Stocks 101

This is a fun educational video by Investopedia. Stay tuned for next week's featured pin blog post with more on the basics of stock investing.

Wealth-building for Gen Y-ers

Money Magazine's 101 Ways to Build Wealth offers valuable financial tips for each stage of your life.  Listed below are their bits of advice for 25- to 34-year-olds.  To read the full article for more details, click here.   

1)  Start saving for retirement now.

2)  Favor cash-rich stocks.

3)  Add microcap stocks for growth.

4)  Build your career.

5)  Play the numbers.

6)  Get smarter about your money.

7)  Get with the program.

8)  Watch what you buy.

9)  Build your credit score.

10) Slash your student loans.



Profits rising, stocks falling

It's always nice to read some good news about the stock market and economy. Click the following link for the full Bloomberg article: "Stocks Cheapest in 26 Years as S&P 500 Falls, Profit Rises"

This week: Retailers release quarterly reports

For those of you who keep some money in the market, take note that this week, many retailers will be releasing their quarterly earnings reports. The Kansas City Star's Dollars and Sense blog had a nice post today quickly and neatly outlining who will be making reports on which days. To see the list, go here:

http://economy.kansascity.com/?q=node/7983

Today (Monday) Lowe's opened with its earnings, which were up. Reaction was mixed in the market, with Lowe's keeping its thoughts on the matter cautious but optimistic. Here's that report on Market Watch: http://www.marketwatch.com/story/retailers-open-mixed-on-lowes-report-2010-08-16

And here's Lowe's own press release: http://investor.shareholder.com/lowes/releasedetail.cfm?ReleaseID=499393

Time to buy: any time you can

By Robyn Davis Sekula

I did something a little unusual on Friday. I swam upstream, if you will, from the way other investors were going. I bought shares in a mutual fund in my Roth IRA.

To me, a great thing to do on a down market day is BUY. I had put $5,000 each in Roth IRAs for my husband and myself through Fidelity, but simply had it sitting in cash reserves. I hadn't thought about how to invest it - but asked my financial planner (it happens to be the Family Investment Center - of course!) for a recommendation. They analyzed my portfolio and told me I could stand to go heavier in stock, given my age (upper 30s) so that's what I did. I added to it another $500 each for us for 2010, with the idea being that I'll add to it until I reach the max, $5,000, per person for the year.

In truth, I wasn't trying to time the market. I just noticed that the market was down, and that it might be a good day to buy.

When is a good day to buy? It's any day that you can set aside money for investing. It's ALWAYS a good day to invest in your 401(k), and especially your Roth IRA. It's always a good time to save. When the market goes south just a bit, it's even better.

Think of the market as having stocks/mutual funds on sale.

Thermometers and screeching monkeys

By Dan Danford
Family Investment Center

What if you had biological monitors hooked to you all day long? Some gadget that tracked your temperature, blood pressure, heart rate, respiration, and perspiration on a continual basis? All day long, every day.

On some level, that might be good. Especially if there were a moment or moments when intervention could improve your health or life. Perhaps you could cut your workout a bit short to avoid injury, or munch a granola bar when your glucose level dips. Maybe you’d carefully avoid that annoying guy from accounting that raises your blood pressure and gives you a tension headache.

Still, I suspect there’s a downside, as well. Most medical measures are stated in normal ranges because they fluctuate during the day. Our blood pressure and pulse respond to things we think and do. Within a healthy range, there’s nothing to be alarmed about when it jumps ten or fifteen percent. In fact, most people endure a fairly broad range each week.


Minute-by-minute reporting could add a dangerous layer of drama. I say dangerous because it might influence behavior in bad ways. Maybe we don’t really need an extra granola bar every afternoon, or we might stop exercising completely when our heart rate jumps! If emotions create a physiological response, maybe we avoid all emotional situations – even good ones.

Add another piece to this hypothetical puzzle. An expert – a genuine, honest-to-God, doctor, nurse, or hospital administrator – maintains a constant voice diatribe about your vital signs. Calm and reasoned when they look good, but urgent or even frantic when they reach either end of the normal range. Maybe the Surgeon General of the United States, herself, commands the microphone now and then. Constant, relentless, detailed, and (screamingly) boring details about every facet of your numerical footprint.

Ridiculous? I think so. You probably do, too. Why, then, do you watch CNBC every day or load a market app on your iPhone? Why listen to Jim Cramer’s theatrics every evening? Does anyone need market statistics minute-by-minute or hour-by-hour? What purpose do these things serve?

You’re going to say that some of it is entertaining, and I get that. Investing is a hobby for some folks, and I understand that, too. But I worry that there’s a downside to all this market drama. And the downside is, well, drama.

It’s popular among economists and investment professionals to discuss “volatility” in the marketplace. Stocks have always been volatile, but the past several years seem more volatile than most. It just feels like the ride from point A to point B includes steeper peaks and valleys than before. I don’t doubt that this is true.

My guess is that these two themes – constant monitoring and market volatility – are related. My guess is that talking heads stir the volatility by stirring the drama. My guess is that Cramer and Orman and Ramsey and (even) Bernanke open the market floodgates whenever they open their authoritative mouths.

We’ve always had fluctuating markets, and we’ve always had recessions, and we’ve always had political pressures to regulate brokers and markets. None of that is new. What is new is the constant, relentless, detailed, and (screamingly) boring details about every facet of the stock market’s numerical footprint.

Spare me the drama. There’s a well-known adage about not seeing the “forest for the trees.” Really. Too much attention to anything creates more potential harm than good. Let’s all take a step back and enjoy the forest. Put down the microscopes and shut off the screeching monkeys. Breathe.

It’s going to be all right.

First Quarter review

It's good to look back, and that's something I always recommend, and endorse. Our own Jason White is offering this great reflection on the first quarter of 2010.

Have a listen and post in the comments what YOU think.

http://www.audioacrobat.com/play/WZM9bCgQ

Know when to hold 'em

We answer questions here from followers of our Twitter feed, @family_finances. If you have a question, please post it in the comments section or e-mail it to robynsekula@sbcglobal.net.

QUESTION: On the NPR radio program Marketplace Money last Sunday, the financial experts were discussing setting a target for when to sell an investment, such as if it drops 10 percent in value, or if it rises 10 percent in value, so that investors don’t hold on to an investment too long. If you’d like to do that, what percentage would you suggest? And should the percentage be the same for an investment that’s dropping as one that’s rising?

ANSWER FROM DAN DANFORD: This really depends on the kind of investing you do. If you own individual stocks, then having some targets is helpful. Generally, you want to buy stocks when the price is low, and sell when it's high. A stock is actually a portion of a company, and the value is determined by financial things like revenues, assets, and profitability. But different people have different estimates of those numbers, so two informed people can have different estimates of value.

An analogy I sometime use is a house. We can both visit a house and agree that it is a spectacular house. We'll agree on the square footage and building materials and the size and quality of the lot. We can gather information on other, similar houses, and even the level of mortgage rates. But, still, we can reach different conclusions on the house's value. Even if we agree on the exact value, we might argue over a smart purchase price. Let's pretend for a second that the house is "worth" $200,000. Would you pay $300,000 for it? How about $225,000? If you could grab it for $150,000, would you?

Stocks are kind of like that, too. Just because a company is good (or even great) doesn't mean the stock is a smart buy at a particular price. The true value is a moving target, and sometimes the stock will sell for less than value. Other times, it's selling for more. A good stock picker will buy when the price is lower than estimated value, and sell when higher. That sounds easy enough, but it's harder than it sounds.

Now, the idea behind price targets brings some structure to the process. You estimate value, then create a band around that price. When the stock moves one way or the other, you take action. If you were wrong in estimating value, a low target will reduce your risk. You can limit your losses by deciding where to sell before you even buy. On the other hand, a high price target forces you to take profits when they occur. Perhaps this takes some of the emotion out of decision-making.

Having said all this, I'm not a big advocate of picking individual stocks. It takes an incredible amount of time and most people can't do it well enough to beat the markets anyway. For most folks, a low-cost index fund will produce better results with less effort. Diversification also reduces risk, and funds do that better than any other option. We use funds in managing million-dollar portfolios, and that's probably the best approach for your IRA or investment account, too.

The best thing that can be said about pricing targets is that they require some forethought about your investments. Too many investors buy the hottest stock or fund without enough thought about the overall strategy or purpose. People focus on the trees, instead of the forest. I'm for anything that brings thoughtful deliberation to investing.