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RE: Lottery - Stock market - 5/28/2008 11:17:11 AM
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blessedinnyc
Posts: 2000
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quote:
ORIGINAL: Ps103
Well, if you are going to buy stocks, you need to have the time and inclination to study them, and that means you need to know what things like EBITDA means--more big words--or at least acronyms.
I don't think you need to know that. I think you need to:
1.) Know what Return on Equity and Return on Assets means.
Imagine that you're a landlord. You buy a $100K house and rent it to someone for $9,000/year. The house costs you $2000/year to maintain and pay property taxes on, so your total return on the house is $7K. This means your Return on Assets is $7K/$100K=7%.
Now imagine that you take out a loan with 20% down on the house at 5.5%. Every year, you pay $80K*5.5%=$4400/year in interest (plus some principal if it's a mortgage, but we're worrying only about your costs to borrow the money) Meanwhile, you have $20K in equity in the house. Your return on equity is ($7K-$4400)/$20K=13%.
2.) Know how to find out what a company earns, and know what P/E means.
Exxon was in the news for earning $40 Billion last year. It had a little over 5 Billion shares outstanding, and earned about $7.50/share. Meanwhile, the stock was trading at about $80/share, so that gave Exxon a Price/Earnings of $80/$7.50, or 10.67. In other words, to buy enough Exxon to own $1/year in earnings, you had to pay ~$10.67.
Most websites like Yahoo Finance will give you the P/E, Return on Equity, and Return on Assets.
quote:
And even if you study and pick all good stocks, if you want to make money at it, you need to know when to buy and sell according to the cycles.
It's all cause-and-effect, at the end of the day. Let's say most people buy jelly to make Peanut Butter and Jelly sandwiches. But there's a huge Peanut Butter shortage, and the price of Peanut Butter goes to $1000/bottle. Nobody except the rich can afford Peanut Butter, now, and people only buy jelly when they buy peanut butter. What do you think is going to happen to the stock price of that Jelly factory you're thinking about buying?
quote:
I think most people are just as well off buying an index fund--someone does all that for you. Most people have jobs and unless the are really, really interested in having a part-time job of it, they will do just as well with an index fund. You can get no-load ones that have very reasonable fees.
It just depends on the time you have for it.
Indeed.
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RE: Lottery - Stock market - 5/28/2008 12:05:22 PM
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P31W
Posts: 2942
Joined: 6/13/2005
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quote:
Well, if you are going to buy stocks, you need to have the time and inclination to study them, and that means you need to know what things like EBITDA means--more big words--or at least acronyms.
Or you have hire a professional right?
Or you are best friends/close family member with someone who is a nut when it comes to the market and allow them to help advise you for nothing?
This reminds me of a dear friend who is a wiz with money telling my husband and me we needed to buy stock in Dale years and years ago. I had never heard of it. When he saw me write down the name Dale he said no it's spelled Dell.
ROFL man I should have listened to him!!!!
< Message edited by P31W -- 5/28/2008 12:35:51 PM >
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RE: Lottery - Stock market - 5/28/2008 12:06:57 PM
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P31W
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blessedinnyc,
Ok I understand that. Thanks
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RE: Lottery - Stock market - 5/28/2008 1:16:26 PM
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bzirk
Posts: 2848
Joined: 4/11/2005
From: Where the deer and antelope play
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quote:
ORIGINAL: blessedinnyc
quote:
ORIGINAL: P31W
OK so you people have gone OVER MY HEAD. You are talking book words rather than street words. 
Let me ask you all a question that I "think" LOL is in line with what you are talking about.
I often hear people on this forum or TV or Radio programs say only buy into MF's or Index funds and don't buy single stocks. I cannot help but think that is "generic talk" much like the talk saying "don't use credit cards ever".
However in my RL the wealthies people I know buy stock in companies - not MF'. I cannot help but think those people know a thing or two about what they are doing. They encourage us to do the same.
I think that is pretty much what blessedinnyc is saying in post 40.
Random is asking about the strong-form efficient market hypothesis. The strong-form (not to be confused with the semi-strong form) hypothesis means that every single piece of information (including private information) in the market is automatically reflected in the stock price.
(Information about the strong-form hypothesis: http://en.wikipedia.org/wiki/Market_efficiency#Strong-form_efficiency)
If the strong-form hypothesis were correct:
-I wouldn't have a job.
-You'd never find pennies laying on the street.
-The moment the Fed makes a decision to raise or lower interest rates- and before it is even made public- there would be an instantaneous 120 point move in the Dow Jones, and aside from that huge 120 point move, the market wouldn't be any more volatile on the day of the fed decision as on other days.
-Vanguard would have a system where you could go in, select the risk you were willing to take on a sliding scale, and have a resident monkey to pick stocks for you by throwing darts at a dartboard. You'd deposit your savings with the firm and would have the option of paying all of your investment management fees in bananas.
-People would never make financial mistakes by being greedy or panicking.
-The January effect wouldn't exist. (See http://en.wikipedia.org/wiki/January_effect)
-Nobody would play the lottery, because certain investments would offer just as much variance and offer better yields.
Back in the 1950s and 1960s, a group of economists used the assumptions in the Strong-form hypothesis to develop the Capital Asset Pricing Model, which helps form the basis of our understanding of economics and finance. (See http://en.wikipedia.org/wiki/Capital_Asset_Pricing_Model). However, it's just a model, and it starts to break down in a lot of circumstances (and in all cases that I listed above.)
When I was in college getting a business degree (late 70s/early 80s) there was way too much emphasis on the validity of strong form. To the point that people like Benjamin Graham and Philip Fisher were marginalized. It wasn't until several years later after running my own business that I began to rediscover the joy of value investing and it came through following Peter Lynch. A few years ago I decided I would start learning valuation in earnest. I would love to take more formal training in it, but for now I just read a lot. It does help to have run a business and to have some understanding of accounting -- even though I'm not an accountant.
To bring this back to topic, in no way do I consider this gambling. It is truly looking for businesses that are worthy of investment based on a good understanding of the facts -- or hopefully a good understanding.
By the way, I think Yahoo Finance is the best comprehensive site I've found.
For beginners Investopedia is a great place to start, and funny enough About.com has some very simple but useful treatises about evaluating stocks.
Does any of this sound like gambling?
IMO, this is gambling:
Some guy says that Apple is going to split before the end of the year, so a person runs out and buys some of it. 
It is amazing how many people "invest" on something that flimsy. Even when that kind of "investing" is made fun of all the time, people still do it. That is gambling.
BTW, I'm an ENTJ, and I have been every time I've been evaluated. LOL!
< Message edited by bzirk -- 5/28/2008 1:28:43 PM >
_____________________________
may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
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RE: Lottery - Stock market - 5/28/2008 9:49:18 PM
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Random
Posts: 974
Joined: 4/18/2005
From: Zipperhead
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P.S. In case it is not obvious, I do not believe investing in stocks is the same as gambling. I am just playing devil's advocate.
_____________________________
"That which has always been accepted by everyone, everywhere, is almost certain to be false." -- Valery
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RE: Lottery - Stock market - 5/28/2008 9:49:42 PM
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Random
Posts: 974
Joined: 4/18/2005
From: Zipperhead
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If it matters I am an INTJ.
_____________________________
"That which has always been accepted by everyone, everywhere, is almost certain to be false." -- Valery
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RE: Lottery - Stock market - 5/28/2008 11:25:27 PM
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blessedinnyc
Posts: 2000
Joined: 10/12/2007
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quote:
ORIGINAL: Random
P.S. In case it is not obvious, I do not believe investing in stocks is the same as gambling. I am just playing devil's advocate.
I figured you didn't accept the radical efficient market theory; I'm just laughing about some of the assumptions that go into the typical economic models. Sorry if it came off the wrong way.
Me? I'm an ENTP. (I don't think that's much of a shocker to folks who've read some of my posts.)
In any case, I do think the lottery question is a really interesting one. Economists have been stumped for years to conclusively prove things one way or the other, although I think they may lean towards the idea that diligent people who use fundamental analysis can at least card-count a little.
So the next question is whether card-counting is gambling.
< Message edited by blessedinnyc -- 5/28/2008 11:37:54 PM >
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RE: Lottery - Stock market - 5/29/2008 1:19:21 PM
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GroupW
Posts: 2863
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
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quote:
ORIGINAL: Random
quote:
ORIGINAL: rainbowtvp
Stocks: You can pick your stocks based on the likely profits of the company. This is not at all random.
But don't stock prices follow a random walk?
The phrase "random walk" is widely misunderstood. It was never meant to imply that stock returns were random, only that stock returns had a random component. The original idea was that equity prices followed a systematic upward path linked to economic growth, but that there was a large random component to the volatility that surrounded that path.
Think of it as a "random walk with drift" and you'll be closer to the intent of that original book.
BT
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RE: Lottery - Stock market - 6/8/2008 10:16:31 PM
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ilovetocamp2
Posts: 1
Joined: 6/8/2008
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The important thing that makes the lottery gambling is that there is no way you can win without others losing.
In the stock market it is possible for everyone to win. The guy that starts the company can win, the people that work for him can win, the people that buy his product can win, and the stock holders can win. Ask anyone that was involved with Berkshire Hathaway from the start and they will all agree everyone won.
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RE: Lottery - Stock market - 6/9/2008 8:02:01 AM
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P31W
Posts: 2942
Joined: 6/13/2005
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Just reading yesterday about people who have the belief there is only a certain amount of wealth to go around. Therefore you must give me yours if I am to have any. The creation of wealth is a foreign concept to these people. The book made me angry and it was Sunday 
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RE: Lottery - Stock market - 6/13/2008 2:09:26 AM
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prophet
Posts: 691
Joined: 4/19/2005
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quote:
ORIGINAL: P31W
What is the differances between the two. From a Financial point of view.
Lottery- make it BIG and FAST!....LOSe it fast as well...
SM- make it SLOww and easy....will normally not lose it all....always some residual left
_____________________________
Create in me a Clean Heart, O Lord.
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RE: Lottery - Stock market - 6/17/2008 3:28:08 PM
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GroupW
Posts: 2863
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
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quote:
ORIGINAL: Ps103
quote:
will normally not lose it all
Oh, trust me--that isn't always true
But there are tax-loss-carry-forwards...
That would be the reason for a well-diversified portfolio. That would be the first law of investing. In a portfolio of 30 or so individual stocks in well diversified industries and geographies, the likelihood of losing it all is really quite small and is approaching the likelihood that the Dow Jones or S&P indices all go to zero.
My opinion, investing in a concentrated fashion like some of the poor Enron folks did is more closely akin to gambling.
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RE: Lottery - Stock market - 11/30/2008 4:23:53 PM
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LCannon
Posts: 1224
Joined: 2/22/2007
From: Lebanon, OR
Status: online
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quote:
My mother purchased me a lottery ticket and a share of stock. What is the differance?
Since there's a single 'winner' there's no odds in a lottery. Stocks can be like a lottery however they can be used as a calculated risk.
_____________________________
"It may be that when the angels go about their task of praising God they play
only Bach. I am sure, however, that when they are together en famille they
play Mozart and then too our dear Lord listens with special pleasure."(Karl Barth)
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