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Stocks and bonds and a stock-picking chimpanzee

Historically, stocks and bonds have been an excellent long-term investment vehicle. In essence, it means ownership in the businesses that power the world. As the world grows, so do the underlying companies and stocks that are its foundation. Financial markets are no longer dictated by a few powerful exchanges like the New York Stock Exchange and Deutsche Boerse (Germany), but are affected by a vast and complex interconnected network of financial levers. Of course, there are many ways to invest in these global corporate-owned slices, but for now we’ll leave the alluring, if risky, methods of trading stocks involving derivatives, forex, and day trading for other columns.

Lusha, the investment guru

Investing in stocks and bonds is very simple in principle: buy low and sell high. Easy enough, in fact, fortunes have been made by men with PHD’s and MBA’s besides their names and financial network television celebrities who have written volumes on trends and charts and flash indicators and stochastics and investment psychology and even rally based on whether the Dallas Cowboys win or lose. They are all experts and they all have different opinions, literally thousands of opinions. There’s also a now-famous chimpanzee in Russia named Lusha who spews her defecation at a stock listing on a chart, and those stocks have tended to match or beat the picks of some of the world’s most sophisticated analysts. What does this tell us? That buying low and selling high is not that easy or better still, we can choose to pay large fees to analysts or hire a primate at a much lower cost to be our stock picker.

Indicators and Common Sense

A good place to start when buying stocks, bonds, and mutual funds is to learn a little about indicators. These are tools that provide an analytical look at a company and its relative stock price. One of the most common is the P/E ratio (Price Earnings Ratio) which analyzes the current price of the stock in relation to its earnings per share. That makes sense! The P/E ratio is simply the stock price divided by earnings per share (which can be found in any number of financial publications). A high P/E ratio could indicate that a stock is overvalued and a low P/E ratio could imply that a stock is undervalued, but this is only an indicator and is completely unstable. As an example, during the dot-com bubble, some companies had no earnings as in a zero P/E ratio…nothing…a big fat donut…and yet these stocks were sold for the price clouds. Which brings us to the most important indicator you can use. It is found in the six inch wide analyst hidden between his two ears.

Warren Buffet said, “Invest in what you know.” For example, perhaps he agrees that there is an aging post-World War II baby boomer population. What does that mean? It could mean that companies that sell services or products to seniors will do well for years to come. You can invest in a startup called FN Walkers Inc. (fictional) that has developed a compact titanium walking device with a built-in espresso maker. The company is reporting sky-high backorders. Or you could consider Government Bonds. These are generally the safest investments on the planet and tend to do well in times of turmoil. Why? Because investors run to safety faster than squirrels on a golf course. When missiles start firing around the world, investment dollars flow like rivers to safe havens, and consequently the price rises. With bonds, forget stochastic oscillators and 10-year moving averages and pray for instability and bad news!

After all, you don’t need an expensive investment guide or a pooping chimp.

Diversify by putting your eggs in one big basket

There is another way to buy stocks and bonds. It is through mutual funds. A mutual fund is simply a managed collection of stocks, bonds, or commodities that are kept in one big basket and managed by really smart people. Mutual funds come in many packages, like funds based on Dow Industrial Stocks or growth companies or corporate and government bonds, or pharmaceuticals or emerging markets, say in China or Brazil. The theory is that owning a small part of a hundred shares is safer than owning a large amount of a single share. Another advantage of owning mutual funds is that they are completely liquid, which means you can get out of your position almost immediately. Mutual fund returns are largely based on the fund manager’s experience and results can be closely monitored in many cases with a 1-year, 5-year, 10-year, or even 20-year moving average.

This Author’s Favorite Reason That Needs Anger Management Counseling

Always, Always, Always, listen to the advice of your brokers or the advice of so-called experts. On October 9, 2007, the Dow Industrial Average reached an all-time high of $14,164. After that, it began to free fall like a base jumper without a parachute and finally hit hard at a low of $7062 on Feb 27, 2009. The investment gurus were telling us to hang on…the market will recover. Poppycock, Fubar!!! It’s best to sell stocks as high as possible to get out, then get back in when they convulse in a splattered heap on the ground. If you went out some time after the market started to sell off and then went back in after the dust settled, you’d be in a substantially better position than just letting the investment flow in fact even though the market is now dancing around 12,000 you. it would still be 15% BELOW the market high of $14164. Isn’t that what brokers are supposed to do?

I get sick on fast roller coasters anyway.


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