Your Questions About How To Pick Stocks To Buy

Steven asks…

What’s the advantage to owning any of the 30 stocks in the Dow Jones Industrial Average?

Would it be a good investment strategy to buy stock in all 30 companies?

John answers:

Look up the “Dogs of the Dow” strategy and I like the “Dow 7” or “DOW 5” techniques.

Look those up and you will learn a lot.

The DOW stocks are the biggest and are picked to represent their industries. They do much of the dollars in business in the country so there is a reason to own them.

But they also have the big influence in something like the S&P 500 which is market cap weighted meaning the bigger the company the more influence it has on the index.

Sandy asks…

What is a good web forum to go to discuss stocks and market news?

One that is not just a place where people go and yell “buy my stock” all the time. And in order to prevent such yelling and shouting on the website you might answer, you can go ahead and just email me (its in my profile) if you have to.

John answers:

Motley Fool CAPS community is the place, and you can make your own picks, post your own blogs and all kinds of good stuff:

http://caps.fool.com/Index.aspx

John asks…

How do I become an expert on the stock market?

Hello, I would like to go into the finance field. Do you have any ideas and suggestions for me? Also what is the best way to utilize cash. Some people are complaining about the low yield on savings now. I am curious myself about that question. For example, would it be wise to put it in bonds, stocks, education, or a business? Like investing in oneself? Thank You
Know how to short stocks? Do you recommend doing that?

John answers:

Read everything written by Warren Buffet and Benjamin Graham. That’s the answer to your main question.

You added a few more questions, as though you can ask ten questions and get me to give you ten answers. Ha! Well, OK, here’s a little help:

Savings accounts are a good place to keep money safe. You can’t loose… Or rather, you can’t loose if your account is less than the insured maximum amount. Better than under a mattress. Some people think the stock market is too risky, but it depends on the span of time. The longer the span, the lower the risk. Oh, yeah, it also helps to pick good stocks. Be sure you know what a good stock is. From this list, pick your two favorite stocks and then check their performance at finance.yahoo.com to see which ones would have been your best investment in the past ten years:
AAPL (Apple), MSFT (Microsoft), IBM (IBM), KO (Coca Cola), NKE (Nike)
If you got stung on those picks, study what these companies do and how they do it. Always remember, don’t buy stock in a company if you don’t understand what they do and how they do it. And buy low, sell high. You’d be surprised how often people do just the opposite out of fear and bad planning: “My stocks went down! I should sell now before they tank!” “That other stock went up! I should buy a lot of it to profit from the further rise!”

Form a business if you have the guts and cash to stick it out. One sage once said “The sure way to make a million with a business is to start out with two million.” Two out of three new businesses fail. Be careful. If you have a chance to buy a tweezers for 25 cents, be sure you can sell it for a dollar. All you have to do then is sell one, buy four more, sell those four, buy 16 more… Before you know it, you are the tweezer king… At least until BlockBuster Tweezers opens a shop right next door and starts selling them for 20 cents.

Education is vital. No one gets rich without education… Or a rich daddy. That doesn’t mean you have to get an MBA and work for IBM and buy a BMW. Think of the richest people you have heard of (Buffet, Gates, Jobs, Carlos Slim Helú, Larry Ellison). Was a uni degree the key to their success? Was it buying a new home as an investment? Houses and cars satisfy one’s need for houses and cars, but never contribute to real wealth– unless they are rental houses or winning race cars.

You should ask yourself why you want to go into the finance field. Do you imagine that financial managers and consultants get rich? Isn’t a consultant someone who tells others how to do what they haven’t ever done well? Learn what you like to learn and do what you like to do if you want to be happy. Anyone can invest his money well without working as a financial consultant.

Study economics and politics — almost the same thing in the U.S. Study the big shocks that caused investments to dive. Study the two typical responses to economic failures: bailouts and regulation. How the government responds to economic failure can give you a clue as to what might happen down the road.

Here are some comments about popular economic theories. You should read what these famous economists have written and form your own opinions.

French businessman and economist Jean-Baptiste Say (1767-1832) stated that production, or supply, constitutes its own demand for what is produced. [Spoken like a man who never attended an antiques auction.] This premise has become known as “Say’s Law” and, in fact, some economists have been duped into believing it is truly a law, rather than simply nonsense.

James Mill restates Say’s Law as “production of commodities creates, and is the one and universal cause which creates a market for the commodities produced”. [Right. That means we all would buy the RonCo Pocket Fisherman simply because it was produced, not because it was advertised.] In Say’s language, “products are paid for with products” (1803: p.153) or “a glut can take place only when there are too many means of production applied to one kind of product and not enough to another” (1803: p.178-9). [Huh? Too many means of production? I suppose having only one means of production, but producing ten Pocket Fishermen for every living human on earth would be fine.] Explaining his point at length, he wrote that:

“It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other.” [Spoken like a man who never attended a horse race.]

After about a century, we should expect that brilliance could raise its head in the arena of economic theory. Instead, along comes John Maynard Keynes. His great contribution to the discussion was to notice that Say’s Law would only apply when prices could be dropped or raised exceedingly to keep the consumer’s demand in line with supply. [Well, duh! Ya think? Perhaps reality would actually have some effect on this system.] Another Keynes contention was that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. [This is the economic equivalent of saying, “Wet weather could lead to excess precipitation.”] Keynes argued that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation. [The key phrase here is “could be used”. Notice he didn’t say “Will absolutely lift us out of stagnation or your money back!”]

Keynes argued that the solution to depression was to stimulate the economy (“inducement to invest”) through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. [This would be true if the injection went to honest companies instead of shyster bankers who would only pocket the injections.] The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment. [Here we have the classic pill for all ails. Banks make their profits on interest rates. In periods of low interest rates, banks suffer. If the main reason for a particular depression is failing banks due to their playing around in the stock market and bad loans and an erosion in the trust of the consumer for banks, how can lowering interest rates help? Suppose the interest rate is 3 percent and the Federal Reserve OMC cuts rates to 2 percent. That looks like a 33 percent reduction in already low bank profits to me. If the consumer is hesitant to take out a mortgage at 3 percent, will they make a run on the housing market for 2 percent? Not likely.]

Mandy asks…

When is the cheapest time to buy a snowboard?

I’m going to buy a new snowboard for the 2011-2012 season but am on a college student budget =/
When would be the best time to buy a new board? Now in the off season? Or wait until the new lines come out and buy older boards? Also would waiting for black Friday be worth it? Any opinions are welcome!

John answers:

Usually in the off-season, but your selection is typically limited to the boards no one else wanted. At the end of the off-season as shops gear up for another year, some stores will raise all prices back up even on old stock. It will be less than new stock, but more expensive than it is now. On the other hand, some shops will once again lower prices on old stock so they can make room for new inventory.

That said, a snowboard should be something that fits you. There is a lot that goes into picking the right kind of board, and price should be last on the list of important factors in a buying decision. Start with the type of riding you will be doing. Then select the stiffness that suits your personal preference best. Don’t forget to select the right length and width of board based on your height, weight, and shoe size. If you have big feet and buy a skinny board, expect to fall every time you try to hold an edge as your toes or heels dig in and topple you.

My advice – find yourself the money to invest in a good board that will last you many seasons. You will be far happier with that purchase. Compare that with the feeling of buying a board, using it once, disliking it, never using it again, and feeling like you wasted hundreds of dollars.

If it’s your first time out, borrow a board from a friend or buy a used one. A used board does not mean a lower quality board, just one that is a season or two old. The best people to buy from are friends who enjoy high performance form their ride. They take better care of their gear, and typically update more frequently, meaning even their used gear is relatively new.

Good luck out there, stay safe, and have fun!

Credentials: 15 years experience. CASI Certified Level 2 Instructor and Freestyle Coach. Currently seeking sponsorship(s).

Charles asks…

Where can I buy a Telezapper in Vancouver?

I want to buy a telezapper in Vancouver. Is there any stores in Vancouver or surrounding areas that sells Telezappers? I really need one please! Thanks everyone!

John answers:

I picked up my telezapper at XS Cargo in Richmond… They sell overstock so they have different products every week but I find that they get a lot of the same stuff frequently. I got it for like 5 bucks, works great. You should call and find out if they have any in stock.

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