term trading of any kind, as I'll explain in a second. The odds of that succeeding are much much smaller than long-term investing in individual stocks.

Before buying a single individual stock, you need to learn a few basic concepts about finance, one of the most important being the notion of arbitrage. Arbitrage is the mechanism by which markets are kept reasonably efficient. Arbitrage refers to taking advantage of mispricings in the market to make a near riskless profit.

The most obvious form of arbitrage is straight up mispricing of single securities- AAPL shares are cheaper on one exchange than another, so you simultaneously buy AAPL shares on the cheaper exchange and sell on the more expensive one, pocketing the spread. A lot of HFT (high frequency trading) firms do this kind of thing. It is impossible for a retail investor to compete in this domain since it requires extremely optimized low-latency code coupled with extremely optimized low-latency hardware and trades occur on the order of nano-seconds. These are extremely high Sharpe strategies (some HFTs don't have a single losing day).

At a larger temporal scale on the order of minutes/hours/weeks live the statistical arbitrage hedge funds who take advantage of short term statistical mispricings across thousands of stocks to make an "almost" riskless profit. The idea is that you're placing thousands of independent bets across stocks, so by the law of large numbers you'll come out ahead the vast majority of the time. These are fairly high Sharpe strategies and the good stat arb firms don't have losing years. Finally, on the scale of about a year, you have all the actively managed funds (mutual funds, AQR etc.).

Allocations deviating from total stock market is a zero sum game. For every person overweight large cap stocks and beats the market, there must be a person underweight large cap stocks and underperforms the market. You need to think about your comparative advantage- why should it be possible for me, a single individual to deviate more successfully than the myriad of financial professionals doing it for a living? The disbelief that this is possible is the main impetus for suggesting index funds. But if you are determined to do it, the next step is to determine where you have an edge. I hope it's clear that your edge is not in short term trading. Rather, your edge is in the length of your investment horizon and the fact that you're not accountable to anyone. Almost all hedge funds have to report on an annual basis, and this kind of short term review makes it impossible for them to take the truly long term view. This is all a long-winded way of saying that the way to succeed with individual stocks is to do it the Warren Buffet way of finding businesses you believe in and holding onto their stocks as long as you believe in the underlying business. Whenever you think you've found an edge in the market, you need to ask yourself why it is that all the professionals out there haven't found it either. If you can answer this credibly, it could be a worthwhile investment.
Last edited by langlands on Fri Jan 17, 2020 12:49 pm, edited 3 times in total.

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Wiggums
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Re: Ready to invest in the stock market for the first time in my life

Post by Wiggums » Fri Jan 17, 2020 12:45 pm

Let us know what you decided and how you are doing.

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NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Thu Jan 23, 2020 4:47 am

Hey guys,

WOW, so sorry for the delay again... I was just in the states for the last month to see my friends and family but I actually live in the Philippines normally and I just got back here after being crazy busy with seeing my friends for the past two weeks... phew! Just got a moment to settle down

Wow, I really appreciate this community... I never expected that I would get so many awesome answers here from complete strangers! It really restores my faith in humanity, haha...

I'm just going to defrost some fish and answer all the individual replies as soon as it's done cooking... thanks so much everyone!!! :D :D :D

ukbogler
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Re: Ready to invest in the stock market for the first time in my life

Post by ukbogler » Thu Jan 23, 2020 6:41 am

NoobInvestor123 wrote:
Thu Jan 23, 2020 4:47 am
Hey guys,
...

I'm just going to defrost some fish
Thanks for the update. As a noob, you should definitely sink all your money into this guy's fund - https://michaelritger.com





(not)

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Thu Jan 23, 2020 7:15 am

Wiggums wrote:
Wed Dec 25, 2019 10:18 pm
NoobInvestor123 wrote:
Tue Dec 24, 2019 10:30 pm
Hello awesome people of the internet,

I am starting my stock market investing journey very soon and wanted to share my overall thoughts and a few questions I had about what I learned before actually getting my feet wet investing stocks. I'll jump right into it:

I read over and over from many different sources that the vast majority of people (and CERTAINLY beginners) would do best to simply invest everything in the S&P 500 and wait as long as possible instead of investing in individual stocks and trying to "time the market". But, well, to be honest, I have doubts about this advice... last year, the S&P 500 had a return of about 35%... looking at a few stocks that are majorly popular and recommended by financial advisers (like Microsoft, AMD, Roku, Apple, Shopify, Mastercard, and so many others, you can literally just google "best stocks" to find them), their 2019 performance looks amazing! They had returns that absolutely crushed the S&P 500's 35%! Most of them were over 100%... Investing in any one of those single stocks ALONE would have yielded substantially higher returns than the S&P 500.

Here's my question: is me doubting this advice (that its best for noobs to invest in S&P 500 rather than individual stocks) coming from a place of naivety? Is it actually in reality a LOT harder to "beat the market" then I think it is? Is what I am doing right now (cherry picking individual stocks that had great performance last year and then expecting they'll have great performance next year) a recipe for disaster? Would I do best to simply invest everything in the S&P 500 like everyone is saying, even though I feel like I can do so much better with those few stocks mentioned above?

Thanks for any insight!
Welcome to the forum

I invest in the three fund portfolio.

Individual stocks carry additional risk and therefore the potential for a bigger reward. I don’t hold individual stocks any longer because I wound trade them too often and either lose money or generates taxable events. I’m sure you don’t mind watching Apple go from 142 to 284 this year. How about the other direction? Are you going to sell or hold on?
hey, thanks for the response and sorry for the delay!

I'd like to think that I would continue to hold apple in that situation, but I could not say for sure, haha... oh yes, I know about how when a stock is traded over a period of less than one year, it is taxed at the income level (like around... 33%?), and when it's held for longer than one year, it's taxed as capital gains tax... I can definitely see that it's better to hold long term than try and short term trade! haha...

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NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Thu Jan 23, 2020 7:17 am

Stef wrote:
Thu Dec 26, 2019 5:18 pm
What if you never lose money but underperform the market substantially?
Well, that would suck! Haha... I think if I did that, then I would learn my lesson (or at least, I hope, haha...)

Topic Author
NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Thu Jan 23, 2020 7:19 am

KingRiggs wrote:
Thu Dec 26, 2019 5:24 pm
Or even worse than losing money or lagging the market, say you DO beat the market in 2020 with individual stock picks. That might well lead you to believe that it’s always easy to do (as easy as a Google search!).

You will spend the next several years chasing that dream again, sure enough that you did it once, so you can do it again...

There are thousands of people who do this every day for a living, with huge amounts of information and resources at their disposal. And 80% of them don’t beat the market consistently. Are you better at their jobs than they are?
hey, sorry for the insane delay! Yea actually, over the past month or so since I made this post, I've been thinking more about it, and I think I'm actually coming to my senses a bit... actually, I have a new thing that I am interested in... I will just make the next post in this thread about all my new thoughts that I've had, thanks so much

theplayer11
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Re: Ready to invest in the stock market for the first time in my life

Post by theplayer11 » Thu Jan 23, 2020 7:24 am

I will tell you what I told me 23 year old just starting out.. invest all you can in low cost index funds such as the total stock market(Vanguard VTSAX or the ETF VTI). Don't listen to your friends who will be telling you of the next best stocks that are must buys. With the total stock market you will own over 2,500 stocks, so you will have a piece of everything out there.

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NoobInvestor123
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Re: Ready to invest in the stock market for the first time in my life

Post by NoobInvestor123 » Thu Jan 23, 2020 8:01 am

Hi guys, I just realized I should update you in an original comment about what has changed with me over the past few weeks... well basically, I think I grew out of that phase that I was in! Hahaha... or at least, I think that I'm coming to understand just how volatile some stocks are, and how some can go "poof" into thin air... for example, one stock, Rite Aid, that I was thinking of investing in a while ago because of it's insane recent growth, went literally 25% down the DAY that I had planned to invest in it! When that happened, it kind of shook me, but in a good way... I thought to myself, oh my god, if I had put in my money in there, I would have lost a quarter of it, in one single day... this happened with a few other stocks that I was observing over the course of the past month or so, and each time some stock I was looking at went down, it made me realize just a little bit more how investing in stocks is really, truly a volatile game in the long run.

So... I did some thinking (!) and I decided actually, to invest 10k into this ETF: XLK! I decided to invest in that ETF because my friend who worked on wall street looked into that ETF a bit for me and told me essentially that it was "more risky than an S&P 500 ETF, but that if I was ok with taking a little bit extra risk to get a little bit extra potential gains, that I should go for it", and well, I went for it, haha... I think actually, that this ETF is really a fairly safe investment right now in 2020... would I be wrong to assume that? This ETF looks like its outperformed the S&P 500 consistently for many years now, and the expense ratio is super low (just 0.13%)... oh, for those who don't know, this ETF is just one of the popular ETF's tracking specifically the technology sector of the market.

So I invested 10k into this ETF about 10 days ago and it's made about $200... so now, I'm almost up a grand in total (before taxes haha) since investing in those individual stocks.

So now, for anyone who's reading, my portfolio is:

AMD - 30 shares
Apple - 5 shares
Shopify - 4 shares
Microsoft - 10 shares
Nvidia - 6 shares
XLK (the Tech ETF) - 100 shares

Ok... so this brings me to my next point... I know that you guys might not approve of this sort of thing, but I've been looking at leveraged ETFs, and I've been reading a lot about them... I am now 80% of the opinion that I do not want to chase individual stocks, since I saw what happened to those other stocks I've been tracking over the past month... now, I am thinking more about investing into leveraged ETFs... now I know that this opinion may not be popular here, but just hear me out, and if you still have to shoot down my dreams afterwards, then go ahead, I can take it, hahaha...

This is my plan - I know that leveraged ETFs track various sectors at a 2x or 3x exaggeration... and also that leveraged ETFs "reset" on a DAILY basis... and also that leveraged ETFs have the possibility of getting completely wiped out if whatever sector it's tracking dips 50% or 33% in a day (for 2x and 3x leveraged ETFs, respectively) - but just hear me out - I also know about stop losses, and I was thinking about investing in leveraged ETFs with added stop losses. So this is what I was thinking - I'm going to use the leveraged ETF "TQQQ" as an example for this (this is a 3x leveraged ETF that tracks the Nasdaq)... looking at TQQQ, it hasn't gotten completely wiped out (or even close to completely wiped out) at any point in it's entire history, so as to the argument that you should not invest in leveraged ETFs because they can completely wipe out your investment, in this case I am more than OK with taking this risk, as TQQQ hasn't even come close to getting wiped out since it began in 2010.

There is another argument I have come across as a reason not to touch leveraged ETFs - being that although the gains are amplified 3x, the losses are as well. Now this is where I am thinking (very much in beta phase of this plan, by no means final) of using stop losses - I plan to do something to the effect of including a stop loss in my order that I can update on a daily basis, which TRAILS a certain percentage underneath the CURRENT price of TQQQ, at all times. How high or low that percentage is can be determined simply by my appetite for risk - just starting out, I am sure I would not want it to be above 5%, as I am not sure I could stomach a loss of 5% in a single DAY yet... but perhaps, maybe after a few months of seeing my money go up and down wildly, I would be able to stomach it.

Now the way that I see this unfolding is as follows - TQQQ has, by default, more or less mimicked QQQ (the non-leveraged Nasdaq ETF) simply by a factor of 3x - that is to say, over long periods of time, TQQQ is just as likely to yield positive gains as QQQ is (unless I'm missing something). Using stop losses with TQQQ seems like it would be a very safe bet to me... hell, I could even go safer and just do an S&P 500 3x leveraged ETF (because the S&P 500 is less volatile than the Nasdaq if I'm correct), also with stop losses that trail just below the current price.

Phew! Man it's hard to explain these things... hopefully I've done a good job and you all can understand me. But yea... so if my plan is totally filled with holes in it that I didn't see, I'm all ears, hahaha...

And just wanted to say guys thanks so much for all your help and insight with this, it is really awesome to find communities like this... hope you're all having a great day!! :sharebeer

retiredjg
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Re: Ready to invest in the stock market for the first time in my life

Post by retiredjg » Thu Jan 23, 2020 8:18 am

NoobInvestor123 wrote:
Thu Jan 23, 2020 8:01 am
Phew! Man it's hard to explain these things... hopefully I've done a good job and you all can understand me. But yea... so if my plan is totally filled with holes in it that I didn't see, I'm all ears, hahaha...
It appears you are not yet finished going through your gambling phase. :(

This is not investing. When you do get interested in investing, this site will be an excellent place for you to learn. Hope you don't loose too much before coming to your senses. :?

EthanAllen
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Re: Ready to invest in the stock market for the first time in my life

Post by EthanAllen » Thu Jan 23, 2020 8:22 am

Greater than 50% chance this is all flame. This guy knows about 3x leveraged ETFs and sector ETFs and trading with stop losses but is supposedly blown away by simple concepts like past performance not predicting future results? He is overjoyed about “winning” $200 but is also day trading Tesla? Color me skeptical about this whole thread.

By the way, no transaction costs? How were you day trading a few thousand bucks from the Philippines?

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