Have you worked in a team? A team may contain people with different set of skills. Each one of them bring a unique value to the effective functioning of the team. Same goes with stocks. You need to build a portfolio that has a "mix" of stocks from different market segments. That way, if one of those segments is adversely affected, the other stocks can still continue to do good. Portfolio is all about minimizing risk and diversification. During tough times, diversification really helps.
Let us take for example you've invested all your money in Semiconductor business. If a market analyst predicts that the "semiconductor market" is going to be really dull for the next few years, your investment would loose its value all of a sudden. On the contrary, if you have built a diversified portfolio spanning tech, energy, finance, commodities etc., your investment value would not be eroded.
Building a diversified portfolio is like constructing multiple strong pillars/columns for a multi-storied building. Even if one of them goes bad, the others would be holding the structure. It would give you enough time to repair or replace the bad columns.
Monday, October 27, 2008
Buy/Sell Stocks in increments
Do you think you are good at predicting the market? If you really can, you may not be reading this blog. You may be spending your time in the beaches of Hawaii, giving yourself an early retirement. Yes. You should be a billionaire by now, if you can really predict the market peaks & bottoms. But, the reality is ... most of us are not good at predicting the market. So, what should you do if you are an investor? When should you really invest? What is the strategy you should follow?
Say, for example, you have $5000 to invest in stocks. You wake up one fine morning and dump all the money into a stock. The next day, the stock value drops by 10%, the following day it drops by another 10%... what would you do? You keep hitting the "Refresh" button several hundred times a day for the price to come up.
Let me propose a strategy for you. This has worked for me. If you have $5000 to invest, buy stocks for $1000. Wait for a week or a month (depends upon whether you are a long term or a short term investor). See if the stock continues to hold its value. You can throw another $1000 into the same stock after some time. If the stock keeps going up, it is well and good. If the stock lost some value, it is a nice opportunity for you to average out. The drawbacks of this approach is
(a) you may have to pay the broker for each trade that you make. However, the price that you pay is very very less when compared to the loss that you would've encountered if the stock were to drop 5 or 10% of its value.
(b) occassionally, you may have to miss some opportunities. Especially, when a stock goes up by 10% or so every day. But, such opportunities show up only very rarely. You shouldn't be too greedy :)
The same strategy would also work when selling stocks. Sell in portions instead of selling all of them in one go.
Always, Buy or Sell in increments.
Say, for example, you have $5000 to invest in stocks. You wake up one fine morning and dump all the money into a stock. The next day, the stock value drops by 10%, the following day it drops by another 10%... what would you do? You keep hitting the "Refresh" button several hundred times a day for the price to come up.
Let me propose a strategy for you. This has worked for me. If you have $5000 to invest, buy stocks for $1000. Wait for a week or a month (depends upon whether you are a long term or a short term investor). See if the stock continues to hold its value. You can throw another $1000 into the same stock after some time. If the stock keeps going up, it is well and good. If the stock lost some value, it is a nice opportunity for you to average out. The drawbacks of this approach is
(a) you may have to pay the broker for each trade that you make. However, the price that you pay is very very less when compared to the loss that you would've encountered if the stock were to drop 5 or 10% of its value.
(b) occassionally, you may have to miss some opportunities. Especially, when a stock goes up by 10% or so every day. But, such opportunities show up only very rarely. You shouldn't be too greedy :)
The same strategy would also work when selling stocks. Sell in portions instead of selling all of them in one go.
Always, Buy or Sell in increments.
Sunday, October 19, 2008
Are you a trader (or) investor?
There are lots of differences between 'trading' & 'investing' in stocks. Traders (typically short-term focused) time the market, they act based on news, they don't look at fundamentals of a company. All they look for, is a quick entry and exit. They try to ride through the waves. Investors look at long-term fundamentals of the company. An investor has lots of patience. An investor is more disciplined than a trader. How many 'traders' become famous in history? But, Warren Buffet, a veteran investor is continuing to make his mark.
Are you a trader (or) a investor?
Chicago Trip
Oct 10th 2008
We had a chance to spend a day in Chicago on our way to New Hampshire. We took a Southwes
t flight from SJC to MDW airport. Southwest had good deals for SJC -> MDW. The flight reached MDW airport at around 1 pm and it was 2.30 pm, by the time we reached Super 8 Motel close to the MDW airport. We were lucky enough to get a free upgrade of rental vehicle from Hertz. The vehicle also had a navigation device. All the car rental facilities are inside the Airport and it was so convenient. Most of the rental facilities were open late in the night (even at 2 pm).
We spent the whole day in the downtown area. The city is very beautiful. The downtown is garlanded by Lake Michigan. The
downtown appeared to be busy with lots of financial institutions. You could see people from diverse cultural background. The downtown was clean & also safe for tourists. I didn't see 'strange' folks along the road side. We visited Sears Tower, the second tallest building in North America. We then went to see Union Station, one of the oldest train stations in US. A trip to Chicago wouldn't be complete without visiting the Millennium Park. I was amazed & surprised to see the Millennium Park. The park is in the heart of the city downtown area. It was very crowded even on a working day. You could see school tour groups, tourists, people having their lunch, people who are submerged into their novels/study materials & people who are sitting there and just relaxing. The "Bean" in the park carries the beautiful reflection of some of the nearby downtown buildings. The park also has dining and parking facilities.
The parking in Millenium Park was relatively cheap (they charge about $18 for 8 hours) when compared to the other nearby parking facilities. We then walked around in the downtown. I saw lots of buses in the Chicago downtown. If you want to spend a few days in the downtown area, you don't even have to rent a car. You can complete your trip with just the public transportation services. Driving in Chicago downtown wasn't very tough (unlike New York
downtown, which requires a bit more driving skill & extra alertness).
We took a 90 minutes ferry tour, organized by the Chicago Architectural Foundation group. We sailed Lake Michigan to see some of the downtown buildings & the Navy Pier. There are several tour operators near the Michigan Avenue bridge. This tour costed about $22 per person and I felt that it was worth it. There were 100s of people who took this tour every hour. We left the downtown area by around 5.30 pm and drove back to our hotel. We wanted to see the Buckingham Fountain but didn't have the time to do it.
Overall, the trip to Chicago was very peaceful and relaxing.
Chicago Trip Planner
We had a chance to spend a day in Chicago on our way to New Hampshire. We took a Southwes
t flight from SJC to MDW airport. Southwest had good deals for SJC -> MDW. The flight reached MDW airport at around 1 pm and it was 2.30 pm, by the time we reached Super 8 Motel close to the MDW airport. We were lucky enough to get a free upgrade of rental vehicle from Hertz. The vehicle also had a navigation device. All the car rental facilities are inside the Airport and it was so convenient. Most of the rental facilities were open late in the night (even at 2 pm).We spent the whole day in the downtown area. The city is very beautiful. The downtown is garlanded by Lake Michigan. The
downtown appeared to be busy with lots of financial institutions. You could see people from diverse cultural background. The downtown was clean & also safe for tourists. I didn't see 'strange' folks along the road side. We visited Sears Tower, the second tallest building in North America. We then went to see Union Station, one of the oldest train stations in US. A trip to Chicago wouldn't be complete without visiting the Millennium Park. I was amazed & surprised to see the Millennium Park. The park is in the heart of the city downtown area. It was very crowded even on a working day. You could see school tour groups, tourists, people having their lunch, people who are submerged into their novels/study materials & people who are sitting there and just relaxing. The "Bean" in the park carries the beautiful reflection of some of the nearby downtown buildings. The park also has dining and parking facilities.
The parking in Millenium Park was relatively cheap (they charge about $18 for 8 hours) when compared to the other nearby parking facilities. We then walked around in the downtown. I saw lots of buses in the Chicago downtown. If you want to spend a few days in the downtown area, you don't even have to rent a car. You can complete your trip with just the public transportation services. Driving in Chicago downtown wasn't very tough (unlike New York
downtown, which requires a bit more driving skill & extra alertness).We took a 90 minutes ferry tour, organized by the Chicago Architectural Foundation group. We sailed Lake Michigan to see some of the downtown buildings & the Navy Pier. There are several tour operators near the Michigan Avenue bridge. This tour costed about $22 per person and I felt that it was worth it. There were 100s of people who took this tour every hour. We left the downtown area by around 5.30 pm and drove back to our hotel. We wanted to see the Buckingham Fountain but didn't have the time to do it.
Overall, the trip to Chicago was very peaceful and relaxing.
Chicago Trip Planner
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