How To Get Into Stocks?

[viper84737]

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There's one trap many investors fall into and that is thinking they have realized a profit just because the stock (or whatever else they may own, like a house for example) they bought for $50 currently trades for $100. They don't understand that they won't realize any profit until they sell, so they consequently keep overpriced holdings until they tank. For the same reason most will panic and sell when their holdings loose value. You haven't lost anything until you sell either.

This is the exact explanation for the liquidity crisis in 2008. One could see it coming a mile away, as every institutional investment machine tried to dump their holdings into a lack of bids, crushing prices.

There's a HUGE difference between the "price of something" and the "(monetary) value of something" <--

 

[knowledge]

I extract income from stocks by writing (selling) slightly-out-of-the-money call options against them. If the price takes off, it will get called away (i.e. I'll have to sell at the strike price of the option that I wrote) but I would have wanted to sell it at that price anyway. If it does nothing by expiration, I keep the stock and the proceeds from selling the call. If it goes down ... it's as if I'd bought it at the original price minus whatever I sold the option for.

Has that ever screwed you over large? Like, it'll dip to your lowest selling point right before skyrocketing up?

 

[strictlye]

thats how people get rich, the general public panic and sell their stocks, causing the price of the stock to drop. Once the fear stabilizes the prices will rise again. If you bought while everyone was panicing and cash out when everyone realizes the sky isn't falling you can make a lot of $$$$.

 

[viper84737]

thats how people get rich, the general public panic and sell their stocks, causing the price of the stock to drop. Once the fear stabilizes the prices will rise again. If you bought while everyone was panicing and cash out when everyone realizes the sky isn't falling you can make a lot of $$$$.

The general public couldn't put a dent in the markets if they tried. It's when institutions make moves (panic), that the real **** hits the fan, and when the little guy can make a killing at their expense (see 2008).

 

[johnp]

An ancient Laplander let me in on his secrets.

Buy sheep.
Sell deer.

 

[Red695]

Bury your money in the woods! It is safe there

 

[Brian P]

Has that ever screwed you over large? Like, it'll dip to your lowest selling point right before skyrocketing up?

Not "large". Certainly I've put a sell order through and then had it go higher than I thought it would (means I could have sold the option for more, or sold the next-strike-higher one) and I've had them go a couple strikes lower by expiration (means I ought to have sold a lower-strike option and collected more on that sale). But, this is the nature of stock trading, and it happens to everyone. Diversification is important, and that includes diversification of strategies, too. I don't do this to everything in my portfolio. I have another batch of stocks that are high dividend payers but there aren't any options on them. Those just sit there and pay dividends.

With this strategy (and most others) it's better to not be greedy. If something is trading below where I think it ought to be, I'll sell the option a couple of strikes higher so that if it comes back by expiration, I'll capture some of that gain. If something is trading abnormally low, then it's time to buy, not sell. You have to go with the flow to some extent and not lock yourself into a rigid, inflexible strategy.

 

[Vlad]

I extract income from stocks by writing (selling) slightly-out-of-the-money call options against them.

I know it's not as complicated as it sounds, but you started shooting over my head right here . It never seizes to amaze me how much smoke, mirrors and confusing acronyms (not to mention the entire "industry") is built on what is essentially a worthless IOU. Allow me to clarify: A stock is nothing but a certificate that your money is invested somewhere, i.e. not in your hands any more but in (at least ideally) a tangible asset like a building or a machine. You don't have the money, yet the certificate is considered as good as money and you use it like it's as good as gold. That is fictitious capital - right at the foundation the entire economy is built on.

For further reading I highly recommend the HowStuffWorks article "How Stock Markets Work". Entertaining as well as informative. Oh yes, they have How Money Works and How Diamonds work as well.

Check this one while you are at it. Not directly about stocks, but very informative too: The Story of Stuff

 

[OpenGambit]

I know it's not as complicated as it sounds, but you started shooting over my head right here . It never seizes to amaze me how much smoke, mirrors and confusing acronyms (not to mention the entire "industry") is built on what is essentially a worthless IOU. Allow me to clarify: A stock is nothing but a certificate that your money is invested somewhere, i.e. not in your hands any more but in (at least ideally) a tangible asset like a building or a machine. You don't have the money, yet the certificate is considered as good as money and you use it like it's as good as gold. That is fictitious capital - right at the foundation the entire economy is built on.

For further reading I highly recommend the HowStuffWorks article "How Stock Markets Work". Entertaining as well as informative. Oh yes, they have How Money Works and How Diamonds work as well.

Check this one while you are at it. Not directly about stocks, but very informative too: The Story of Stuff

Do you call a deed fictious capital? Thats the same idea conceptually as a share cert.

 

[johnp]

^ true (I meant Vlad's #48 )

But also true about paper money and money held electronically on deposit in your bank account - which now counts for almost all of the money supply.

It's all faith based.

 

[Vlad]

Do you call a deed fictious capital? Thats the same idea conceptually as a share cert.

Essentially yes. However, the deed cannot be divided into smaller denominations so it's not suitable for use as money and therefore doesn't really function as fictitious capital. Until you start borrowing against it as a collateral, like in HELOC (Home Equity Line Of Credit) for example.

Ultimately, the only true money is gold. Political Economy 101.

As johnp said:

But also true about paper money and money held electronically on deposit in your bank account - which now counts for almost all of the money supply.

That's right. The governments that abandoned the gold standard can pretty much control the money supply as they please. Not even governments but their (privately owned) central banks. Some seized the opportunity to print as much as they want, racking up huge national debts. The chicken are now coming home to roost, and their eggs are rotten.

It's all faith based.

This is a seriously messed up world...

 

[viper84737]

This is a seriously messed up world...

It gets even more messed up as you follow the money.

Ultimately, I would say there is no "true money". It's certainly not gold, not by a long shot. Money is whatever arbitrarily has assigned to it value by YOU, the user thereof. The name of the game hasn't changed one bit since the inception of commerce. You trade stuff of lesser value to you for stuff of greater value to you.

 

[OpenGambit]

Essentially yes. However, the deed cannot be divided into smaller denominations so it's not suitable for use as money and therefore doesn't really function as fictitious capital. Until you start borrowing against it as a collateral, like in HELOC (Home Equity Line Of Credit) for example.

Ultimately, the only true money is gold. Political Economy 101.

Gold isn't money, money is money, anything accepted as currency is money. I can use seashells and baby teeth if thats what people took.

Shares can be divided in a split, but not by you. Deeds can also be divided by dividing the base real property it is based on, and you end up with 2 Deeds.

 

[Vlad]

It gets even more messed up as you follow the money.

On that note, let's follow it from year 48BC in The History of the “Money Changers”

​

Ultimately, I would say there is no "true money". It's certainly not gold, not by a long shot. Money is whatever arbitrarily has assigned to it value by YOU, the user thereof.

I'll have to disagree here, unless we are having a misunderstanding of the term "value". Market value is indeed whatever someone is prepared to pay for it on the open market. Production (true) value is the amount of work that is necessary to produce it, which ultimately boils down to the amount of food necessary to sustain the life of the producer at a level sufficient for him to keep producing the goods while producing his offspring as well. The usability value is the third type of value - they all correlate but the relation is neither direct nor linear.

Gold is the only true money for several reasons, most of which are too much to explain here in detail. It's worth (not it's market value) is quite stable. That's why it's used as the ultimate economic yardstick.

All this based on what I remember from my university Political Economy classes, so take it at face value (so to speak ). Terminology may be a little off, but the core ideas should still be fresh.

The name of the game hasn't changed one bit since the inception of commerce. You trade stuff of lesser value to you for stuff of greater value to you.

That's certainly true and explains how markets work in a nutshell. Lesser value to me can mean that I paid less for it, that I have less use for it or that I made it easier/faster than the other guy. All legitimate values, but only one that can be measured objectively - the amount of work plus the amount of raw materials that went into producing the item. That value is not affected by market fluctuations and supply-demand - an hour of work and a kilo of steel will always remain an hour and a kilo.

We can argue that that hour and that kilo have their market price as well and had to be bought and paid for. Looks like we are chasing our own tail, doesn't it? It was like that until people figured out a financial vehicle ideal to measure all other values - gold. It's relatively abundant, has excellent weight/value ratio, it's easy to produce in exact denominations (weight) and with uniform quality, it does not fade/rot/spoil/rust and it does not loose it's value due to wear significantly over time. It's cost of production is also relatively stable - it changed only gradually over the past couple of hundred years despite advancements in technology (unlike silver that got significantly cheaper). So, we are back to that hour of work of a manual laborer as the only true measure of worth.

 

[Vlad]

Gold isn't money, money is money, anything accepted as currency is money.

Currency and money are two different things in Political Economy. Historically, anything accepted as currency was just a receipt confirming that you have a certain amount of gold kept in the bank's vault. Once the gold standard was dropped the supply and therefore value of currency stopped being directly tied to money, which is, as explained previously, gold or the amount of work needed to produce it.

I can use seashells and baby teeth if thats what people took.

Ever wondered why people all over the world will accept gold as money instead of sea sea shells or baby teeth(or coal, sand, copper, cheese..)?

Shares can be divided in a split, but not by you.

I knew that. One share of Berkshire Hathaway for me please (Class A, of course)

Deeds can also be divided by dividing the base real property it is based on, and you end up with 2 Deeds.

I didn't know that, but it makes sense. It doesn't make deeds a suitable medium of exchange / fiat money though.

 

[gjones4487]

Lol first time I read this title I thought it read "how to get into socks" I was like wtf? Then I read the OP. Lol

 

[OpenGambit]

Currency and money are two different things in Political Economy. Historically, anything accepted as currency was just a receipt confirming that you have a certain amount of gold kept in the bank's vault. Once the gold standard was dropped the supply and therefore value of currency stopped being directly tied to money, which is, as explained previously, gold or the amount of work needed to produce it.

This is only true if you only look at a small segment of history. I also have a political economy designation in my undergrad degree.

Ever wondered why people all over the world will accept gold as money instead of sea sea shells or baby teeth(or coal, sand, copper, cheese..)?

relative scarcity, easy to determine quality, easy to transport, among other things.

I didn't know that, but it makes sense. It doesn't make deeds a suitable medium of exchange / fiat money though.

Thats because its difficult to determine value quickly, not because its evidence of ownership in land.

Comments in Red

 

[Vlad]

Comments in Red

It's hard to respond properly when you don't quote properly, but I'll try.

relative scarcity, easy to determine quality, easy to transport, among other things.

And those parameters, among others, are what makes gold money instead of sand.

Thats because its difficult to determine value quickly, not because its evidence of ownership in land.

Now we've come the full circle and back to my original point. The market value of a house is variable, prone to fluctuations, frequently based on irrational factors, etc. and therefore hard to determine. The true value of the house - the cost to (re)produce it - is much easier to calculate and much less volatile. Neither are suitable to be monetized, for lack of a better term.

From this point on I will refer to the cost of production as true value or just "value" and reserve the term "price" for market value.

 

[Ikan]

Lol first time I read this title I thought it read "how to get into socks" I was like wtf? Then I read the OP. Lol

It has gotten to the point that your 1st reading was of more value than some of this. IMNSHO.

Have a great and prosperous day. $$

 

[Ikan]

Just to clarify for the OP. You only lose money when you decide to cash out your stock when it is worth less than what you paid for it. I recently bought CIBC stock last year when the stock went from $84 down to $71. I bought a crap load. I will get about $1200 a year in dividents and ......

As just a suggestion, be careful when deciding to use a phrase like, "....recently bought a crap load...." as it is all relevant. To some that is a drop in the bucket (very small amount). Too others it may be a lot.

Just saying.

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