Friday, February 7, 2014
It's very tough even for pros to beat the market so, every time I have an extra $1,000, I don 't try to time the market but simply put the money on the next Monday afternoon (That, on average, is when stock prices are lowest) into a low-cost mutual fund. That gets me diversification at low cost and I automatically end up buying more shares when prices are cheap. That's called dollar-cost averaging.
Among mutual funds, I particularly like the Vanguard All-in-One Funds. They are available in various risk-tolerances or for specific goals (for example, saving for college, retirement in X years) and they automatically rebalance so whether the market is up or down, the fund's investments always match your risk-tolerance. And Vanguard All-in-One funds are indeed cheap to own--less than 1/5 of 1 percent per year. That's 1/7 of what Vanguard's competitors charge. (Of course it's possible to lose money in all mutual funds and stocks but at least the cost of investing through Vanguard is low.)
Those All-in-One Funds invest mainly in U.S-domiciled large companies but because those companies are very involved worldwide, an investment in those companies actually is an international one. Because I believe this is China's century, I have also invested in the iShares China Large Cap exchange-traded fund, which is a market basket of 26 leading China companies, the equivalent of our Dow Jones Industrial Average. It is the most heavily traded China ETF so the bid/ask spread is much smaller than for the other China ETFs. As a result, I get a better price.
I also periodically buy shares in a couple of individual stocks. My philosophy is to choose a "category killer," the best in its category and where it would be very tough for another company to displace it. So I own shares in Amazon and Toyota. I buy them at the CapitalOne/Sharebuilder brokerage where trades are just $6.95. I bid an amount slightly above the bottom of the current half-hour's trading range.
I am pretty-much a buy-and-hold investor. Because I'm buying marketbaskets and blue-chip stocks, not volatile high-flyers, I feel okay about holding those stocks for years. I'm willing to bet, for example, that companies like Amazon and Toyota, which have a big edge over their competitors and attract some of the best and brightest employees, will do well in the long run. I believe that if companies like that do poorly, most companies will. Of course, I could be wrong but not worrying about stock prices' weekly ups and downs certainly lowers the stress of investing.I do look at my stocks' price but unless there's a dramatic drop, for example, greater than 25 percent, I'm inclined to sit tight.
I also have a theory, which I have not actually implemented: to short fashion stocks that are fading or faded. For example, on January 22, 2014, I sent a friend a list of stocks I'd short: Abercrombie (ANF), Aeropostale (ARO), American Apparel (AAP), Bebe (BEBE), and Lululemon (LULU). I also added Twitter (TWTR) that day. I also wrote him that if Underarmour (UA) or Facebook (FB) dropped below their 50-day average, I'd short them. I haven't calculated but if I had actually shorted them, I estimate I would have made more than 10% in just the two weeks since then.
Disclosure: I own the above mutual funds and stocks (not the shorts) but no entity has paid me to endorse any investment.