It's time for poker players to start putting their money to work.

[Scorpion Man]

[ QUOTE ]

I am a junior in college, 21 in a few months, with a major in Early Childhood Education and minors in Math and Spanish. Currently I have around 5K I would like to invest. I make a nice amount of money from poker (for a college student at least) and am very interested in getting into investing. If you were me what kind of things would you be doing?
Mike

[/ QUOTE ]

One general thought on this topic...This may be overly obvious to people but I figure it's worth writing down.

The importance of your investment strategy is a function of the ratio of your portfolio to your earnings and your spending. (IMO, if your earnings are outsized compared to your portfolio, you are either just getting started or you are spending too much). So...when you have a small amount of money, like $5k, the main reason to start investing is to get into good habits and learn. Your odds of making enough after tax money to matter to you are very low. You also cannot buy invidivual stocks very cost effectively and have any kind of diversification at all.

If I had $5k and wanted to get exposure to the market i would split it between SPDRs (ticker SPY...its the S&P 500) and VTI (vanguard total market return) and perhaps the IWM (Russell 2000 -- a small cap index).

This is not particularly scientific, and a more sophisticated portfolio might be reweighted over time to vote on whether you think big or small caps would be outperforming....but this is not a bad way to start.

you could also use or substitute QQQQ (Nasdaq) if you want more technology weighting. I don't love the QQQQ because it is overly weighted in some megacaps - MSFT, QCOM, AAPL, GOOG are 20% of the index!

Other possibility is the EFA for broad international exposure.

This is a good place to learn what you are actually buying when you buy ETFs:

http://www.etfconnect.com/

[mscags]

Thanks for the help, I'll definitely look into some of this. Yeah, I know 5K isnt much, but I figure the sooner I get my foot in the door the better, so I've been trying to do some research and see what I can find.

[Newt_Buggs]

What about indexes and other funds with a large portfolio? Right now I'm invested in:

Vanguard Small-Cap Index Fund Investor Shares
Vanguard European Stock Index Fund Investor Shares
Vanguard Large-Cap Index Fund Investor Shares
Vanguard Emerging Markets Stock Index Fund Investor Shares
Vanguard 500 Index Fund Admiral Shares
Vanguard International Value Fund

but I didn't really know much when choosing these. I have an extreemly high risk tolerance and am mainly looking for the highest expected long run returns. Are there any funds that you don't like in the above list? Are there any ones that I'm missing that might be a good idea to include?

[pig4bill]

Scorpion man's path to the markets is the traditional one, but you don't necessarily have to do it that way. I have a couple friends that can watch a stock for awhile, get a "read" on it just like a poker player, and trade it for a nice profit. One of them started actively trading at 17 and opened his own hedge fund at age 22. Neither of these guys have had any formal training or "education" in this field. They learned at the school of hard knocks, and I'd be willing to bet that when a small cap or bulletin board or pink sheet stock starts moving, they can find out who's doing it faster than the average guy at Goldman can.

[Scorpion Man]

What I have written is NOT the best way to get rich investing. In fact, I bought my first index 6 months ago, at the ripe age of 37. I never bought indexes...its nowhere near as good as individual stocks.

That said, buying indexes is much better than slinging individual stocks against a wall if you don't know what you are doing. There are basically no 20 year olds who know what they are doing in the market. There were a lot of guys like your friends in the bubble, pretty much all of them go toast.

If they can't read a balance sheet, they are not going to be consistent winners in the market in the long term, IMO.

After my other post to the $5k portfolio question, I went for a run and realized that I was giving advice I never followed myself. The real answer for a $5k portfolio is 2 buy 2 stocks, maybe 3. The problem is that most people with a $5k portfolio are not qualified to pick those stocks. If you have a rich uncle or something who is good in the market, that is the way to go.

[mscags]

"After my other post to the $5k portfolio question, I went for a run and realized that I was giving advice I never followed myself. The real answer for a $5k portfolio is 2 buy 2 stocks, maybe 3. The problem is that most people with a $5k portfolio are not qualified to pick those stocks. If you have a rich uncle or something who is good in the market, that is the way to go."

Doesn't that have a very high risk of ruin? I mean even the best traders still pick bad stocks occasionally don't they? I agree with you if the 5K isnt that important enough that you don't mind busting it, but if someone only has 5K to play with and losing it would be a huge loss, wouldn't it be better to go the safer route? Personally I'm just starting at 5K this month and hope to be adding a few K each month so I would probably go for some individual stocks (assuming I feel comfortable picking some stocks and am confident in what I am doing, if not I will probably just hit some indexes like you said)

[Scorpion Man]

[ QUOTE ]
"After my other post to the $5k portfolio question, I went for a run and realized that I was giving advice I never followed myself. The real answer for a $5k portfolio is 2 buy 2 stocks, maybe 3. The problem is that most people with a $5k portfolio are not qualified to pick those stocks. If you have a rich uncle or something who is good in the market, that is the way to go."

Doesn't that have a very high risk of ruin? I mean even the best traders still pick bad stocks occasionally don't they? I agree with you if the 5K isnt that important enough that you don't mind busting it, but if someone only has 5K to play with and losing it would be a huge loss, wouldn't it be better to go the safer route? Personally I'm just starting at 5K this month and hope to be adding a few K each month so I would probably go for some individual stocks (assuming I feel comfortable picking some stocks and am confident in what I am doing, if not I will probably just hit some indexes like you said)

[/ QUOTE ]

Yeah...which is why I gave that advice and wasn't recinding it. Its good advice...kinda like telling someone to play TAG. But the best LAGs are better, no? The analogy is a little stretched...but it's MUCH MUCH better to buy individual stocks in a concentrated fashion if you know what you are doing. Of course you get some wrong...great investors are right maybe 60% of the time...but the good ones tend to have bigger indvidual gains than losses as well.

So that was my point. If you have any access to stock picking, given your age, etc, the higher risk but higher reward strategy is an individual stock strategy. The problem is that most people don't have the access....hence my original answer to you.

But here is the thing....if you are serious about adding $2k per month to a $5k portfolio, risking "ruin" ain't no big thang, now, is it?

You have to keep it in perspective with your overall financial picture.

[NotMitch]

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I like the idea. Plus I need a place to hang my 7 before it expires. To build trust and establish a good rapport you could align the incentives by charging a fee based on the growth of customer assets. We don't make money unless you make money, so to speak. Could revolutionize the industry.

[/ QUOTE ]

This is how hedge funds operate. It is a bad model for a financial adviser. They may be willing to take much larger risks (even -EV ones) with your money in the hopes of a big payday. Thats bad.

A much better model IMO is a flat fee per hour or a % of assets per year, regardless of performance. If you aren't happy with the services (not Scorpian per se, any adviser) just fire them.

[/ QUOTE ]

Not totally true in the hedge fund world. Management fee is fixed and can be a significant source if income for a decent sized hedge fund.

[Scorpion Man]

[ QUOTE ]
What about indexes and other funds with a large portfolio? Right now I'm invested in:

Vanguard Small-Cap Index Fund Investor Shares
Vanguard European Stock Index Fund Investor Shares
Vanguard Large-Cap Index Fund Investor Shares
Vanguard Emerging Markets Stock Index Fund Investor Shares
Vanguard 500 Index Fund Admiral Shares
Vanguard International Value Fund

but I didn't really know much when choosing these. I have an extreemly high risk tolerance and am mainly looking for the highest expected long run returns. Are there any funds that you don't like in the above list? Are there any ones that I'm missing that might be a good idea to include?

[/ QUOTE ]

newt this looks fine...vanguard has low fees (i checked a couple of these they look ok, although i bet ETFs would be a little cheaper). You wont go really wrong this way. if you have a high risk tolerance and want to swing for the fences you need to figure out a way to get into individual stocks. Frankly, I have never bought a mutual fund. the guys running them suck, and they don't have your best interest at heart. most of them are just trying to not trail the indexes too badly. all of the talent has gone to the hedge fund industry. so if you are going to buy funds, i like buying these passive funds. at least some idiot is not going to screw you while charging you extra for the privilege.

[RedJoker]

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There are basically no 20 year olds who know what they are doing in the market.

[/ QUOTE ]

I turned 20 last month.

This is what I look for when researching fundamentals (I use Valuelines).

• A high industry rank, ideally top 25%
• A good one year timeliness rank
• Safety (low volatility compared to other stocks)
• Low debt, ideally less than 3% of capitalization
• Beta, ideally between 0.95 and 1.1
• Sales and earnings growth ideally greater than 15%
• Consecutive years of sales and earnings growth
• Good projected revenues, dependent on size of company
• Projected sales and earnings, ideally greater than 19%
• Earnings growth faster than sales
• Dividends less than half E.P.S.
• Estimated price appreciation for next 5 years greater than 15%
• Low P/E ratio
• Strong management, increasing profits, have handled past challenges and are anticipating future trends
• No impending lawsuits

This is a conservative strategy but not all criteria have to be met. No; I can't read a balance sheet but I can read the Valueline reports.

Next I look at the technicals (I use TeleCharts):

• Place trendlines, identify channels and areas of support and resistance.
• Look for divergences and leading divergences in volume and price/volume indicators.
• Check that stochastics, MACD and RSI are oversold (or at least not overbought)
• Use candlestick patterns, Bollinger bands and moving averages to time entry point.
• Use trendlines to determine stop-loss position, unless selling covered calls.

I feel that I have a better trading knowledge than the 'average' investor. If this is 'not knowing what I'm doing in the market' than I apologize for making you read this long post.

The point of this post was to show that not all 18-21 year olds are clueless about the market, we may be inexperienced but we learn quickly [img]/images/graemlins/wink.gif[/img].

Naturally I respect your accomplishments and trading ability, all your advice has been excellent and I have enjoyed reading this thread. As such any recommendations for improving my trading strategy will be greatly appreciated (from all posters).