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9 Things You Should Do Instead of Buying Stocks

13 points by ankeshk 18y ago

Advice by a cartoonist (Scott Adams) on 9 steps to take to generate and protect wealth. Very timely.

run4yourlives 18y ago
Fund your 401(k) to the maximum. Fund your IRA to the maximum. How is this not buying stocks? Is he suggesting putting all this money in a savings account paying 3% interest?
- qqq 18y ago
  Presumably he wants you to do it like this: > Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement
- ibsulon 18y ago
  Adams argues that the individual should not be buying individual stocks. I tend to disagree for individuals willing to keep up with their stocks, and can read 10-Qs and other investment material. if you're doing the "buy and ignore" thing, however, it doesn't make much sense. I've been guilty of not being as active as I should be, relying on meta information far too often. However, the vast majority of my investment is outside individual stocks and in indexes.
  - tomsaffell 18y ago
    Right, he's saying don't trade individual stocks, buy indexes instead. I fully subscribe to this view, unless the individual is trading for a living (putting in many hours), and has enough capital that they aren't wiping out their gains (relative to the index) with trading costs and the opportunity cost of their time. IMO, you can read all the investment material that you like, but if you have access to the same information as the market then you wont outperform the market on a gross basis, and if you have lesser scale than professional traders then you will under-perform it on a net basis (after costs).
  - run4yourlives 18y ago
    Sorry, but let me get this straight. There are people out there that buy stocks before contributing to their 401k's? Aren't 401's tax deferable? Aren't normal capital gains taxable? This is about as dumb as putting money into your savings account before paying off your cc debt. Math. I suppose it's not everyone's strong point.
    - nostrademons 18y ago
      401ks often get a company match as well, which is a wonderful thing.
      - comatose_kid 18y ago
        And you can trade individual stocks in your 401k.
        njharman 18y ago
        I can't.
        comatose_kid 18y ago
        I should have qualified that - your company's 401k partner needs to support it. We use fidelity where I work, and you can sign up for a self directed brokerage link account. This is a relatively new option for us.
- fallentimes 18y ago
  401k != stocks. You can have it in a money market account while still receiving the 401k/IRA benefits.
  - run4yourlives 18y ago
    These days, it's probably safer to just be in stock. :)
    - fallentimes 18y ago
      haha touche. Man the beer is going to taste extra good tonight.
- tomsaffell 18y ago
  401(k)s can contain many types of assets, depending on the provider. For example, mine has stock-only indexes, bond indexes, mixed funds (stocks and bonds) but ALSO it has fixed income funds, which return ~4.8% pa. That's not going to make you salivate, but it's not a bad place to be if you believe the market is over priced. 401(k)s can (and should) be invested across a portfolio of different asset classes (and geos) according to your retirement needs. Asset allocations should be changed over time as retirement nears. this is my personal opinion, not financial advice :)
- skittles 18y ago
  The article isn't titled well. Three of the 9 rules involve buying stock.
markessien 18y ago
Yes, do this if you have a steady job and you plan to live comfortable when you retire. This is a path to comfort, not a path to wealth. So it's not for everyone.
comatose_kid 18y ago
I disagree with the disdain for stock picking. If you have a longer term outlook (5 years or more), you will kick yourself if you don't buy now. I'd stage my buys (since I can't call a bottom) in individual high quality stocks.
- gcv 18y ago
  Or you'll kick yourself when your picks tank. Feel free to buy individual stocks, but only with money you can afford to throw away. Picking stocks is gambling, pure and simple. Fun as it is, you should not expect to retire and live comfortably from your winnings. Study after study has shown, quite rigorously, that there exists no method at all for picking winning stocks. Feel free to read A Random Walk Down Wall Street for a more detailed analysis.
  - comatose_kid 18y ago
    I've read that book, and a bunch of others. There is a method for picking winning stocks. Buy low, wait, sell higher. If you are disciplined, it is not gambling, unless you believe in the efficient market theory. Looking at how certain stocks are valued today, I don't see how anyone could believe that. Of course, a stock that is valued below book could still drop further. And that is why you stage your buys, and must be ready to hold for the longer term. Right now, we have a bunch of stocks with historic lows. I stand by my assertion that now is a great time to pick stocks if you meet the above provisions. As with all things, there is no reward without risk - but you can manage your risk in various ways (staging buys is just one).
    - lacker 18y ago
      "Buy low and wait until you can sell high" is not a method for picking winning stocks. If you buy a stock, then wait until its increase has exceeded inflation, you may find yourself waiting forever.
alecco 18y ago
A lame blog entry on a very old blog post by Scott Adams. Where's the HN-worthy angle?
13ren 18y ago
The market has got everything on special - whatever you do, DON'T BUY! ...unless you want to end up like Warren Buffett - who loves downturns because that's when he can stock up on his favourites, at discount prices. He hates booms, because everything is overpriced, and there's nothing to buy. He folded his first partnership because of that. Of course, the advice for the stocks is the same now as always: don't buy unless you understand what you're buying (although, you might buy a little, as an educational experience). If you can't place a rough value on it (so you know if it's overpriced or underpriced) and are confident it has an enduring competitive edge (so it will compound, buy an index instead. (Scott recommends index funds in: 8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.
13ren 18y ago
um investing in a better server? goog cache: http://72.14.235.104/search?q=cache%3Ahttp%3A%2F%2Fwww.fool.com%2Finvesting%2Fhigh-growth%2F2008%2F10%2F23%2F9-things-you-should-do-instead-of-buying-stocks.aspx&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a http://72.14.235.104/search?q=cache%3Ahttp%3A%2F%2Fwww.fool....

13 points by ankeshk 18y ago

Advice by a cartoonist (Scott Adams) on 9 steps to take to generate and protect wealth. Very timely.

Fund your 401(k) to the maximum. Fund your IRA to the maximum. How is this not buying stocks? Is he suggesting putting all this money in a savings account paying 3% interest?

qqq 18y ago
Presumably he wants you to do it like this: > Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement
ibsulon 18y ago
Adams argues that the individual should not be buying individual stocks. I tend to disagree for individuals willing to keep up with their stocks, and can read 10-Qs and other investment material. if you're doing the "buy and ignore" thing, however, it doesn't make much sense. I've been guilty of not being as active as I should be, relying on meta information far too often. However, the vast majority of my investment is outside individual stocks and in indexes.
- tomsaffell 18y ago
  Right, he's saying don't trade individual stocks, buy indexes instead. I fully subscribe to this view, unless the individual is trading for a living (putting in many hours), and has enough capital that they aren't wiping out their gains (relative to the index) with trading costs and the opportunity cost of their time. IMO, you can read all the investment material that you like, but if you have access to the same information as the market then you wont outperform the market on a gross basis, and if you have lesser scale than professional traders then you will under-perform it on a net basis (after costs).
- run4yourlives 18y ago
  Sorry, but let me get this straight. There are people out there that buy stocks before contributing to their 401k's? Aren't 401's tax deferable? Aren't normal capital gains taxable? This is about as dumb as putting money into your savings account before paying off your cc debt. Math. I suppose it's not everyone's strong point.
  - nostrademons 18y ago
    401ks often get a company match as well, which is a wonderful thing.
    - comatose_kid 18y ago
      And you can trade individual stocks in your 401k.
      - njharman 18y ago
        I can't.
        comatose_kid 18y ago
        I should have qualified that - your company's 401k partner needs to support it. We use fidelity where I work, and you can sign up for a self directed brokerage link account. This is a relatively new option for us.
fallentimes 18y ago
401k != stocks. You can have it in a money market account while still receiving the 401k/IRA benefits.
- run4yourlives 18y ago
  These days, it's probably safer to just be in stock. :)
  - fallentimes 18y ago
    haha touche. Man the beer is going to taste extra good tonight.
tomsaffell 18y ago
401(k)s can contain many types of assets, depending on the provider. For example, mine has stock-only indexes, bond indexes, mixed funds (stocks and bonds) but ALSO it has fixed income funds, which return ~4.8% pa. That's not going to make you salivate, but it's not a bad place to be if you believe the market is over priced. 401(k)s can (and should) be invested across a portfolio of different asset classes (and geos) according to your retirement needs. Asset allocations should be changed over time as retirement nears. this is my personal opinion, not financial advice :)
skittles 18y ago
The article isn't titled well. Three of the 9 rules involve buying stock.

markessien 18y ago

Yes, do this if you have a steady job and you plan to live comfortable when you retire. This is a path to comfort, not a path to wealth. So it's not for everyone.

comatose_kid 18y ago

I disagree with the disdain for stock picking. If you have a longer term outlook (5 years or more), you will kick yourself if you don't buy now. I'd stage my buys (since I can't call a bottom) in individual high quality stocks.

gcv 18y ago
Or you'll kick yourself when your picks tank. Feel free to buy individual stocks, but only with money you can afford to throw away. Picking stocks is gambling, pure and simple. Fun as it is, you should not expect to retire and live comfortably from your winnings. Study after study has shown, quite rigorously, that there exists no method at all for picking winning stocks. Feel free to read A Random Walk Down Wall Street for a more detailed analysis.
- comatose_kid 18y ago
  I've read that book, and a bunch of others. There is a method for picking winning stocks. Buy low, wait, sell higher. If you are disciplined, it is not gambling, unless you believe in the efficient market theory. Looking at how certain stocks are valued today, I don't see how anyone could believe that. Of course, a stock that is valued below book could still drop further. And that is why you stage your buys, and must be ready to hold for the longer term. Right now, we have a bunch of stocks with historic lows. I stand by my assertion that now is a great time to pick stocks if you meet the above provisions. As with all things, there is no reward without risk - but you can manage your risk in various ways (staging buys is just one).
  - lacker 18y ago
    "Buy low and wait until you can sell high" is not a method for picking winning stocks. If you buy a stock, then wait until its increase has exceeded inflation, you may find yourself waiting forever.

alecco 18y ago

A lame blog entry on a very old blog post by Scott Adams. Where's the HN-worthy angle?

13ren 18y ago

The market has got everything on special - whatever you do, DON'T BUY! ...unless you want to end up like Warren Buffett - who loves downturns because that's when he can stock up on his favourites, at discount prices. He hates booms, because everything is overpriced, and there's nothing to buy. He folded his first partnership because of that. Of course, the advice for the stocks is the same now as always: don't buy unless you understand what you're buying (although, you might buy a little, as an educational experience). If you can't place a rough value on it (so you know if it's overpriced or underpriced) and are confident it has an enduring competitive edge (so it will compound, buy an index instead. (Scott recommends index funds in: 8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.

13ren 18y ago

um investing in a better server? goog cache: http://72.14.235.104/search?q=cache%3Ahttp%3A%2F%2Fwww.fool.com%2Finvesting%2Fhigh-growth%2F2008%2F10%2F23%2F9-things-you-should-do-instead-of-buying-stocks.aspx&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a http://72.14.235.104/search?q=cache%3Ahttp%3A%2F%2Fwww.fool....