Thursday, October 09, 2008

Lessons Learned From a Week of Bottom Feeding

I've used this recent market crash to finally buy some stocks. While I've watched various companies for quite some time, nothing clarifies your thought processes like actually putting money in play. With a little less than a week under my belt, I thought I'd share my tremendous wisdom* with you.
  • In a wildly volatile market like this, you might as well put in your bids 5-10% below the current price. Chances are very good that the stock will sink down and hit that price. I've bought everything at market and left at least 5% on the table. Owie!
  • I don't understand technical analysis of stocks. I'm not sure I want to. However, I do understand balance sheets and cash flows. In this crash, the good and the bad have been slaughtered alike. However, there are distinct differences between them. Right now, short-term financing is tight. Every stock I've bought has been a company with enough cash to pay off all of their short term debt and have plenty left over. None of them will have problems because they can't roll over their short term loans.
  • In the short run, the market is an irrational mob. In the long run, well-managed companies are rewarded.
  • I don't understand technology stocks. I understand technology, but I don't see it as a necessity. My router works just fine. Why do I want a new one? Dittos for a computer and a cell phone. Oil, on the other hand, I need every day. I've always been a loser in this way. I've never understood the attraction of Apple.
  • I don't mind missing out on stocks that skyrocket up and make their investors rich. Apple, for example. I just don't get it so I'm not going to buy it.
  • Lots of well-run companies are being murdered right now. Companies with long histories and excellent market positions. With capital gains whacking your profits if you sell less than a year after you bought, many of these companies will probably be in terrific shape in a year. I'm learning to think of my stock investments as a 1 year CD.
  • I buy companies that make the things I use and understand. When I read the financial blogs and see hot tips on stocks I've never heard of, I run away. So what if I miss out on something marvellous? All I want is a better return on my money than the 2% I was getting in my savings account. Given the insane sell off in the market, a year from now a 2% return would seem likely.
  • If not a year from now, then 2 years from now. Once the money is invested, I'm not taking it back out until the company I invested in has been ruined by incompetent management or I've got a decent return.
  • That means I only invest money that I can afford to park for a long, long time.
  • By being conservative choosing companies, I'm betting I can avoid incompetent management.

There. That's a week's worth of wisdom from trading stocks based on 15 or so years of business management, marketing, sales and organizational turn-arounds in the real world.

* - this wisdom is being dispensed by a cat. Take it for what it's worth. Not much.

Update: It was another very bad day. Owie owie owie owie owie! :-)


Anonymous said...

And just wait until the cap gains taxes go up... will make you question the wisdom of selling that much more. And hold the stocks long enough and you get to figure out the splits and reverse splits and mergers and arrrrghhh....

Anonymous said...

"I don't understand technical analysis of stocks. I'm not sure I want to."

Just my opinion, but you don't want to. You might as well read goat entrails.


K T Cat said...

"Just my opinion, but you don't want to. You might as well read goat entrails."

The little bit I've seen makes me agree with you.

Rose said...

Definitely going to be some buying opportunities. If you do own stock, sit tight.