Playing the Market

[nimtz]

How do you guys handle your investments while flying the line? I'm just looking to get into the market now, but I'm still weighing my options as to whether to use a broker or something like datek. I like the individual touch of datek, but I'm worried that I'll go off on too many four days and not want to drag my laptop along. Any advice for an honest capitalist.

 

[BeechScrub]

With all of the great online brokers out there today, I would never go with a traditional broker. Unless, of course, I need someone to manage my multi-million dollar account. I am not yet fortunate enough to have that need.

Mutual funds were designed for investors who do not have time to research or track their investments on a regular basis. If you find a well-managed fund, you can do quite well. However, you will generally not find the type of returns that you will with stocks. The only time it takes you is to research which fund(s) to get into and when to get out.

If you want to go into the stock market, you will need to set aside about 2-4 hours per week to research and track your investments. If you are on the road a lot, or if you commute to another city, you can get an extra internet subscription to the city you go to often. If you are really up with the times, you can subscribe to one of the wireless ISP's like Roadrunner. I have never used one of those so I don't know how they work.

I subscribe to a weekly newsletter that points out some stocks that may fit into the strategies that I use. I research the stocks and invest in the ones that I think will pan out. The newsletter really cuts down on the amount of research that I have to do. There are a lot of newsletters out there to pick from. Hope this helps you out.

Another Honest Capitalist,

BeechScrub

 

[Twotter76]

If you are flying the line and have even a small idea about what is it that what to get into as far as the market is concerned then definitely open a Datek (or other appropriate online brokerage) account. There is certainly nothing wrong with having a good broker (finding one may be the trick). But realize that brokers are paid by commision and only make money when you trade stocks, and that their execution fees are very high.

My personal opinion on the subject (I used to work at a brokerage so I do have some legs to stand on here) is that with the new level of access that is available to us all on the internet in terms of stock information, there isnt anything a broker can do that I cannot do myself. And I can do it for less. Dont worry about dragging your laptop around, most hotels have internet access or failing that you can always go to a internet cafe, they seem to be everywhere.

One thing I have counseled many other pilots to do is when they buy into a stock, set a defined limit on where you want out on the high end, and then write a limit order for that price. Also write another lmiit order for a low end sell off as well. This is allieviate you from having to watch it all the time and if it does sell then you will be automatically notified. If by good fortunte it hits the upper limit order and sells and you think its going to go up again just re buy it and set a new set of limit orders, that way you are protecting your gains for minimal cost. I think Datek was charging me $10 for limit orders, maybe not even that much.

If you are unfamiliar with limit vs market orders just send me a PM and i'd be happy to help. Let us know how it works out for you, this is great time to get into the market. One of these days when I make those big captain bucks I will be able to afford to invest again too !

 

[Mr. Irrelevant]

Nimtz,


I would not worry about tracking stocks on a four-day. Unless you're day trading I think it is important to understand and define what your goals are in investing. Whether it is in individual stocks or mutual funds is irrelevant. I don't even believe that two to four hours a week are required to maintain knowledge of your investments. Particularly if you are using mutual funds to reach your investment goals. Up front, you should probably do more but as time goes by, that time requirement shouldn't be so stringent.

Peter Lynch, who many know as the former Superstar portfolio manager for Fidelity Investments advises people to stick to investing in what you know. For many on this board, one industry should pop to mind.

I would stay away from brokers. As another poster mentioned, they make their money from commissions so the more they sell you the more they make (they usually make a commission when you both buy and sell). All they do in regards to selling stocks is take the recommendations of the firm's analysts and translate and push what their firm wants sold at that time. True, most clients won't return if they don't make money but they really don't have the financial savvy a portfolio manager provides.

The portfolio manager (PM) through the mutual fund company offers diversification and professional money management. The diversification comes from the investing in the various industries of the U.S. and possibly the world. Simply investing in stocks will not guarantee a higher return than using a sound mutual fund and I'll bet most individual investors don't achieve higher returns than a portfolio manager over time. Using a mutual fund also reduces your expenses which can eat away at your returns very easily.

One issue Twotter didn't mention in regards to using limit orders is when selling, you generate a taxable transaction. Also, if that investment is made for purpose of building $$$ for a new house, retirement, etc, think about the lost opportunity cost of selling, waiting to see what happens to the stock, and then buying back in (and paying commission as well).

I use professional management for all my retirement goals, probably 90% of my invested dollars is with the pro's, 10% I play with based on my own evaluations.


Mr. I.


Mr. I.

 

[Cardinal]

I can wholeheartedly agree with Irrelevant and Mr. Lynch. Invest in what you know. But remember, this industry, after 100 years, is still not very good at making money. You have to balance the familiar territory against the smaller historical gains and increased risk usual seen in this sector. I've been able to make a fairly consistent 10% per year on a string of aerospace/airline stocks. But it's not for the faint of heart.

 

[Twotter76]

Ahh excellent point Mr. Irrelevant, to clarify any stock that you buy and hold for less than one year will fall under the short term holding captial gains taxes and your gains will be taxed at something like 39.6%, whereas if you hold them for more than a year then they are treated as additional income and will be taxed in your applicable bracket. Its true that you will pay more in execution fees but if you are only making $10 a trade you are probably micromanging your portfolio a bit.

I tend to invest for the near term and day trade so those of you reading this need to consider that my opinions are gear towards that. Much different rules apply if you are in it for the long term.

 

[AeroDMB]

REIT's

I've been reading if you have the time and money, investing in real estate is a smart decision (pilots have time). A REIT, Real Estate Investment Fund (i believe) is something I just discovered the other day. Anyone have information or experience with these? I know you just buy shares in a REIT, much like buying common stock in a company.

 

[flounder]

$

Glad someone brought up this subject. Here's my 2c worth.

Have strong opinions here because I've made lots of mistakes, lost, won, studied markets, read books, had luck, et all. And after
over 20 years of saving and investing(with the blunders as well as the help of a bull market), I was able to discontinue line flying
(reluctantly at first). Mention my case because financial independence can be achieved by any salaried worker over TIME.
Was not an employee of a major airline. No pension. Did not earn
six figure salary until about seven years prior to leaving the long
haul business. And yes I did have a life-but didn't spend all of each paycheck. That's obviously one key.

Sorry to carry on about my miserable backgroud, but a turning point for me was to finally read opinions from real people who made real money--J.P. Getty, Jesse Livermore, Darvas, O'Neil, etc.
-not the tipsters, salaried 'experts', or the long parade of stock pickers on CNBC. T*ts on bull.

Nimtz, you really got me interested for two reasons. Like lots of pilots here, you're probably fairly young and so have TIME! Time to save and invest. And you talked about "playing the market". Of course, any market(real estate, stocks, commodities, metals, etc)
is full of ruthless operators ready to skin casual 'players'. Yes, in a firey bull market like late 90's most of us can trade a little and make money. But all the great REAL investors, like those mentioned above, will tell you that the big money is made with the big swing, i.e. over time(like Darvas and others, fortunes can be made in a couple years or less with major leveraged bets, but
these successes are relatively few in number).

Suggestions from what I've learned: If you want to be active in markets(momentum investing in stocks, for instance), you must be driven. It has to be your major other activity in life besides family and job. Don't dabble in markets--unless it's a few hundred dollars a month-same as casino money for fun. If you are relatively young-20's, 30's, do the ritual save and invest thing--Vanguard(LOW FEES, etc!) index funds. It can work well-figure it
out--8-10%/year with constant money added each month. Better if starting from scratch that a base be layed--like $5-$10,000 gift from great aunt! Whatever.
One caveat: Anything can happen. If I were starting over as a young person saving and investing as a salaried worker, I would regularly contribute to low cost index funds(like Vanguard's). However, you have to believe the US will continue as a free and relatively business friendly country. And that world trade over time will remain open.

Of course, my tirade here deals with very liquid markets following the lead post. We all probably know pilots who own businesses. Worked with a guy who owns several large mobil home parks and is flying until he pays down the debt.

Anyway, enough. Thanks Nimtz for setting me off, I think. Optimistic about the future. Next project is to figure out how to format a message.

 

[surfnole]

I have to agree with flounder.

91% of fund managers failed to beat the unmanaged S&P 500 index fund over the last 5-10 years. Vanguard has the cheapest (lowest expense) way to buy that mutual fund. There is also something call Spiders which can be purchased like a stock but track the index.

What are the odds of you finding that one manager out of ten who can beat the index?

What are the odds of you beating those nine professional money managers?

Owning an index is boring, but you generally don't wake up the next morning to find your investment has been cut in half overnight.

Throw in some small/mid cap funds (indexes are not quite as efficient on the small side), and you have a way to make money without spending much time.

I have always known this, but only now am I shifting to this strategy after some very expensive lessons.

 

[nimtz]

Thanks for the feed back guys. I'm getting into the market for the long term and I've already dabbed into a couple mutual funds. On my commutes I end up reading the WSJ front to back, so I figure I might as well make all the reading worthwhile. Just don't want to dip into the strike fund!

 

[Clearsky]

As the other post said, you want to start investing as early as possible to get time and the effect of compounding on your side. This is a major factor in the amount you will accumulate by retirement. Set aside a certain amount at established periods such as you do with 401k contributions (dollar cost averaging if you want to look it up on the net). In this way, your steady contributions will even out over market cycles and produce a return generally better than if you had invested in large chunks only every once and a while.

If your going to buy stocks on your own that will require alot more time and work on your part. You should have a diversified portfolio and thus you would need 20 to 25 different individual stocks to elimate company specific risk (you will always be subject to market risk, ie. the economy, etc.) For these reasons, I would invest in a variety of mutual funds taking into consideration factors such as expense levels and loads. If your young, put most of your money in equity and a small amount in bond funds. Your allocation should change and shift to more bonds and less equity as you age. Within these allocation, put a small amount in international equity, some in a small stock fund, some in a large cap fund, some in a bond fund, and the REIT fund mentioned above, in a small amount, would be nice also. The point is that you want diversification, this has been shown to achieve the best returns considering the risk taken.

If you want to have some fun, go ahead and buy individual stocks, but I personnally would stick with mutual funds as my main retirement vehicle - and I work in the financial field for a living and look at this stuff all day long.

You certainly don't need a full service brokerage and the mutual funds you can by direct from the fund company. You might want to think about opening an IRA also.

If you have credit card debt, get rid of that first!

 

[Twotter76]

I dont have any personal experience investing in REITs but I have done a fair amount of research on them. it is a good concept for those of us who cannot afford or dont wish to incur that level of risk that individual real estate investment contains. However I have been hearing lately that most REITs are not doing too well right now. Of course that could just be a buying opportunity for the smart investor as well.

Each REIT usually has an area of specialization (hotels, commercial, industrial, malls, whatever). It is definitely a good idea to hold some real estate in your portfolio just to balance out some of the market risk. Plus you are holding real property if things do go in the can, rather than a piece of paper.