When we sold the business, we put all of the money into mutual funds which were designed to provide an income for life. But after a few years we discovered that the funds, while providing an income, were providing it for the fund managers and not us!
So six years ago I decided to take over management of our money. And since the fund managers and poor market conditions had worked together to reduce our money to about one-third of what it had been, I was in a difficult position; I had never traded stocks on the stock market. I was in my 60's, a time when I was supposed to be able to sit back, enjoy life and clip coupons. Now it was obvious that I would have to throw caution to the wind and invest like I was 30 years old with a life-time ahead of me, rather than a senior in the autumn years of life.
I opened two trading accounts; one with an online brokerage, Scottrade, and another with a full-service broker connected to Wedbush Securities. I closed the mutual funds and had the major portion of our remaining funds placed with Wedbush, while I opened a small online account "to play with".
At this point I also started my education process. What was a security? What was a bond? What was an option? These were all questions that required answers, as well as many others. In other words, I was totally ignorant. (It is at this point that I feel I must warn you - Do not try this at home!) I started reading everything I could find available, including the history of the market and and why it functioned. I also took investing seminars, many of which are designed to sell the participant some "investing system". I soon discovered that expert stock market concepts were like belly buttons; everybody has one!
And the confusing thing is that every expert opinion has merit, even though it might run completely counter to some other expert opinion. In the investing world there are two general schools of thought. Once concept is positive, hoping for the market to go up. The opposing concept are those negative investors who are betting that the market will go down. We call the positive investors Bulls while the negative investors are Bears. The people who feel that the country and world is headed for a general financial break-down are in the Bear camp. If you are optimistic about the future you are probably a Bull.
Among professional investors there are those that play both sides, Bears and Bulls. But generally they have a prevailing Bull or Bear philosophy. When you are listening to experts present their positions, it is good to know what is their basic philosophy. If you read their blogs or follow their TV interviews, it usually does not take too long before you know where they are coming from.
My personal philosophy tends to be Bull-ish. But even I have made a few Bear movements. An example of this was the BP oil company shortly after the oil-spill disaster occurred. I bet that their stock would go down, which seemed obvious. And it did, rewarding me with several thousand dollars for my effort. But generally I look for stocks that will be going up in value.
I probably should explain some market terminology. The term that is frequently tossed around is security. We all want to be secure, right? But in market jargon security means a "share of stock". So if someone says they are buying a certain security, they are buy a cetain stock. Another pair of terms that you hear frequently is long and short. You will hear these words used in this context - An investor will say he is long or short a particular stock. To be long means he is betting on the stock going up in value while being short mean he is betting on it going down in value.
Another terminology issue that needs to be understood is the difference between investing and trading. Investing is what happens when you make long-term purchases of secutities. The term can also refer to bonds, real estate, gold, or wheat, etc. But for our purposes we will be using the term in regard to buying stocks. Trading, on the other hand, is short term buying of stocks with the purpose to make a quick profit and get out. You have probably all head the term day-trader. A day-trader is a person who purchases stocks in the morning and sells them before the market closes the same day. The ability to trade stocks on the internet has made this practice very popular. The low transaction costs online help to increase the potential profit. But I do not recomend day-trading except in emergency situations. An example would be when during the day the particular company you have purchased has a disaster of some sort that will drastically impact the company. Get out of that stock ASAP, because it will only get worse as the days go by. It is better to take a two-dollar loss than to wait a week and have the stock down 50%.
My stock purchasing practices tend to fall into the trading catagory. While not day-trading, I look at windows of one month, plus or minus, depending on how the company progresses. My goal is to make 5% a month profit. This may seem to you to be a huge amount when considered over a year. But I have been able to accomplish this, even during the economic disaster of the past two years. This success did not happen right away when I first started. In fact, the price of "tuition" in the "school of hard-knocks" could have probably purchased a doctorate degree from Harvard.
In the coming days and weeks I will be telling you more about my experiences, successes and failures. I want make a caviot here, and that is this: I do not recomend that anyone copy my methods or begin to trade stocks! My circumstances are unique to me, my life is different than yours. What works for one may not work for another.
I want to close today's blog with this thought. Without God's help and guidance, none of us can be "All that we can be". I don't mean that God guarantees financial success or security. But in all areas of life, God has a plan for each individual that He has custom-tailored just for you. Regardless of what God has planned for you, when you are in step with His will, you will discover the real joy of life that He wants for all of His children.
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