How would you make money ?

[whyBish]

Oddly enough, paying down your mortgage (at least in the US where we get a tax break on interest from a primary residence) is not always a wise financial decision given the low rates on home loans and the tax break on interest.[right][snapback]62542[/snapback][/right]

Which is why I find all these people here that are recommending property to a guy in an unknown jurisdiction rather disturbing. In some places (particularly in Australasia presently) houses are so overpriced based on short term factors such as high immmigration, 'low' mortgage rates, 'low' unemployment (which are all tailing off) etc. that purchasing a house is nearly equivalent to financial suicide. Consider my situation for example. Mortgage would be 7.5%P.A., My rent is $7,500 P.A., an equivalent house would cost $2-300,000. (That's right, my Landlords are getting a 2-4% return on their investment in an environment where govt bonds are paying 6.5% let alone any other types of more lucrative investment. That, and once the factors putting upward pressure on house prices disappear, their house will be worth less than it is now...). In NZ in particular there is this weird effect where people have been buying up houses, but with net emigration starting, and an ageing population, there is not going to be the demand for them ...

(OK, so I have only shown the negative side, but that's my point. Housing may end up as being a good part of his(?) investment portfolio, but Abramelin needs some advice that suits the specific needs of his situation).

[Guest]

On Microsoft...  I don't know.  I own some, but I bought them before the bubble burst.  I'm still down about 20% on that and Intel.  There are some signs that the business economy is improving, but $50 barrels of oil, and the uncertainty of our current global security stance regarding terrorism has investors pretty spooked.  I've moved the bulk of my portfolio into staple goods and services, and occasionally strike on a short term profit potential.  I spent at least a year studying the stock market before being confident enough to play, just as I studied craps and blackjack before I went to Las Vegas on a two week business junket.  I'm not the type of person that can just throw down my stake on chance at roulette, lose, and not walk away feeling very stupid.

I would also council you to pay off all your debts.  The interest you pay on outstanding debt is only making the other guy richer and you poorer.  I like to pay cash for things when I can.

Buying your residence is a good thing if your payment is less than or equal to your rent, which it seems to be in most places.  In the US, we get some tax deduction on the interest we pay for our primary residence (but, spending a dollar to save a dime is not good sense).  Since you say "flat", I'll assume you are in Europe, and someone else might know better the benefits.  The best approach in the US at least is to go ahead and use the banks money, but size your loan such that your payment is extremely comfortable.  Then, I paid double my loan payments, and I made 13 payments per year.  That way I was able to pay off my 20 year loan in a much shorter period, and minimized the interest that I paid the bank.  I also had the fall back position of being able to cut back my payment if I say lost my job, or something critical happened during the loan period.  Once you own your "flat", all the money that was going into rent is now available for savings and investment.

Remember that buying the flat, also presupposes that you will furnish it, and need many other things in it.  The best advice I can give regarding money is to buy what you need, and not what you think you want.  I am happiest when I live frugally, and then reward myself once in awhile for my hard work with something that I truly enjoy.  Never try to keep up with the other guy, he probably borrowed the money to buy that Ferrarri anyway.
[right][snapback]62459[/snapback][/right]

Instead of buying stocks as a long term investment (1,2,3 ..years),wouldn't it be better to buy and resell the stocks on the same day/week ? I know someone who makes money by buying stocks in the morning and then reselling on the same day, stocks worth thousands dollars;he told me that he could earn thousands dollars each month by buying and reselling stocks,still I don't know if tells me the truth.It is possible-according to me,but I never did it-to make money on the same day/week by buying/reselling;a little variation of 1,2 or 3 % of a few thousands (or dozen of thousands) dollars worth of stocks is enough to earn at least,as much as a daily wage.
As for debts,I have no debts and no credit at all.I don't like to have worries about paying debts for years even though I have a good wage or a good financial situation.
However,your idea to pay loans with the money of rents is ideal,I'll see if I can do something like that.
I agree with you,as for me,I only buy what I need and not what I would like.What I also like,is being debt free,as,for me,debts make me worried/nervous.And when you borrow money,you lose the money that you pay for interests.
Thanks for the advice,Kandrathe.

~Abramelin~

[Guest]

Why not take say 20.000 euro and start trading on the stock exchange (you can do it yourself with some banks just via internet). And for the rest you buy a house, or put it in a savings account. This way you will get some trading experience, and you don't pay such high commisions. Just to make it handy get yourself a house and live there (or rent it to others).

Another option is buying a Ferrari...fun for a year and then you can get on with life. :D
[right][snapback]62473[/snapback][/right]

That's what I was thinking about:trading a few thousands euros on the stock exchange,but without the help of banks,just via internet.
Any advice/tips to buy/sell stocks via internet?
I don't like sports car ;) they're not fit for travels;If I had to buy one,I would buy a BIG one,large enough for luggage.

[Concillian]

I think California real-estate is insane, BTW.  I looked at houses around Palo Alto (near our corporate headquarters), and the smallest little cracker box house on a 50' x 50' lot was selling for 1.5 to 2 million.  I think the secret would be to get a nice conversion van, work hard earning the big bucks, live out of your van for a few years, then move to Georgia, or northern Arkansas and retire.

Palo Alto is RICH-VILLE. A co-worker told me of a house near him that was about the same size as mine (1300-1400 square feet) in a not particularly great location (bordering an apartment complex) listed for 900k, sold for 1.3 mil. Yes, that's insane. You just have to realize that you aren't going to be able to buy a house in these locations. You don't have to get too far away from Palo Alto for the same size house to get well under half what they are in Palo Alto. Even then, things are expensive though.

But don't base all of CA real-estate off of Palo Alto. That would be like basing all state murder rates off New Jersey :D

[whyBish]

Instead of buying stocks as a long term investment (1,2,3 ..years),wouldn't it be better to buy and resell the stocks on the same day/week ? I know someone who makes money by buying stocks in the morning and then reselling on the same day

The term for this is "day traders". It is much riskier than investing in the long term, and I wouldn't recommend it without knowing what you are doing... (even if you do know what you are doing I still wouldn't recommend it, but that's only my personal preference.)

Just some more (basic) detail for those that are interested:
Basically the scheme is that 'technical traders' plot some graphs and find patterns in stock movements and trade on those, rather than the underlying fundamentals of the stock. (You will hear terms like support levels and such.). The idea is that larger traders (such as fund managers) perform their actions on a regular basis, and so the market as a whole for that stock will have exploitable patterns (well there are a whole bunch of other things that can lead to patterns too, such as day of the week, seasonal variation and so on.). The risk is, past performance doesn't guarantee future performance, things can go against the trends, and you can lose big. The standard ways that day traders deal with this are to use the methods of diversification (day-trading over multiple stocks), and hedging (buying a 'put' on the stock being traded, which is similar to insurance, and can limit your downside losses). Since day-traders trade on potentially small patterns they require larger sums of money to make a profit after brokerage (brokerage and amount of funds available are the limiting factors to entry into day-trading), so it is usually left to the 'big boys'.

[Munkay]

On the topic of the Stock Market,

In grade school a teacher once remarked that the stock market was "just a horse race with higher stakes. Don't be fooled, it's the highest stakes gambling you can make."

So my best advice is to relax, drink a beer, and watch Horse Number 7 Luckystrike run to a photofinish... :P

Cheers,

Munk

[whyBish]

On the topic of the Stock Market,

In grade school a teacher once remarked that the stock market was "just a horse race with higher stakes.  Don't be fooled, it's the highest stakes gambling you can make."

So my best advice is to relax, drink a beer, and watch Horse Number 7 Luckystrike run to a photofinish...  :P

Cheers,

Munk
[right][snapback]62808[/snapback][/right]

Then your teacher lacked understanding of risk and return. The expected return on a horse race (in N.Z.) is 85c per dollar bet placed (through a 'bookie' firm). The expected return on the national lottery is 25c per dollar bet placed. The expected long run return from the sharemarket is roughly the (CPI+Growth Rate ) per annum (so approx real return=growth rate ~= 4%pa) for reasonable fundamental expectations. So horse races and lotteries are negative sum games, whereas 'buy and hold diversified portfolio' is a positive sum game.

Just out of interest, in Australasia, for the company results that I have seen, people that buy insurance are essentially investing their money at negative 45%per annum (for an opportunity cost of about 55%+ which jumps when you realise that you can't claim back tax on insurance if you are an individual (whereas you don't pay capital gains tax on residential property sales)).

[Chaerophon]

'buy and hold diversified portfolio'

Not the image that comes to mind when you mention "day trading".

[Munkay]

So horse races and lotteries are negative sum games, whereas 'buy and hold diversified portfolio' is a positive sum game.[right][snapback]62866[/snapback][/right]

Doesn't this mean its still a horse race, but with the odds more in your favor?

Cheers,

Munk

[eppie]

That's what I was thinking about:trading a few thousands euros on the stock exchange,but without the help of banks,just via internet.
Any advice/tips to buy/sell stocks via internet?
I don't like sports car ;) they're not fit for travels;If I had to buy one,I would buy a BIG one,large enough for luggage.
[right][snapback]62745[/snapback][/right]

Well I have an account with this bank (in Holland most banks have internet trading services).
You can put money on that account and than you can start trading, my bank has realtime stockprices so you can check it a bit, and when the time is right you make a transaction, just a few clicks, no people involved.
For me it costs 10 euro per transaction plus 0.1% of the traded amount. Which means around 1 % for 1000 euro's but if you trade 10.000 at once, the costs are around 0,1%.
Check what the bank charges for "keeping your stock" (usually a small percentage per year) and if your normal account (from which you buy stock etc.) gives you some interest, which would be nice.

In principle shares have prices, which are conform the market (of course <_< ) so you can't miss in that sense. But knowing a bit what you buy is always handy. Although you will always be too late if something major has happened, the pro's always know it earlier than you. When there is a crash the small investers will lose for sure, while some of the bigger ones can still get out on time.
See if companies pay dividend. If the company is healthy, they often pay dividend of around 5 % of the share value once a year...which is also not bad.

[Nystul]

Instead of buying stocks as a long term investment (1,2,3 ..years),wouldn't it be better to buy and resell the stocks on the same day/week ? I know someone who makes money by buying stocks in the morning and then reselling on the same day, stocks worth thousands dollars;he told me that he could earn thousands dollars each month by buying and reselling stocks,still I don't know if tells me the truth.It is possible-according to me,but I never did it-to make money on the same day/week by buying/reselling;a little variation of 1,2 or 3 % of a few thousands (or dozen of thousands) dollars worth of stocks is enough to earn at least,as much as a daily wage.
[right][snapback]62739[/snapback][/right]

Others have touched on the riskiness of doing this, but let's put it in perspective. The real quality of a company typically does not change all that much from day to day. What changes are certain perceptions that affect stock prices. Maybe there is a press release, or an earnings report, or the CEO gets thrown in jail. But overall, companies are not typically growing at the rate you would pay in broker fees (even cheap online ones) to furiously invest your money in new stocks every day.

The point is, day traders are almost playing a sum zero game with each other. They want to buy low and sell high, and don't otherwise care about the actual quality of the companies. When you make money by speculating on a stock in this manner, someone else is losing just as much money as a result (you either bought undervalued stock from someone or sold overvalued stock to them, more or less). Thus, if you are going to day trade, you had better be more informed and have better instincts than your competition.

[kandrathe]

The term for this is "day traders".&nbsp; It is much riskier than investing in the long term, and I wouldn't recommend it without knowing what you are doing... (even if you do know what you are doing I still wouldn't recommend it, but that's only my personal preference.)&nbsp;

...
[right][snapback]62775[/snapback][/right]

I agree. I have a few relatives that were former millionaire's due to over speculative "day trading". They tried to convince me of how safe some of their 'margin' schemes were, and I'm so glad I listened to my gut and did my research. The 'it will never happen' scenario did happen, and the margin calls on the mutual funds that have never gone down came in. It's the Aesop's tortise that wins the race, slow and steady.

But, Munk, not all (Stock) investments are a crap shoot. There are degree's of risk which are offset by good research into what you are buying. Any companies value, even one that has been around for decades, can be risky. You can equate it to buying into a portion of a business actually. Has it been cared for? Are the owners over extended with the bank? Are the owners insuring the managers are doing a good job? Is it in a flood plain, or are there other external risks? What are the earnings potential, and will it appreciate in value?

[ShadowHM]

Instead of buying stocks as a long term investment (1,2,3 ..years),wouldn't it be better to buy and resell the stocks on the same day/week ? I know someone who makes money by buying stocks in the morning and then reselling on the same day, stocks worth thousands dollars;he told me that he could earn thousands dollars each month by buying and reselling stocks,still I don't know if tells me the truth.~Abramelin~
[right][snapback]62739[/snapback][/right]

Chiming in on the topic:

I am acquainted with one fellow who does this. (I don't know him well; he is the parent of some competitive swimmers who I met while helping organize meets for my competitive swimmer.)

He actually does make money doing this.

But I would like to emphasize that he is well connected (as in knowing many other day traders, frequenting their chat rooms, etc. He has been doing this a long time, so he knows how to separate the wheat from the chaff - kinda like participating here. If PatrickA posts about a game mechanic and adeyke does too, we know which to believe, eh?).

Further, he has a greater monetary base to do it from than Abramelin will have. When you have a bigger pot, you can withstand the ups and downs of bad calls much more easily than when you have only $50,000 to do it from.


Lastly, this is his 'job'. He spends from 6 to 8 hours a day on it to be able to get the results he does.


My point is that, while it is possible to make decent money doing this, the circumstances described by Abramelin do not fit the description of the only person I know who has managed it.

[Guest]

Further, he has a greater monetary base to do it from than Abramelin will have.&nbsp; When you have a bigger pot, you can withstand the ups and downs of bad calls much more easily than when you have only $50,000 to do it from.
[right][snapback]62880[/snapback][/right]

The banned member who started the thread '50 000 us $' is someone else,not me;and I don't own dollars,I only have euros.Actually,investing 50,000 euros or 500,000 euros is not the point of my thread.
I just ask how to invest,not how much.
I don't understand why someone who day trade,let's say as an example,500,000 euros,can withstand the ups and downs much more easily than someone who day trade 50,000 euros.Losing 1,2 or 3 % of 500,000 euros is as bad as losing 1,2 or 3 % of 50,000 euros;it's just a matter of proportions,really.

But I would like to emphasize that he is well connected (as in knowing many other day traders, frequenting their chat rooms, etc. He has been doing this a long time, so he knows how to separate the wheat from the chaff - kinda like participating here. If PatrickA posts about a game mechanic and adeyke does too, we know which to believe, eh?).
[right][snapback]62880[/snapback][/right]

There is no need to be a genius to make money by 'day trading' or only trading.As for chat rooms,I know some.
I agree that the more experienced,the better.Still,there are good traders who can lose a lot of money;The Barings went bankrupt because Nick Leeson lost billions pounds.

Lastly, this is his 'job'. He spends from 6 to 8 hours a day on it to be able to get the results he does.
[right][snapback]62880[/snapback][/right]

There is no need to spend that amount of time/day on it.Day traders can buy/sell a dozen times a day,or just once,it's just a matter of opportunities.There is a possibilty to buy and sell on the internet while having a real life job.Buying just once in the morning and selling in the afternoon can be enough to make money.

My point is that, while it is possible to make decent money doing this, the circumstances described by Abramelin do not fit the description of the only person I know who has managed it.
[right][snapback]62880[/snapback][/right]

Your friend hasn't told you about his failures,because I am sure he lost money too.Ask him about his losses.
Sure,I don't fit the description of your friend,at least for experience.However,asserting that without a lot of experience and without billions $,it is impossible to make money,is untruth.

[--Pete]

Hi,

As with most general advice (except for W.R.'s "Buy low, sell high."), the advice to buy land is sometimes good and sometimes bad. While the "fixed quantity of land, growing number of people" argument is true globally, the population in a given *region* can be increasing or decreasing. If a region is booming, real estate can be going up, but as a lot of Silicon Valley people learned in the past few years (as did a lot of Seattlites in the early seventies) it can also go down, so much so that walking away and letting the state/county/city take it may be the best course. And, unless that other thread about thousand year lifespans turns out to be true, I doubt any of us would live long enough to see the value of land in, say, North Dakota be driven up by population pressure.

Since Abramelin does not tell us how old he is, what his desires are, what field he is in or wants to be in, etc., none of us can give him any better adivce than did Ashock with his 'talk to a pro'. Perhaps Abramelin's best course is to use the money to become a poker professional, or to open a book store, or to buy a charter boat. "Enough money to buy a house" could be all a retired person needs to live out his life or it could be insufficient for a young person to enter a profession.

--Pete

[ShadowHM]

To Abramelin:

:blush: My apologies for sowing confusion by mingling two topics.

I did not wish to imply that billions are needed. My point was that someone who has a base of (for example) 700,000 euros would be able to handle ups and downs of 20,000 with much more equanimity than someone who has only 50,000 in total.

I would disagree on the definition of 'good trader' if you want to include Nick Leeson in the category. By definition, he couldn't be 'good' if he didn't understand and use the principle of cutting one's losses. (OTOH, they were not his losses, were they?)

As to time spent? I cannot say, but I have the impression that he feels that his time spent on reconnaissance is part of it all, not just the trades he makes.

And as to losses? I have no doubts that there are times when he screws up. As we are merely aquaintances (my conversations with him have taken place while timing distance races) I cannot ask easily. My point was that this man treats it like a job, not something he dabbles in on the side.

Perhaps I have an excess of caution in me. However, I would like to point out that I do know many professionals (doctors, dentists, chiropractors) who are quite brilliant in their own fields, and who have made the mistake of assuming that said brilliance will always translate to equal brilliance in their investment choices and that they do not need more than a cursory look at them to make great decisions. :blink:

[--Pete]

Hi,

I don't understand why someone who day trade,let's say as an example,500,000 euros,can withstand the ups and downs much more easily than someone who day trade 50,000 euros.Losing 1,2 or 3 % of 500,000 euros is as bad as losing 1,2 or 3 % of 50,000 euros;it's just a matter of proportions,really.[right][snapback]62899[/snapback][/right]

I suggest that until you *do* understand this, that you not take up any form of gambling, whether it be at casinos or on the stock markets.

Perhaps the best way to illustrate is with two kids matching coins. Let's say that one kid starts with fifty coins, the other with five. The odds of losing five times in a row is one in thirty-two. The odds of losing fifty times in a row is one in about 1,000,000,000,000,000. Now, most of the time the kids will be close to their original values, gaining a little or losing a little. But every now and again, one will have a 'bad streak'. The odds of a bad streak long enough to wipe out the five coin kid are about 1,000,000,000,000,000,000/32 as likely as those to wipe out the fifty coin kid.

Applying that to the market is a little bit tricky. First, except for a flat market, stocks are not 'zero-sum'. Second, in stocks, one has more of a choice of which 'games' to play and at what odds. And, third, by playing multiple games one can hedge the riskier bets. But the principle is the same -- the smaller the stake, the more likely you'll lose it all.

--Pete

EDIT: Just a brief note to clarify a point: while the odds of the respective streaks are as noted, the actual odds of losing all one's money in the simple game are
(the amount of money you start with)/(the total amount of money in the game, including yours).

[Guest]

Since day-traders trade on potentially small patterns they require larger sums of money to make a profit after brokerage (brokerage and amount of funds available are the limiting factors to entry into day-trading), so it is usually left to the 'big boys'.
[right][snapback]62775[/snapback][/right]

Online,one can find very cheap brokerage fees and no limit funds;for instance,I know one online broking company which bills 7.5 euros/order for orders below 10,000 euros;above 10,000 euros a rate is applied,which is 0.075 % of the amount of stocks sold/bought,that's very cheap.Apart from these costs,there is no fee.
If one can make money with a variation of 1 % of a purchase/sale,there is 0.925 % left to make a profit.So,it isn't left to the big boys;trading with only a few thousands euros is still worth it because online costs can be very cheap provided that you compare the costs of broking firms and choose the cheapest one.

[--Pete]

Hi,

If one can make money with a variation of 1 % of a purchase/sale,there is 0.925 % left to make a profit.[right][snapback]62911[/snapback][/right]

Your assumption is that you will make money with most of the transactions. In a bull market, that is a pretty safe assumption. In a flat or bear market, that is not a good assumption. Unless you have a way of analyzing the stocks, you will make a profit on about half (in a level market) and take an equivalent loss on about half. So, you would break even if it weren't for the fee. With the fee, you would have a steady net loss -- and any net loss, no matter how small, if continued long enough will break you.

Furthermore, you have to *work* at trading. How much is your time worth? How much, per hour, do you need to make to get that hourly rate? How much do you have to risk to get that at your 1%? And how much will you lose if the market goes down -- because even if you wait it out, you are losing money every day that you are not getting some return on your investment if you focus on short term transactions.

However, it is your money. By all means speculate. If you make money, good for you. If you lose, then good for me, for the money you pump into the market will most like help to drive up my long term investments ;)

--Pete

[Guest]

On the topic of the Stock Market,

In grade school a teacher once remarked that the stock market was "just a horse race with higher stakes.&nbsp; Don't be fooled, it's the highest stakes gambling you can make."

So my best advice is to relax, drink a beer, and watch Horse Number 7 Luckystrike run to a photofinish...&nbsp; :P

Cheers,

Munk
[right][snapback]62808[/snapback][/right]

One can't compare horses races with the stock market.
If you lose a horses bet,you lose 100 % of your bet,whereas if you lose money by trading/day trading,you'll only lose a few percents of your capital.
When you lose 100 % of you bet on a wrong horse,it will be very difficult to get back what you lost,and harder to make a profit;unlike casino/horses bets,trading stocks is much much safer because the few % that cost you money,can be recovered the next day.