I'm considering investing heavily in the economic sector

[Sad, little man]

Well, part of being single, having a decent job, and not owning any nice new stuff that I make payments on is having a metric assload of liquid assets on hand.

For a long time I've been considering making some equities investments. I'm kind of kicking myself because last year was obviously the time to really invest, but then again I can chock that up to hindsight always being 20/20, and things were much different last year.

But, one sector that definitely still has not taken back off is various financial companies. To me, companies like BofA, Citigroup, and (maybe) AIG are shadows of their former selves, but at the end of the day we're still going to need financial institutions when the economy starts expanding again. I doubt the stocks will ever get to where they have been before, but it's hard to pass on some Citigroup stock at $3/share.

Now, undoubtedly those companies are big risks because there are likely still a lot of changes ahead for them (including some outright failures), but I was also looking at the major credit card companies. Both Visa and Mastercard made their initial offerings not long before the market collapsed, and I feel that they're both going to continue to grow and expand as the economy gains steam again.

Anyway, I wanted to post this because I respect a lot of peoples' opinions on this board, and I wanted to get your take before taking the plunge. Note that I'm not looking for extremely short term investments, but I feel that in a year or two the economy will continue its steady expansion after the sharp contraction we've experienced, and I'd really like to take advantage of that.

Yes, I'm also probably going to diversify with some other industries, and I already have a mutual fund going, but I am really betting that there are still a lot of scared investors that are keeping financial stocks on the undervalued side.

[Fogelhund]

I'd take a look in here instead, or the KRE.

http://www.kbw.com/research/KRX.asp

[ettsn]

Absolutely diversify the risk. That said, the financials can be a nice play if you pay attention. BAC has been growing of late, and C has shown some rebound as well. (Keep in mind that while it looks cheap at ~$3, it's 52w is less than $6 anyway. I would shed your long north of $4.50 or so and take the gain. Also note C's beta is nearly 3.) I think we're going to see a lot more volatility in the sector before it makes a solid comeback, but if you're okay with the risk and plan to hold, buying securities in the sector could be a great long term strategy.

For long term, you may also want to seek a financial sector ETF, such as VFH, PJB or IAT. An ETF will conglomerate, diversify and net average your gain and loss. Basically, you mitigate one bank doing something stupid and simply count on banks in general to rebound.

[ettsn]

I see Fogel is on the same wavelength!

[dicknose]

Do you think you are a better judge of stock value than most analysts?
If so - then go for it.
If not - then why not buy into a fund that does that for you?

[IMOA]

I've got a friend who's a senior currency trader with citigroup, he's lived the last 12 months expecting the 'don't come in tomorrow, we're insolvent' call. If you have the spRe cash go for it but you really should consider it to be no different to dropping 6 figures at the track.

[mc_hammer]

I think the whole thing is one or two news bulletins away from disaster. These things don't come with a warning. Invest in something long-term but don't look for short-medium term gains.

[Varthlokkur]

Originally Posted by dicknose

Do you think you are a better judge of stock value than most analysts?
If so - then go for it.
If not - then why not buy into a fund that does that for you?

And, I swear by this guy, his radio program, and his advice

http://www.bobbrinker.com/

[Balki]

Originally Posted by dicknose

Do you think you are a better judge of stock value than most analysts?
If so - then go for it.
If not - then why not buy into a fund that does that for you?

b/c Ford gained something like 900% in a year, these funds will take decades for that.

with that said I'd be a bit shakey on Citi.

I already have a mutual fund going

sounds like you're already diversified; i say go for it.

edit: it sounds like you're young (as in you'll probably be in the workforce for 25-35 years more); stay away from too much diversification. You have something like a 99% chance that the market will outgain safe investments (gov't bonds...) in that timeframe.

[mc_hammer]

Lithium mining companies worth a bet long-term?

[Fogelhund]

Originally Posted by mc_hammer

Lithium mining companies worth a bet long-term?

Depends on the individual company's fundamentals.

For diversification, buy stocks in countries with stable governments, in your domestic currency, or one that will be appreciating against your currency. Buy stocks that will pay you today to own them, or are in areas of growing global demand.

[mc_hammer]

I was thinking about the whole fuel cell thing kicking off over the next decade?

[Jason]

I can't even begin to understand the stock market, so I like ideas like DN's where you let someone with better knowledge play with your money instead.

[ettsn]

Originally Posted by mc_hammer

Lithium mining companies worth a bet long-term?

Unobtanium mining is a good bet, so long as they can solve the 'natives' problem.

[Andy]

I think you should invest in the spice mines on Kessel.

[ettsn]

Without diving into a deeper discussion than you probably intended, are you familiar with the CAPM (capital asset pricing model)? If so, are you familiar with Jensen's Alpha? Try this calculator:

http://www.moneychimp.com/articles/valuation/capm.htm

Jensen's Alpha is derived from CAPM, and is a measure of a security's ability to "beat the market". To compute this, simply subtract your CAPM from the actual return. A security(or fund, or portfolio) with a positive alpha is ahead of typical market returns.

Of course, past performance is not an indicator of future performance and all investments can gain or lose value, yadda, etc.

[Kellen]

Originally Posted by Andy

I think you should invest in the spice mines on Kessel.

Phil Kessel ftw

[Lordy]

Not sure what I could recommend...I'm still learning about stocks/options.

I'll just say know what your objectives are and invest in whatever makes sense to you. Do your due diligence and manage your risk. Whatever you do, be mentally prepared to lose money. It's a reality with any investing/trading.

[Crazed_insanity]

Originally Posted by Lord S

Not sure what I could recommend...I'm still learning about stocks/options.

I'll just say know what your objectives are and invest in whatever makes sense to you. Do your due diligence and manage your risk. Whatever you do, be mentally prepared to lose money. It's a reality with any investing/trading.

Not sure about that. Although investing can be a lot like gambling, but we shouldn't really mentally perceive 'investing' as gambling. What's the point of preparing ourselves to lose money? In gambling, odds are NOT in our favor. Longterm wise, gamblers can only lose money. Investing is different. In the longterm, we can only make money. In a healthy economy, stock market... the whole economy should be growing! So as long as we buy the companies we believe in (that means it has sound fundamentals), then it'll be hard to lose money longterm even if you bought at top of the bubble!

Now, I did 'gamble' my money when I bought Ford at $1.6 a year ago. I was betting on not all Big 3 would go under. Luckily things worked out for me. As for the financial companies of today... I'm not so sure. Govt probably won't be too keen on bailing anybody out any time soon. GM were bailed out, but that doesn't mean GM stock holders were saved. Anyway, unless you really have a special dear bank in mind, I'd advise against buying those kinda stocks now. They're not really dirty cheap now like a year ago..., plus, do you really think their values will return to their old glory days of the past? Doubt it.

If I have cash sitting around now, I'd rather buy a house... or rental properties... or buy stuffs that have only limited supplies of! Electronics, cars, even dollars can only lose value over time. Gold is also too pricy now..., so yea, real estate is probably the best investment now.

[Sad, little man]

Originally Posted by mc_hammer

I think the whole thing is one or two news bulletins away from disaster. These things don't come with a warning. Invest in something long-term but don't look for short-medium term gains.

Well, I think if today proves anything, (and it really doesn't, but it's fun to think it does) it's that the same companies that are one news bulletin from disaster are also one bulletin away from taking off. Here's how Citi did today. Hmmm....

[dicknose]

Originally Posted by Balki

b/c Ford gained something like 900% in a year, these funds will take decades for that.

And other guesses at stocks could have your money halved or worse in a year.

If its that easy to pick the stocks that will go up - then these funds would be doing that.

And a good fund should be well ahead of the market index.
Its balancing risk for reward - with a fund you pay a fee for someone to make the informed decisions. Thats a bit less reward for you, but ideally it means less risk.

[dicknose]

Originally Posted by ettsn

Of course, past performance is not an indicator of future performance

It probably is - but its not a guarantee!

Its a bit like sports - a winning team is probably going to win their next game, but its not certain.
And also like a team - you might need to worry about who is in the team. If you pick a fund it might be worth keeping an eye open for reports about it or the people running it. If the top people go, its more likely that future and past performance will differ!

[Lordy]

Originally Posted by Crazed_insanity

Not sure about that. Although investing can be a lot like gambling, but we shouldn't really mentally perceive 'investing' as gambling. What's the point of preparing ourselves to lose money? In gambling, odds are NOT in our favor. Longterm wise, gamblers can only lose money. Investing is different. In the longterm, we can only make money. In a healthy economy, stock market... the whole economy should be growing! So as long as we buy the companies we believe in (that means it has sound fundamentals), then it'll be hard to lose money longterm even if you bought at top of the bubble!

I never said anything about gambling...just advising that attention always needs to be given to risk. Nothing is certain in life, (with the exception of Ford last year, of course ). I think it's naive, egotistical, and foolhardy to believe that whatever you invest in is automatically going to go up if you close your eyes and wake up five years later. More and more big investment firms are engaging in speculative activities rather than focusing on long-term investing, and ultimately they're the ones that move the market. Not little guys like us. If they're heavily invested in something you're considering, then it just adds to risk.

If I were investing heavily in a stock, I would definitely consider buying a put option to cover the downside.

[dicknose]

Originally Posted by Crazed_insanity

Not sure about that. Although investing can be a lot like gambling, but we shouldn't really mentally perceive 'investing' as gambling.

Why not? In some ways thats the best model to use.

What's the point of preparing ourselves to lose money?

So you can decide if you could live with losing some or most of your money.

In gambling, odds are NOT in our favor. Longterm wise, gamblers can only lose money.

Thats true in most gambling situations but not all.
Bookies also gamble, just that they are on the other side.
But they can lose money, just like you can win money.
They also do stuff to balance risk/reward such as laying off bets.

Investing is different. In the longterm, we can only make money.

Not true.
Even if the "whole" can only make money it doesnt mean that applies to any individual person or investment, or that it applies to any fixed period of time.
And the time can be critical - if you need to get cash back from your investments at a time when you are behind then thats not good. You might not always be able to wait for an up turn.

then it'll be hard to lose money longterm even if you bought at top of the bubble!

Sure - but how do you know you have the right company before hand?
For every microsoft there is a dozen companies that have gone bust that at some point would have looked just as sure a bet.
And as I said above - what if you cant wait and need to cash out.

Now, I did 'gamble' my money when I bought Ford at $1.6 a year ago.

Yes.

In terms of thinking "I could lose it all" - you should still do that.
If you put $2k into Ford what would happen if the price halved and you lost $1k - would you go broke, be forced to sell other stuff etc?
No - so it was a gamble you could afford to take and if the worst happened it would be bad but not devestating.

But it was a risk that your investment could have gone down.

If I have cash sitting around now, I'd rather buy a house
so yea, real estate is probably the best investment now.

But its also a bigger investment - and for most people it means a mortgage on ongoing payments.
If you arent sure of job stability its a big risk, while stocks arent so bad as they are very liquid and dont require anything more than your initial investment (and the size of that can be reasonably small)

Is it a gamble - yes.
The odds are in your favour, but you need to look at risks and balance that against return and your dependance on getting your initial investment back.

[Lordy]

Personally I think buy and hold is dead because nobody's really reinventing the wheel - with anything. It's not like the days of Carnegie and JP Morgan where there was this huge industrial revolution. Technology is iffy at best (see dot.com bubble) and financial companies are treading water.

I'd trade options rather than buy stock. Going for a string of short-term gains makes more sense to me than dropping a chunk of cash into the stock market hoping it'll go up. Options are less costly - risk is defined to the penny, and earnings can be explosive. That's just me.

[ettsn]

Originally Posted by dicknose

It probably is - but its not a guarantee!

Ah, the joke here was lost on people from elsewhere. In the US, every ad for anything related to investments always has the disclaimer at the end saying something like "past performance doesn't indicate future returns" and "investments have risk, often substantial" and somesuch legal garbage always tagged on the end.

[dicknose]

Originally Posted by ettsn

Ah, the joke here was lost on people from elsewhere.

We have the same here.

But there is a big difference between (first couple from google)
Past performance is not indicative of future performance
and
Past performance is a guide to, but never a guarantee, of future performance.

The first is such a wimpy warning and technically is not even true.

[mc_hammer]

Originally Posted by Andy

I think you should invest in the spice mines on Kessel.

I was thinking more about Nevada and Arizona.

[mc_hammer]

Originally Posted by Sad, little man

Well, I think if today proves anything, (and it really doesn't, but it's fun to think it does) it's that the same companies that are one news bulletin from disaster are also one bulletin away from taking off. Here's how Citi did today. Hmmm....

That's not really a significant change, especially in a volatile market.

[Jason]

Originally Posted by mc_hammer

That's not really a significant change, especially in a volatile market.

11.3% isn't much? Volatile market? What determines if its volatile?