Here’s the skinny my loyal followers.
Background
I have always known business to be very important (hence my minor in Business Management), but I do not enjoy it. My brother and my father are both accountants. They enjoy the workings of a business. I do not. I enjoy people. Ok, I’m getting way off topic. What was I saying?… Oh yeah, furthermore I’ve never really studied personal finance. Like saving is a good idea… tithing is smiled upon… these things I got. But I never really practiced the systematic squirreling away of cash never to be touched baring a huge emergency or very large legitimate expense. Even then I’m still on good terms with my parents who would be there to support me in the event of some crisis. So I took this underdeveloped life skill and thought about it… Being very analytical and reflective I know that while some people are downright disciplined enough to just NOT spend their money but put it away, I am not. If I HAD to, I could, but as I don’t scrape by every month on Ramen like some college students it has never come to that. So I need to trick myself into enjoy saving… somehow. My mom can bear witness that I am very stubborn and always have been. If I don’t want to do something, I won’t do it. I have to feel like it. On the other hand if I’m passionate about something I am very capable. So how can I make saving enjoyable?
Long term: Invest your money- not Bank Savings account!
My father has always been a big fan of investing. He reads about it, studies it, and has a lot of financial intelligence. I grew up seeing the magazines around, but never really paid that much attention. He’d put money away for me every year in my own Roth IRA. Maybe when you’re 17 it doesn’t sound like an exciting Christmas present (especially since you can’t touch it until you retire) but when you’re an old man with a comfortable (tax-free!!) retirement you’ll put a flower on his grave and say thanks dad. I starting thinking about it and got myself psyched up about the idea. At first it started out as the simple idea of “I can buy 500 bucks of some stock and watch it grow!!” Watching money bear more money sounds like a fun idea. I mean, if I just put $1000 bucks into my savings account there are a few potential problems. 1)It’s very very liquid. It’s attached to my checking account and I can withdraw from it at the first itching for a big flat-screen tv (well I already have one, so bad example). Problem 2) interest rates now a days are pessimal. 3 1/2 years ago I opened an account at the local Provo branch of Wells Fargo (terrible bank PS- ask me why), my dad and I looked at the interest rates of the savings account and it was LESS than inflation!!!! That’s right! The cost of living around me would rise faster than the value of my money– literally I’d be losing money (read purchasing power) if I put my money in there!! It was better than sticking it in my mattress, but not by much. So a bank savings account is out for long term savings; I make that statement because it is good to have at least a few hundred in there for emergencies, but not for long term holdings).
Stocks and Mutual Funds
Ok So here’s what I’ve been doing. I’ve been reading books about trading to learn more about the stock markets in general. I use my Charles Schwab account to do research on companies, sectors, commodities, etc. I looked around to find recommended motivational books. A book that I purposefully avoided for years always came up as the ’square one’ read: Rich Dad Poor Dad. So I bit the bullet and read it- I’ll review it later.
A few things about the prospect of investing that I am enjoying: 1)it’s like a puzzle. Which companies are promising and which are not? Which ones provide the right balance of stability, risk, and is ‘high enough’ dividends for my investing philosophy. When I called my dad to say I was going to learn about investing and try my hand at it, he was excited to mentor me. One of the first pearls of advice was to find my own investing philosophy. There are day traders, high risk takers, penny stock gamblers… etc. My own dad, for example, is a few years away from retirement. At this point in the game he’s going to be looking for safer stocks and mutual funds (so he won’t lose his retirement egg) and a company that has a large moat (won’t be overtaken easily by competitors- which would lower the stock price and in turn his retirement). As for me, this is what I’ve gotten so far: I don’t exactly have a lot to throw around. Maybe I’ll have 500 bucks here and there every once in a while that I can hide away and not suffer. While I shouldn’t throw it around foolishly, I have a little time to get my feet wet with a few ideas. Since I’m young and this money isn’t rent or food money I can afford to be a little risky. Not that I’m planning to be, I’m just saying I’m not betting the farm here. When I get a little older of course I should have a well rounded portfolio: stocks spread out in different sectors, mutual funds with some bonds and well placed stocks so that no matter the economic conditions I won’t lose it all.
Right now, according to my untrained eye, seems to be a good time to get into investing. With serious symptoms of a recession the economy is down. Stock prices are low. So now is a great time to Buy!! Because all the stocks are hurting in general but will someday (several months from now at least) bounce back just as economies always do. People need to think long term. In the 1990s the stock market was hot. Any fool with a little cash could have made money, there weren’t wrong answers so people bought big. But with the dot com burst the market took a serious hit. 10k invested turned into 7. Lots of people foolishly worry too much and withdraw their money for a 3000 dollar hit. Ouch. Only to find that the market turns back around eventually and stock prices pick back up!! Then the guy wants to get back into the market and reinvests his 7000 (already 3000 behind) in stocks that cost significantly more than when he withdrew from the market! Fool! My point is that people who are getting discouraged and selling their 401ks right now are being short sighted. Those who are retired I am sorry for them, but the rest of us that don’t need that cash right now should wait until the market goes up to sell it! Buy low sell high! Not buy wherever and sell when the price bottoms out.
Ways to look for stock to buy:
Undervalued
Simple example: GM right now is hurt. It’s bleeding. With the economy the way it is and oil prices and everything going on their stock is under 17 bucks. They are going through a financial hardship as they convert to a more car oriented company. Six months ago the price was around 40 bucks.. now 16.45. If you think the company (stock price) isn’t going to recover don’t buy. But are there any among us who think that General Motors is going to fold?? Heck no! Will It ever control the industry? Probably not, but I’d imagine at least a 10 dollar gain in the price. Maybe 20. That sounds good to me.
Wave of the future
As someone with a sociology background I find this part very fun. If you can discover what the next big thing is. Kind of like if you had known that computers were going to be huge, or Coca-Cola, or Nike. Nike is a good example because it’s still a huge brand but it’s no longer the monopoly. So what athletic company is the next Nike? I’ve heard good things about the prospect of the company Under Armor. I am seeing their clothing everywhere. Probably a few years ago would have been best to get in on the action but in 5 years well see.
Also energy. Oil is still running the country but as you know, there’s a big push for alternative energy. Which companies will be at the forefront? Which ones will grow to take on the new responsibility in our economy? Maybe a company like GE. GE is already a profitable company, but imagine if it were to become a flagship for the energy sector? MMmmm.
Well I have a lot to say about this but I’ll leave it at that today. If you know of any books, websites, magazines, anything that would be helpful/fun to read in my quest to learn about investing I’d love to hear your suggestions.
