What is your school of thought for investing?

Question

Currently, I am reading two books on investing of opposite strategies. On one hand, I am reading Jim Cramer's Real Money book where he believes the market is not 100% efficient and there is money to be made that beats the indexes by a decent return. Year after year, these are found in the small cap, less discussed stocks.

On the other hand, I am reading "A Random Walk Down Wallstreet," which discusses investing behavior and how people through the centuries have been burnt by "castles in the sky." This book recommends value investing the Warren Buffet way in ETF's, etc.

Warren Buffet said in his 2005 letter (paraphrased), "Investors have had a string of good returns but have learned any number multiplied by zero equals zero."

Basically, I am just looking for some conversation on which school of thought you believe in and why.

Thanks in advance and I apologize for any spelling/grammar errors.

Ed, what would I do without you.

Answer 1

Your question is one that lies at the very heart of the matter of modern financial theory; and, yes, there are, more or less, two camps.

Opponents of people like Cramer (he's small time, really), argue that they're just lucky. The common metaphor is that if you had every person in the US start flipping a quarter, and did so for months, you would end up with a couple of people who somehow managed to flip nothing but heads (or tails). This would prove little about their coin-flipping skills, merely that they are statistical anomalies. Those who win in the markets are just that, lucky flippers.

Proponents would say, yes, yes, interesting theory. That's why you talk spend all your time talking about theories at some dumb university where you make 80k a year and I make millions being "lucky." I would agree, and I would say that those who do make money consistently (and are not privy to inside info) are able to do what they do because they exploit anomalies in the market. The trick, though, is finding these anomalies (Smart guys with PhDs from the Ivy League schools are paid millions by companies like Goldman Sachs to figure these anomalies out--and once the cat is out of the bag, the anomalies quickly disappear as everyone else reverse engineers what is being done, jumps on board, and then kills the anomaly). If you want to do some serious reading--not crap by Cramer,etc.--please check this book out:

http://www.amazon.com/Engine-Not-Camera-Financial-Technology/dp/0262134608/sr=8-1/qid=1163493183/ref=sr_1_1/002-5072896-8960010?ie=UTF8&s=books

Cheers

Answer 2

1

Answer 3

Been there done that. The words of wisdom I live by when it comes to investing are : Do it, don't try... DO SO !

You have to start somewhere so why not just start. Too many people are sooooo scared of losing money that they never start. All the books out there have a different view point but view points non the less and are educational at getting the mind to work its investing thoughts. Read read read !!! and jump in...Nothing like learning from mistakes as well.

I invest for the long term... Only recently have I started trading and I cannot complain about either way.

The biggest mistake people make with investing is that they don't start. Procrastination gets you nowhere and I never was much for laying idle. Life is good due to me making moves within my financial life !

Answer 4

I am no fan of Cramer, sorry. To me there is trading and there is investing. I have some investments, but I trade some too, hoping (often, but not always, unsuccessfully) to get a little more action than watching trees grow. But I know my trees will be what I live off of during my retirement and my trading is just fun.

First, does the company make a profit? Second, does the company look like it will continue to make a profit? Third, what are its advantages and disadvantages (new stores, new technology are advantages, high debt, lots of litigation against them are disadvantages)? What is the trend (lots of competition, always ahead of the competition, etc)? Finally, do I like it?

There are things like Harley-Davidson or some casinos that make money, but I don't like them. There are companies like GM and Ford that I like but are losing money by the buckets full. There are companies like Boeing who were beaten down but now rising, in part because the competition is falling. There are boring firms with great potential like ADM. But then there are sort of boxed sets, exchange traded funds that help me diversify with little cost. Like Ishares NY--the top 100 (by market capitalization) on the NYSE or DVY the top dividend-paying blue chips. With these I get stability and still a piece of the action for a raft of companies that consistently make good money.

Answer 5

I think the best way to invest is to see what the best traders are buying and selling - and hopefully use their knowledge and insights to improve your own portfolio's returns. This is the idea behind the site http://www.top10traders.com - this is a free site that lets you create a portfolio of stocks with $100,000 in "play" money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas.

Here are this month's best traders:

http://www.top10traders.com/Top10Standings.aspx

Answer 6

I have switched from risky to a mix of boring ETF funds and value investing. I like that I dont have to worry about it every day like I used to.

Before, i was in individual stocks like GE, Boyd Gaming, Six Flags, Brigham Exploration...now my major position is Vanguard Financial ETF, with a utilities ETF and a few stocks that Bill Gates has his charitable trust invested in: Canadian Rail and Repulic Waste Services.

Answer 7

There are many things that work. Just figure out what fits you the best. It is hard to be a Warren Buffett, so start out small and learn to trade stocks or the Forex.

Answer 8

either be lucky or be prepared to do a lot of research if picking your own stocks. nothing goes up forever.

Answer 9

Buy low...sell high. Works every time.