I wish I understood the Stock Market better. But I do have some observations that I will pass on for free. No strings attached. Periodically I get something in the mail or on the phone where some financial advisor wanted to send me something for “free.” I only made that mistake once. The advisor would subsequently call me on the phone. We were through with the free stuff. First, it was the friendly sales pitch. When that didn’t work, it was the aggressive “You would be a fool not to buy.” When that didn’t work there was the indignant “It’s your loss Buster.” So my first bit of sage advice is don’t accept “free stuff” from a cold call financial advisor. It won’t make you richer or poorer, but life will be much more pleasant.
People get excited about the Stock Market when it’s really high. It is OK to get excited. I get excited when we are having something special for dinner. But that doesn’t cost me anything. Buying stock when the market is really high will probably cost you. My learned opinion is that the market will go up and it will go down and stocks, to a great extent, will follow the market. So don’t buy when everything is coming up roses. Buy quality stocks when the market is in the crapper. It sounds easy. But it is really hard to pull the trigger when everything looks bleak.
One of the delightful things about the Stock Market is that the day of enormous broker fees is gone. The on-line competition has solved that headache. It used to cost an arm when you purchased stock and a leg when you sold it. That is where the expression “it will cost you an arm and a leg” came from. Today, it’s just a few bucks and the price is the same whether you buy 10 shares or 1,000.
I had a broker at Merrill Lynch back in the late 80s who I liked very much. He would spend time explaining things to me. But I am convinced that his boss or his bosses’ boss had certain quotas that had to be met. Periodically, I would get a call from Mike advising me that they had just been briefed on a sure thing and he wanted me to get in on it. Later, I realized that the sure thing he was talking about was the broker fee!
One of the sure things I purchased was stock in Quaker Oats. The company had been waiting for my meager purchase to start its slide. I never broke even on that one. Mike finally got tired of calling me. So when the next great thing came along, he would have his assistant call me. The assistant would tell me that Mike was busy, but he wanted me to know about this latest hot shot, can’t lose stock ASAP. I told the assistant to tell Mike that I was still having trouble swallowing my Quaker Oats.
I have a good friend who writes a blog on financial matters. It’s entitled “Investmentreflections.com.” Check it out. I’m always impressed. Some of what is written here is probably stolen from Tom’s articles. Sue me. I wonder if any of his clients know that his nickname in college was “Nutty Tom?” It would all come out in the trial.
Hey, I’m getting serious now. Look for stocks that pay dividends AND have been doing so for a long period of time. If the dividends are too high (too good to be true), the company may not have enough capital left to grow the company. You need to look at something called “pay out ratio.” I have a general idea what it means, but I don’t think I can explain it. You’ll have to check with Nutty Tom.
Written by PJ Rice at www.ricequips.com