SWB: Alan B. Rowley II - Success Coach - ECoaching - Email Coaching

More proof that I don't understand the stock market

I check the headlines just about every day and I really should be recording my thoughts each day about what I see.  Things seem busy for me now so I'm lucky when I can a blog post done.

I couldn't let this one pass though.

Stocks are up because people are spending more money.

Why are they spending more money?  Everything costs more.  Inflation is forcing people to pay more for things they have to buy.  Trivial things like food.

I read an article quite a while back that stated that the Fed is always trying to create *some* inflation.  They always want costs going up so that businesses think they are making more money.  Seems stupid to me but there it is.

Anyway, that theory has kicked into overdrive with the current inflation rates.  Companies are bound to see record sales in dollar amounts because the dollar is worth less.  The whole thing seems like a game to me and the people being hurt by it are the ones that can't afford to play.

Speaking of which, I was just paid 68 cents in dividends on my stocks.  Watch out Buffet, I'm on my way.

Stocks are on their way up. Woo hoo!

Sam Stovall, chief investment strategist and chairman of the investment policy committee at Standard & Poor's, has declared that the worst is over for stocks for the year.  It's upward and onward from here.

The Federal Reserve's rate cuts and King George's generous tax rebates have saved the day.

If you pulled your money out trying to play it safe, now is the time to throw it all back in so that you can come out a winner at the end of the year. 

Whadya wanna bet that another investment firm goes under in May when no one believes the crap that Sam is shoveling?

Yay! The Stock Market Rebounded

How high and how long can we prop up the illusionary system before the whole thing collapses in on itself?

The Shape of the Stock Market

I've mentioned this before but PTE Rick sent me this great cartoon so it's worth mentioning again because it's so true and so odd (at least to me).

I glance over the stock headlines just about every day.  I don't read too many of the articles because these people seem like they are crazy and I don't want to catch what they have by reading about it every day. 

The stock market goes up and down and the news says it's based off of what authorities say.  Not what they do, mind you, but what they say.  It's like everyone is trying to time the stock market.  You know, buy low, sell high and all that.  Can it really work from day to day?  I have no idea.  I bought some stocks in January last year and haven't sold them and don't even ever look to see how well they are doing.  Set it and forget it was my attitude.  I know, I'm not market savvy.

Well, I was savvy enough to invest in the Asian market instead of the US market.  Once the illusions propping up our stock market fade leaving the reality of huge debt and impending bankruptcy in the open for all to see, the game of the stock market will be over for a while.

Back to that game though.  Someone spreads a rumor that Bernanke will announce that the Federal Reserve is going to drop interest rates.  Stocks go up.  OPEC says they *might* lower output.  Stocks go down.  King George puts together a lame-ass stimulus package.  Stocks go up.  The bill gets stalled in the Senate.  Stocks go down.  The Senate approves the bill.  Stocks go up.  Someone important points out that the checks won't be in consumers hands until June.  Stocks go down. 

Day after day, you can watch this yo-yo action and what the media attributes the action to.  I read the headlines just to be amused.  A butterfly could flap it's wings in India and it would affect our stock market if Paulson mentioned it in a press conference.  Crazy stuff.

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5 Sword Points for Ricky T for sending the cartoon.

Interesting Side Effect of the Plunge Protection Team

You can't fool Mother Nature and you can't fool Market Forces.  When the Plunge Protection Team tricks people into buying stocks, the investors are paying far more than market value for those shares.

As we have seen with every artificially created financial bubble, market forces will eventually prevail.  The bubble must burst and the true value must be revealed.  The deception can't be maintained indefinitely.

Please Don't Let Me Be This Crazy

I scan articles on what the stock market is doing and just end up shaking my head.  I don't get it.  The market changes just on rumors and hopes.

Retail is up, trading is up.

Employment goes down, trading is down.

The fed might drop the interest rate, trading is up.

Do these people know what they're doing?

My thinking is that if they keep touching their stocks, they're going to go blind.  My stock goes up and down, up and down, and that works nicely for me.  I don't feel the need to pull it out and then put it back in, pull it out and put it back in.  Up and down is perfectly fine with me. 

I don't keep touching my stock.  Sure, I watch my stock.  How can you not?  It's fun to watch your stock go up.  Exciting even.  Not so fun to watch it go down but you always know that your stock is going to go back up again.  Sometimes it may take a while to get your stock back up.  It might take some outside stimulation but if your stock is healthy, it'll get back up again.  I'm sure there is some old stocks that never come back up.  It's always sad when a stock dies.

Each time you trade, you have to pay a fee and that can be a real stock sucker.  Each time, you have less and less stock.  Quite frankly, you don't want to reduce the size of your stock.  Size matters.  There are plenty of people out there who will promise to make your stock bigger but most of them are scams.  The best way to get a bigger stock is to let it grow naturally over time.

Don't keep playing with your stock.  Let it be and it will get bigger.

Trying To Join The Exclusive Club

I think that interest is one of the main reasons that the rich get richer and the rest get poorer.  People who get paid interest have their money making money.  People who pay interest are wasting money and paying more for everyting.  There are other reasons but interest is an important factor.

At the start of the year, I started looking into stocks and mutual funds.  I want to get on the side where my money is making money for me.  I did buy a few stocks but have put any further investing on hold as we really concentrate on paying off our next two debts.  Not paying that interest and freeing up the money from those payments is a higher priority right now.

While I was looking around at different things that I could invest my money in, I came across something interesting.  I found a couple of things that sounded like they would be good investments so I looked into buying some shares.  I wasn't able to because I didn't have enough money.

Both of them required an initial purchase of at least $10,000. 

That's a good plan for keeping the riff-raff out?

I could have borrowed the money of course and hoped that I made more money than I spent in interest as I paid it off but I just refuse to go that route right now.  With only 3 debts left, I just couldn't see getting a new debt even if the potential payoff was going to be good.  I guess I'm not much of a gambler.

A couple more thoughts on emergency funds

I suppose that the 3 to 6 months of savings in case you lose your job is a good idea but here are a couple of things to consider. 

The reason you need 3 to 6 months of savings is not because you won't be able to find another job before then.  It's because it might take you that long to find one that pays the same amount as you were making before so you can afford to pay your bills again.

If you had fewer bills, you would have more options in the interim.  I'm not proposing that you downgrade your job on purpose.  I did that last time and I don't ever want to do that again.  I'm just saying that it becomes an option.

The original point that I wanted to make on emergency funds was for less drastic emergencies than job loss.  I still think the best way to prepare for having no pay is having no bills but let's talk about the "surprise" expenses.

Let me start off by saying there aren't too many surprise bills.  The timing might come as a bit of a surprise but it shouldn't be shocking.  Let me explain.

If you are alive, have a house, and have a car, you are going to get sick, the house is going to need to be repaired, and the car is going to have mechanical problems.  None of this is surprising.  Not in the least.  Everyone should agree that this is normal.  Normal is the opposite of surprise.

We just don't always know when there is going to be a problem and that's where an emergency fund comes into play.

I'm going to cover this more tomorrow but I just want to leave you today with this thought and let it sink in.  I see people get absolutely flustered when the car breaks down because they can't afford this "right now".  It reminds me of the old TV shows where a kid saves up *just* enough money to buy a car but then is caught off guard because you have to buy gas and insurance too.  That's part of car ownership.  So too is regular lube service, tires, and minor repairs.  In adultland, that's all part of car ownership.  And houses.  And human bodies.

To pretend that none of these will need maintenance is either delusional or naive.

One more minor disappointment

I say it's minor because it's something completely in our control and after reviewing our situation last night, it's something that we aren't going to change for now.  We only put 5% of our money into savings, investments, and my 401k last month.  The previous month, it was closer to 10%.  The only thing that we can see that really changed was that we made more money last month but didn't increase what we put into this category.

And that's how we want it for now.  We would *like* to be putting away 10% or more but we want to pay off the student loan and car more.  It all comes down to choice. 

It's a personal decision.  I've read comments, blogs, and articles on both sides.  Some people think that it's more important to build up your financial assets.  Other people like to pay down their debts.  And the majority of people out there do neither.  The third choice is the only one that everyone agrees is not the way to go.

We are in the paying off debts camp.  For us, there will be more security and freedom in not having debts. 

Not that we are completely ignoring the savings side of things as you've seen.  5-10% is still some money being set aside.  And it will increase over time.  When we have the car paid off, we are going to dump a bunch of money into savings before we start paying off the house.  Our emergency fund.

Which we probably won't touch.

I'll tell you why tomorrow.

I am a stock owner now

One of our plans for this year was to divide up the money that we normally put into savings and invest it in other ways.  The first thing we did was move much of our savings to an Orange account where it could earn more interest than our credit union pays.  The next thing I did was buy a stock.

Now I can't say that this is necessarily going to make me rich.  You see, I bought one share of one stock.  I can't even say that I own stocks.  I own stock.  That sounds weird but it is a start. 

I'm not even sure what I own.  =)

I read an article by Ben Stein and he listed off some good bets.  I picked one and bought it.  ADRE for those of you out there that know far more about this game than me.  It's an index fund so I probably can't go too far wrong in my ignorance.

I did buy a book on investing with the Barnes & Noble card that I got from my parents for Christmas but I haven't had a chance to read it yet.  I have other books that I have in the queue ahead of that one.  I'll get there though.  I want to have at least a working knowledge of the stock market by the end of this year. 

One more drill to change how my wife and I think about money.