OT - Do you care about the DOW?

[stepay]

So, do you care about it?

 

I've had some fun watching it go up the last couple weeks even though I'm still 19 years away from taking any retirement income from my investments.

 

Buddy of mine says it's silly to be even remotely happy about it this far away from retirement, and I agree a little bit with that, but at the same time, shares I bought in 1991 when the DOW was at 3,000 are worth way more now with the DOW at 13,200+. He is of the opinion that if the market is going up that you're then just paying premium prices for shares. My thought is that the shares I bought long ago are greatly increasing in value AND the shares I buy today likely will worth a lot more than I pay for them NOW in 10, 15, 19 years.

 

So, I guess I'm at least moderately happy the DOW and the NASDAQ and the S&P 500 have done well of late though I know a downturn can and will happen at some point.

 

That's all for now.

[delirium]

sure I care, if DOW is going down, everybody is freaking out,

gas prices are going up, people jump out of the window, others get fired and I don't have bread for GAS relief anymore...

 

http://www.danablankenhorn.com/images/bear_market_02.jpg

[retrokeys]

As one who plans to retire within the next few years, yep I care about the DOW. I'm glad it is up and hope it goes higher before I sell out to gain steady income. That being said, just remember that "premium price" is a figment of of your friend's imagination. The simple fact is that the the stock market trades on perception. If people think that a stock will go up, they buy and the price goes up relative to demand. Today's premium will be tomorrow's bargain. It works in reverse too. Remember 2000 and 2001 and "irrational exuberance?" Two forces: fear and greed drive the process. That and the "greater fool theory" (there will always be a greater fool who will pay more for a stock than you did) keep the wheels turning. Seriously, keep an eye on your investments but don't get either too excited or too depressed with the Dow. The long term trend is up but like the man said. "In the long run we are all dead." Sell when you will be satisfied with the profit or to cut a loss. Buy when you think you can make a buck. You can't time the exact highs and lows and second guessing is pointless. Have fun. It is a great game.

[Bill H.]

shares I bought in 1991 when the DOW was at 3,000 are worth way more now with the DOW at 13,200+. He is of the opinion that if the market is going up that you're then just paying premium prices for shares. My thought is that the shares I bought long ago are greatly increasing in value AND the shares I buy today likely will worth a lot more than I pay for them NOW in 10, 15, 19 years.

 

1991 was when the country was in the midst of a fairly deep recession and stocks were cheap. That's not the case today. I don't think the timing is right now to be making a major commitment to stocks, if that's what you're suggesting. But what do I know... I'm a musician. I've made more than my share of bad calls in the equity markets over the last 35 years...

[Trill]

I watch it a lot more closely since I will be considering retirement in 7 yrs. I used to be really conservative and never touch it. Now I watch and make exchanges, I have made some decent gains by just more paying attention to the forecasters and watching the Dow and being more aware of global trade .

[burningbusch]

Three years ago if, instead of buying that new Macintosh desktop, you had instead invested the $3,000 in Apple stock it would be worth $20,000 today.

 

Busch.

[Song80s]

The Dow is an outdated and limited indicator

 

I follow the S & P. Plus I have an Index fund investment that closely tracks the S & P

[stepay]

Greg C,

 

My funds are spread out mostly amongst the NASDAQ, DOW and S&P 500. Today the DOW just closed at another all-time high, and the NASDAQ and S&P 500 both closed up again with new 6-year highs.

 

While I know it doesn't really matter to me now how the markets do, it's still fun to watch. The plan is to retire at 59 1/2, but if there's unprecendented growth in thenext 10-15 years, I just may do so earlier -- at least retire from full-time work.

[Joe P]

While I don't think the Dow is outdated, I do agree with Greg that as an indicator it is inferior to the S&P 500. The S&P represents a much greater portion of the market capitalization in the U.S. As such it is broader, less volatile and a better bellwether of the domestic economy.

Regards,

Joe

[Song80s]

Greg C,

 

My funds are spread out mostly amongst the NASDAQ, DOW and S&P 500. Today the DOW just closed at another all-time high, and the NASDAQ and S&P 500 both closed up again with new 6-year highs.

 

While I know it doesn't really matter to me now how the markets do, it's still fun to watch. The plan is to retire at 59 1/2, but if there's unprecendented growth in thenext 10-15 years, I just may do so earlier -- at least retire from full-time work.

 

I hope to retire in 5-6 years, also

 

Of course, we like to watch the markets while they are running up a 7-12 % gain in the first 5 months of the year. I am sure you recall the meltdown we had on March 1 due to Asia Pac and Greenspans ridiculous comments. Plus, historically, the market ramps up Oct- May 1, then struggles and muddles the next 6 months

 

I also think that the market is a great place to be given how shitty real estate is.

 

I am mostly in large caps, some mids, 10 % bonds. I also have a chunk of cash- If there is a market dip, I will buy into a sector at a discount

[Dave Horne]

I retired at 44. I care about the Dow. The trick is only to cash in when it's up and do nothing (or buy more mutual funds or stocks) when it's down.

 

 

 

 

[Song80s]

I retired at 44. I care about the Dow. The trick is only to cash in when it's up and do nothing (or buy more mutual funds or stocks) when it's down.

 

 

funny you say that. Most people buy high and sell low. Something about emotion

[Ed Coury]

It's not silly to be happy about an upturn in the stock market, but if you're truly investing for the long haul, the experts say you shouldn't pay much attention to day-to-day movement.

 

There will be periods of record highs and big downturns ahead -- that's guaranteed. You have to diversify, sit back, and let the market grow over time (as it has since the beginning). It is IMPOSSIBLE to time the stock market (to know exactly when to buy or sell).

 

Top financial gurus say you should contribute to your retirement account, whatever form it may be in, on a regular basis. If the market is rising, that's great -- and when the market is down, your money is buying stocks at a discount.

 

You have to decide (with the help of an expert, and doing your own research) what percentage of stocks vs. bonds vs. money market funds you should own. A few times a year you should reevaluate the way your investments are distributed, but acting on a big rise or fall in one stock, one index, or the market as a whole can be fatal.

 

A record high for the Dow means little -- the major indexes rise over time, along with stock prices. I remember when everyone went crazy the first time the DJIA reached the 10,000 level...and when the dot com boom went bust, so did all of the excitement about Dow 10,000

 

So, do you care about it?

 

I've had some fun watching it go up the last couple weeks even though I'm still 19 years away from taking any retirement income from my investments.

 

Buddy of mine says it's silly to be even remotely happy about it this far away from retirement,

[stepay]

Greg C,

 

I do wish Greenspan would be quiet. He is retired now after all. Who cares what he says now. You're also right about May-October. "Sell in May and walk away" is the phrase they say.

[mildbill]

I probably should know and care about it, but the stock market pretty much completely baffles me.

 

It's my understanding, (which could be wrong), that a company issues common stock to generate cash. The general public buys this stock and the company gets money from the initial transaction.

 

From that point on, the company never sees any more revenue and what's traded is basically just paper with nothing backing it.

 

By this, I mean you can't buy a house or a car or anything with stocks. All you can do with them is try to get someone else to buy them.

It seems a game of who can dupe who into buying something that doesn't exist, for more than what you paid for it.

 

It's not even up to the level of buying a used car or synth or something. If people turn away from the stock and you're holding it, you can completely lose your investment and have nothing to show for it.

This has happened several times (not to me) recently. I think an airline company is the most recent example.

 

It seems to me like some kind of frantic, lemming-gambling phenomenon, but like I said, I know very little about it and am mostly baffled by it.

 

If the average prices are climbing, everyone wants in and this forces prices higher.

But when the big holders decide to pull the plug, and cash in while the gettin's good, people see large volumes of shares being dumped.

This forces prices down, because people are afraid no one will buy their shares for more than what they paid for it.

Everyone goes into a panic and the vast majority of people get screwed.

 

Anyone have any insights, or a better, less cynical, (perhaps) perspective on it?

[stepay]

mildbill,

 

Buying individual stocks is very risky. I don't advise doing that unless you are already debt free (except for the house), already have 3-6 months of expenses in a liquid account and are investing 15% of your income into a 401k and an IRA. If you're doing all that and THEN you want to dabble in individual stocks, go right ahead.

 

401ks and IRAs though are made up of mutual funds and bonds. Bonds are very conservative and thus bring smaller returns. Mutual funds are made up of several stocks so that if one tanks it doesn't necessarily take you down with it. Safer way of investing. All I know is that I've been heavily investing now for 18 years, and even on a modest salary I've been able to amass quite a good deal of money that will continue to grow over the next 19 years before I retire at age 59 1/2 (the earliest I can get at my retirement money without paying a penalty). If the markets do better than an annual 8% return before I hit 59 1/2 or I just decide I can retire on less than I'm currently planning to retire on, then I will do it earlier.

 

The cool thing about stocks and bonds is that while the price for them all could go down (meaning you would lose money), its not like you have to personally find a buy like you would with a car. As I get closer to retirement, I will put more money into bonds and keep less in stocks. Once I retire, if I want no risk at all, I can put all of my money in a Schwab checking account (4.25%, no minimum balance) or an ING account (5.3% with $100,000 minumum balance) and just live off that. If you had even just $1 million dollars to retire on (easily attainable if you have 20+ years to invest money at 8% return), at 5.3% that would bring you $53,000 per year without touching the principle. I make more than that now, but if you take my salary and subtract the 20% I'm putting into retirement, then $53,000 is more than I am currently living on, and that's with a family of four and a mortgage payment; I'll be down to just my wife and me and no mortgage payment in 20 years. Many say you need 80% of what you are currently living on, and for me 80% of that is WAY less than $53,000.

 

I couldn't do it without investing in the stock market though. I would have either have had to have my wife working all this time too (she's been a stay at home mom for 9 years now) or I'd have to have started my own business or something like that.

 

Back when I started to invest heavily 18 years ago, I got a lot of bad advice (including from my own father) saying that since the economy was unstable and the world was in turmoil that I should not do it. Well, I'm glad I didn't listen. When has the economy ever been stable and the world NOT in turmoil? Never.

[burningbusch]

I probably should know and care about it, but the stock market pretty much completely baffles me.

 

It's my understanding, (which could be wrong), that a company issues common stock to generate cash. The general public buys this stock and the company gets money from the initial transaction.

 

From that point on, the company never sees any more revenue and what's traded is basically just paper with nothing backing it.

 

By this, I mean you can't buy a house or a car or anything with stocks. All you can do with them is try to get someone else to buy them.

It seems a game of who can dupe who into buying something that doesn't exist, for more than what you paid for it.

 

When you buy the stock of a company, you OWN a percentage of that company. It's really that simple. It's not "paper", you own a percentage of the assets, the cash on hand, the property, inventory, etc., etc.

 

Typically companies that get to the point of going public have been around for many years and have an established track record.* Commonly they have been funded by private investors who put their money at very high risk in order to make the company viable during the startup phase. These investors owned a percentage of the company during that time and get an equal percentage when the company goes public. They might have shared in company profits while it was privately held. So when a company goes public, i.e. its stock is traded publicly on an exchange, the ownership is spread out to a huge pool of investors (anyone can now buy a piece of the company). If the company does well, the shareholders benefit through dividends and/or increased share price. The reverse is obviously equally true.

 

Upper management and the board of directors are ultimately accountable to the shareholders.

 

The company does not see "revenue" from the IPO. Revenue is the money received by the company when it sells goods/services to its customers. The cash received from the IPO buys the company from the original owners/investors. It's not uncommon for a company to issue additional shares later on to fund expansion.

 

Shares of stock can be used as collateral. In my 20s, when I had no credit established, I used shares of stock in an electric utility which my father had given me as collateral for the loan.

 

Not directed at you mildbill, but I get tired of those who bitch and moan about the "haves and have nots" when they themselves are simply too afraid of taking the risk and/or are too much into the instant gratification of product consumption. The market is available to anyone with a few bucks in their pocket.

 

* This was not the case with the dot coms and is one of the main reasons for their collapse.

 

Busch.

[mildbill]

Thanks burningbusch:

 

This is the first time it's made a little sense to me.

 

Yes, I guess any company that's large enough to issue stock would have had to have some initial investors.

And yes, I can see where it would be an advantage to try to buy them out.

 

So the money from an IPO does actually go to the company, but it exchanges hands quickly, and doesn't go towards expansion.

 

OK: I still may have a very primitive perception, but although

"you OWN a percentage of that company", what does that actually mean to the low level investor?

 

You have no vote and you can't go into the company and use any of their assets, and I still maintain that the only thing an average investor can do with it is to try and sell it for a profit to someone else.

 

Also, as long as I have your ear, and you seem to be knowledgeable about it, what kind of stocks (or what kind of investor), do you have to be to receive actual dividends?

 

It's not something you get with your average stock or mutual fund, I don't think. Is it a specific type of vehicle?, or might it depend on a specified amount invested?

 

 

 

 

Yes - a light bulb went on with the concept of 'ownership'.

 

Intangible, slippery, unreliable, and of little practical use to the investor (until it's sold), but I can sort of see it's appeal now.

[7notemode]

Sorry to be a downer, but the DOW's "high" is just a function of the devaluation of the dollar. In constant year 2000 dollars, the DOW is still down, seven years later. Most people actually do worse than the DOW on average. The hysteria on CNBC about all time highs reveals how misleading their reporting can be...They are more like a 24 hour infomercial, but instead of selling Ronco, they are creating demand and marketing stocks to the retail public.

[Joe P]

Mildbill,

When you own stock in a company, it does come with voting rights for people on the board of directors. Some shares have more voting rights than others, but generally speaking if you are a shareholder of record you will get a proxy statement for each election, I think it is annually.

 

Dividends are paid by companies to stock holders at the discretion of management. Some firms retain the cash and re-invest it in the business and hope to see an increase in stock price due to shareholder confidence. Other firms issue cash dividends to make their shares more atrractive. Both can only be done if the company is profitable. Dividend policy is a science and art unto itself. Preferred stock is a type of share that pays regular dividends like a bond. Common shares only entitle the holder to a dividend if it is the firm's dividend policy to pay dividends.

 

Most of the market is lenders and borrowers. Bond holders lend money to firms in return for interest payments. Stockholders are essentially doing the same thing: lending a company money but only with the hope of a return on investment. The stock holder can sell his share, just like a bank might sell a loan to another lender.

 

Stocks and bonds also have different characteristics in the event of bankruptcy, with, I think, bond holders being paid first, and then preferred stockholders and then common stockholders.

 

Sorry for the long-winded reply, it is a subject of interest to me.

 

Regards,

Joe

[burningbusch]

All shareholders do have the right to vote on issues that come before them. But, unlike political democracy, you get one vote per share of stock. So your 20 shares isn't going to mean as much as the person with 1 mill shares.

 

Many stocks pay dividends. Get a quote online and you should see a dividend yield listed. Typically the more established companies pay dividends while newer "growth" companies use their profits to grow the company. For example, IBM pays a dividend, Google does not. You can invest in mutual funds that focuses on dividend paying stocks. Regardless, if you invest in a mutual fund, the dividends earned throughout the year are added into the value of the fund.

 

Busch.

[B3bluesman59]

stepay said: He is of the opinion that if the market is going up that you're then just paying premium prices for shares.

_________________________________________________________________

The facts of investing in the market are: over the long haul you will do well. No one can predict when or where the market will go during any given 1 or 2 year cycle but overall your investments will increase in value over a 20, 30, or 40 year program. Buy quality stocks or funds and use professional management. The fees you pay for expert advice are tiny compared to the potential long term profits you will make.

[mildbill]

[quote=burningbusch

....If the company does well, the shareholders benefit through dividends and/or increased share price. The reverse is obviously equally true.

....

Busch.

 

 

 

 

You guys got me going here. OK: the above statement sounds good in theory, but then how come sometimes a company can be doing well, showing profits, etc., and someone sells a big chunk and it causes a panic and plummeting prices?

 

And how come sometimes a company has never shown a profit, and its stock prices rise astronomically.

 

Also, about 'owning'

 

"a percentage of the assets, the cash on hand, the property, inventory, etc., etc.",

 

that's another thing that sounds good in theory, but I don't think it would stand the test in practice.

 

If you 'own' something, you can use it. But I think most companys would frown on someone who tried to use some of its assets because they hold stock.

 

I think what you really 'own' is the right to sell paper. (or to use it as collateral).

 

Actual ownership (where you can 'use' assets) could only come into play at the highest levels.

 

[retrokeys]

You seem to be under the impression that people buy and sell stocks based on performance. If they actually did, the market would always lag. As I pointed out in my first post (#3 on the thread) the activity is based on perception of perfomance going forward. So yes,a company can do well today but if a big shareholder sells the perception of future performance is likely to go down i.e. what does he know that I don't. Conversely a company may not show a current profit but rise on the expectation that eventually it will. The entire cable TV industry worked that way. The start up costs were enormous but when break even came, each local company was a legal monopoly where it operated. Can't get more predictably profitable than that.

[mildbill]

You seem to be under the impression that people buy and sell stocks based on performance. ....

 

 

If by 'you', you mean me, I was replying to BB's statement.

 

Buying/selling based on performance would at least have some semblance to rationality. But no, I don't really think it works that way.

[Joe P]

MB,

The ownership you have of the company is typically a small percentage (unless you are Warren Buffet...). There could be millions of shares outstanding. If you own 1 millionth of the company's assets I guess you are entitled to go in and use the copier or something. Bond holders have a claim on the assets too (a higher claim, I believe).

 

Practically speaking you are right, stock shares are nothing more than paper that can be sold at a market rate (but it does represent a claim on an underlying asset). Technically speaking, you own a tiny percentage of every asset that company has. It all shakes out in bankruptcy. Otherwise, the firm is assumed to be a "going concern" and the share has value because it can be sold (i.e. somebody wants to buy it), or it will generate dividends.

 

And how come sometimes a company has never shown a profit, and its stock prices rise astronomically.

 

Firms that have not shown a profit may show promise that give stock value. If it doesn't pan out, you'll have the tech-bubble scenario. I remember hearing one analyst during the tech run-up rail against Barnes and Noble in favor of Amazon because Barnes & Noble had not "demonstrated that it can profitably sell books on the internet." Well, at that time Amazon could not demonstrate that either and had not turned a profit in over a year! Talk about a sign of the times. He was justifying Amazon's high stock price despite the absence of earnings (absence!). Incidentally, most companies trade at a multiple of earnings. That is, the price of the stock can't be reconciled by the amount of the companiy's expected future earnings (price to earnings ratio or "P/E")). That's a whole 'nuther topic...

 

how come sometimes a company can be doing well, showing profits, etc., and someone sells a big chunk and it causes a panic and plummeting prices?

 

Sometimes the market does not behave rationally.

 

Regards,

Joe

[burningbusch]

Mildbill, when you take out a loan to buy that new truck, technically speaking the bank owns the truck. They came up with the money; they hold the title. It does not give the bank president the right to come over to your house and drive it whenever he/she wishes. It would be chaos if the millions of shareholders had the right to use company assets whenever they chose to do so. It remains, as a shareholder you own a percentage of the company. If not the shareholders, they who does own it?

 

People get in and out of particular stocks for a huge variety of reasons. Remember if that person is dumping 100 million shares of company X, there have to be buyers on the other end.

 

Some companies, e.g. biotechs, aren't profitable but you're betting on a HUGE upside potential. High risk. High potential rewards.

 

Busch.

[mildbill]

Thanks to all for the enlightening discussion.

 

I've never bought individual stock. I do participate in my company's deferred plan, but I have minimal understanding of what it means outside of my own little world.

 

I've tried looking into the underpinnings a few times, but it quickly becomes a quagmire that I'm not sure I want to get too deeply into.

[retrokeys]

MB,

 

I am glad you don't really think things work that way and certainly intended no insult by suggesting that you did. There are plenty of folks out there, however, that do think in exactly that way and are put off by the seeming irrationality of the market. It has always struck me as odd that folks cannot understand the nature of speculation and demand rationality yet in their daily lives they play the odds and "bet" on their judgment constantly. It may be as simple as not carrying an umbrella because the best available information says that it isn't going to rain today. If may be the farmer who bets that planting more corn this year will be a good idea because the market will demand it. Putting money and effort behind one's assesmment of the future has an old an honorable history among humankind. The process can never be made wholly "rational" I wish it could but like the prospecti always warn; "past performance is no guarantee of future returns." Caveat emptor and roll the dice.

[Joe P]

Mildbill,

If you have money to invest, look at Mutual Funds. Ask around, see what other people do. You can PM me if you want recommendations.

 

On the other hand, you could skip the stocks altogether and buy two things that really matter:

 

BEER AND GEAR!

 

Regards,

Joe