More on stocks
Jul. 17th, 2003 12:47 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
andrewduckerThe gullibility of the general public is fairly limitless.
I remember, back when the internet stocks were booming, chatting to a friend at work about them and discovering that her father was investing in stocks. Once a week he got a pamphlet that told him where to invest, and he followed the instructions.
Which reminded me of a saying I bumped into "When the ordinary person invests in stocks, it's time for the professional to leave."
The sheer stupidity of investing in stocks that you know nothing about, when you know nothing about how stocks even work is boggling to me. If you, yourself, don't even know how a stock is valued compared to the actual earnings of the company, then you have no business buying stocks at all.
I have, somewhere, half of a piece I started on why the stock market behaved as madly as it did over the last few years. I'm tempted to dig it back out again.
I remember, back when the internet stocks were booming, chatting to a friend at work about them and discovering that her father was investing in stocks. Once a week he got a pamphlet that told him where to invest, and he followed the instructions.
Which reminded me of a saying I bumped into "When the ordinary person invests in stocks, it's time for the professional to leave."
The sheer stupidity of investing in stocks that you know nothing about, when you know nothing about how stocks even work is boggling to me. If you, yourself, don't even know how a stock is valued compared to the actual earnings of the company, then you have no business buying stocks at all.
I have, somewhere, half of a piece I started on why the stock market behaved as madly as it did over the last few years. I'm tempted to dig it back out again.
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no subject
Date: 2003-07-17 05:42 am (UTC)I've been having an ongoing discussion/argument with my dad on this very subject.
He still feels that he was mis-sold his Unit Trust, as he was told about the gains he *might* experience, but felt it was never explained that he could lose money. He reckons it should be illegal to sell Unit Trusts, as people could always lose on them. On of his fairer arguments, admittedly, is that companies shouldn't be allowed to charge fund management charges unless they actually make a profit on investments - a bit like charging for a job that you don't do.
I have a little sympathy with him, but his sheer ignorance on the subject annoys me. I wouldn't blindly trust ANYONE with my money - I'd find out everything I could about what was planned to be done with it. My dad's an intelligent guy - he has no excuse for not understanding the risks of Unit trusts other than being lazy. Which is where my sympathy runs out.
Plus, of course, the took it out about three years ago, since when it has practically lost money every month due to the declining stockmarket. And then they cashed it in, so as not to suffer any more losses, despite my protestations about that being as stupid a move as they could make.
*sigh*
no subject
Date: 2003-07-17 05:46 am (UTC)I'm sure there are people out there that will work on a 'percentage of the profits' basis (although possibly not at the moment).
And you're right, leaving the stockmarket now is pretty darn dumb.
If he wants a guarunteed income, he should have gone for bonds, or a high-interest bank account.
no subject
Date: 2003-07-17 05:55 am (UTC)And yeah, they charge money for a level of expertise. However, if they don't display (and therefore, presumably don't have) any expertise, should they get away with charging for it?
Liken it to anything else. You contract a guy in to remodel your garden. He does a crap job - the lawn dies, the wall falls down, the fences are rotten. You wouldn't pay.
We only have a fund managers word to say that they actually know what they're doing. If they don't prove that, then should we have to pay?
no subject
Date: 2003-07-17 05:59 am (UTC)I assume your parents looked at the previous results for several fund managers before choosing one they liked...
no subject
Date: 2003-07-17 06:02 am (UTC)Again, against my better advice.
*sigh*
no subject
Date: 2003-07-17 06:11 am (UTC)Sigh.
no subject
Date: 2003-07-17 06:09 am (UTC)-----------
I'd say a better metaphor is to pay someone to organise you a holiday with sunny weather. Often, a good agent will know where the sun is statistically likely to shine, know the past years' records and have a gut instinct in predicting a good holiday location this time around. If they send you to Malta in July and you have shitty weather, it's hardly their fault. If they send you to Nova Scotia on the other hand, fire their ass. If you don't even check where they send other people, it's your own dumb fault.
no subject
Date: 2003-07-17 06:36 am (UTC)no subject
Date: 2003-07-17 06:48 am (UTC)no subject
Date: 2003-07-17 10:03 am (UTC)Move along now, nothing to see here.
no subject
Date: 2003-07-17 11:54 am (UTC)The best way to look at professionalism cannot be to say it must be better than average. Viewing things in that light, 50% of accountants, lawyers and Doctors would be held to not be professional.
A professional has a higher legal duty of care to his clients, and should be striving to perform. Further, most professions, (such as Accounting, Law, Doctoring) have strict professional bodies, and legal acts governing exactly what is and is not within the realms of this duty of care.
I suspect that it is well within the duty of care for a professional investor to lose money on your investment. You'll find that they probably draw the line on 3 fronts; 1: Taking your money, 2: knowingly investing your money in areas where you have specifically requested it not be invested, 3: Lying to you about your funds performance.
If they haven't done that, then they've done their job. Even if they've sent you to Bogna Regis instead of Benedorm.
:o
Adam
no subject
Date: 2003-07-17 05:53 am (UTC)Tracking the index (FTSE or Dow or whatever) is a fairly conservative strategy as far as investing in the stock market goes, as long as you think long term [10yr plus] and do it as regular payments (so that if the market dips, OK your existing investment drops, but you are also buying when it's cheap, and so gain more on those bits when it goes back up [as it eventually will, or we are in enough shit that I'd not be worried about my investments]). You still don't ever play with money you can't afford to lose.
I have a FTSE tracker ISA (actually it was my PEP back when they were PEPs) that has run the 5 years next year. Of course it has lost, as the market has dropped since 1999, but I'l probably roll it over if I can (there is the possibility that I might have more need of even the reduced amount of cash rather than tying it up again for years).
For 'normal' investing, you have to understand how it works (not least that the markets mainly run on 'fashion', gossip and rumour) and to work at it, and if you haven't the time and the the money to burn, you shouldn't do it.
no subject
Date: 2003-07-17 08:18 am (UTC)A very knowledgable investor can beat this strategy by a percent or two -- but the average investor, who might have £10,000 stuffed away -- would see just £100 or £200 extra a year, for a lot of extra work.
heh
Date: 2003-07-17 07:12 am (UTC)So, are you putting money into stocks now, when the average investor thinks they're a terrible investment?
Or are you more interested in ridiculing others for their gullibility than proving your own sensibility? ;)
FWIW: I lost about half the $ I put into the stock market (and they were pretty vanilla investments -- no Enron, WorldCom and few internet stocks) but hey, I was 23 and it wasn't that much money to begin with. :)
Re: heh
Date: 2003-07-17 07:21 am (UTC)If I did, I'd say that right now is the perfect time to be investing, so long as you are careful about what you buy, and go for undervalued stocks.
Re: heh
Date: 2003-07-17 07:39 am (UTC)Re: heh
Date: 2003-07-17 07:46 am (UTC)What are house prices doing near you at the moment? Stabilising? Rising slowly? Falling?
Re: heh
Date: 2003-07-17 08:16 am (UTC)Yorkshire area is fast riser right now.
Re: heh
Date: 2003-07-17 08:28 am (UTC)And I don't think the rises are sustainable, but they shouldn't drop away either, so long as the monthly payments stay bearable. So if interest rates keep dropping, the prices can keep going up.
Re: heh
Date: 2003-07-17 08:15 am (UTC)no subject
Date: 2003-07-17 09:19 am (UTC)Spread your investments!
Some in property, if you can afford it, some in stocks, bonds maybe and other sources that you know about.
Hell, if you know cars - buy a classic that you know will gain value!
The more baskets your eggs are in the better - one of the reasons the housing market has been so strong is the large number of people investing in buy-to-let because the stock market is pants.
no subject
Date: 2003-07-18 11:22 am (UTC)no subject
Date: 2003-07-18 11:48 am (UTC)