1. Should I just go ahead and buy the stock I want, or should I wait for a price drop? What if it's really expensive?
|Stillborn Qwikster: Even the name was a terrible idea|
Some people have to feel they got a bargain. But for me, I generally don't worry about timing my purchase to a price dip. I'm buying companies I intend to hold for a very long time-- 3 years or more, on average. Longer if possible. Warren Buffet says, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” In my current portfolio, the stocks I've held more than 6 months average a 34% annualized gain. If there's a company I've been watching and understand, which makes amazing things, and crushes their competition, and carries little debt, their stock on the rise, then I have little interest in timing the purchase just so.
2. I've heard people say "Sell in May and go away." Is there a time of year when things usually drop, so I shouldn't invest?
No, there is no such time of year. That's an old legend, once sort-of true, when the world moved slower and news was once or twice a day and traders spent half their summer at the beach club on Long Island. Those days are gone. Now things move fast and they change constantly. It never slows, not really. Get in as soon as you can, because the power of compounding will increase your invested savings exponentially over your lifetime. The sooner you get into the market, the wealthier you'll be when it's time to retire.
3. Do you have any tips? What's hot right now?
|Disney never disappoints|
Generally I duck the question entirely by pushing them to a familiar name which grows pretty consistently despite a steady, blue-chip status: Starbucks, Disney, Berkshire-Hathaway (Buffet's conglomerate). A little something for everyone.
4. A lot of stuff I read says I should diversify across industries, like a little bit each of energy, biotech, banks, manufacturing... What do you think?
Short answer is Yes, you should diversify across industries, as well as across nations, growth stages, market caps, even asset classes (bonds, real estate, etc). But the reality is most of us know some areas a whole lot better than others. I've mentioned before that I know nothing, repeat nothing, about commodities. Or insurance. Or medical/health care. So while I should own stocks in those areas, I do not. Because at the end of the day, the single most important rule for me is Buy what I know. That's it. How can I possibly do a deep analysis-- either prior to purchase or later, when I'm keeping track-- if I don't genuinely understand the product they make, or the process by which they make money?
So I have industries I feel I get. Auto manufacturing, online retail, social networking, finance, entertainment, and so on. Limited, but within my wheelhouse.
5. If you only had enough money for one investment, would it be real estate, stocks, bonds, gold... ?
Stocks. Hands down. Nowhere else can I average over 20% per year on my capital. Even in a bad year I eke out 10% overall. The only thing which comes close to that would be private lending, which is very risky and a totally different kind of investment.
|Looks great but it's not for everyone|
Real estate is generally a good investment, but again, it's a specialty requiring different skills and different expertise. Buying shares in a REIT (Real estate investment trust: many are traded over the counter as an exchange-traded fund) is not a bad idea if you are looking for broader diversification.
6. Choosing stocks and managing a portfolio looks confusing and difficult. Why can't I just put it into an index fund or a mutual fund and forget it?
7. How do I know when it's time to sell a stock?
There are only 4 reasons to ever sell:
- Your original investing thesis has changed or was incorrect;
- One of your holdings has grown too big and your portfolio needs to be rebalanced
- You found a better place for the money
- You have a need for a tax loss to cancel some other substantial gain