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Posted by cheiros do ender (Member # 8849) on :
 
My Credit Union just merged with a larger Credit Union, and the larger one gave me 237 shares worth about $14 each. That's over $3000. I've been told I can sell them at my discretion, but I know the value of stocks can change dramatically overnight, and I don't know how to even estimate what's going to happen to the value of these.

This is a lot of money for me, so I don't want to lose heaps of it simply for not knowing enough about the Stock Market. I know there are people who give stock advice for a living, so I wouldn't be surprised if on hatrack of all places someone could help me with this.

Can anyone?
 
Posted by Kent (Member # 7850) on :
 
I assume that it is a privately held company. Can you verify this?
 
Posted by Stephan (Member # 7549) on :
 
If you don't need the money, leave it in. You have nothing to lose, and everything to gain.
 
Posted by cheiros do ender (Member # 8849) on :
 
quote:
I assume that it is a privately held company. Can you verify this?
Yes.

quote:
You have nothing to lose, and everything to gain.
How so? Shall I take that as a personal guarantee from you that this Credit Society will only get more and more valuable?
 
Posted by fugu13 (Member # 2859) on :
 
In the long run, stocks go up. Granted, a particular company could go under, but given that they're busy with acquisitions that's rather unlikely.
 
Posted by El JT de Spang (Member # 7742) on :
 
I have some advice for you: don't ask for stock advice on the internet.

Or, if you insist on asking for it take it with a grain of salt and don't blame anyone but yourself if it doesn't pan out. That's probably better advice than the first suggestion.
 
Posted by MightyCow (Member # 9253) on :
 
quote:
Originally posted by fugu13:
In the long run, stocks go up.

Come on, this isn't anything close to true. Many stocks can be a good investment, but any given random stock can easily go down in value. Without studying the stock and the market conditions and the sector and so many other things, there's no way to tell if the stock is over-valued or the company is headed for a down turn or the management is bad or any number of problems that could cause the stock to be worth less in the long term.

Here's my simple advice. Don't invest in a stock that you don't know anything about.

That means either learn about stock investing and more importantly, about the particular stock, or take the money and invest in something you DO know about. Either invest in a company which you've done some research on and feel confident about, or invest in something else which you're more familiar with, even if it's just a CD or Treasury Bond.

I cannot think of any good reason to leave your money in an investment that you know little to nothing about. There are lots of good investments out there. This may be one, but until you know that it is, I would consider it risky, for your own protection.
 
Posted by fugu13 (Member # 2859) on :
 
Nope, its generally true of stocks for companies that don't go out of business, that's one of the surprising things about the stock market (though its actually not all that surprising, for various good reasons). There are exceptions, but they're far outnumbered by those stocks that go up in the long run.

Of course, a lot of companies go out of business.

And the real reason I'd leave it in is out of a sense of adventure [Wink] . However, your advice to switch it to a company one has done research on is probably bad. Stock prices, through the actions of the free market, adjust to have prices reflecting the risk weighting of known possible developments. That is, for a person just researching readily available information and not capable of bringing a significant sum of money to the table (thus affecting the outcomes by his presence), for most stocks there's little difference in the long run between choosing one or another, so if he's going to have one or a few stocks, he might as well just stick with this one and save the fees (the page he linked shows an upward trend, plus its involved in M&A, making it a pretty typical looking stock).

A CD or a bond makes little sense given he's young and clearly not highly risk averse or in need of predictable future liquidity. A good index fund would be far preferable. Right now the lowest load funds for the individual investor are generally Vanguard funds, so he should look at those if he's contemplating reallocating his investment.
 
Posted by cheiros do ender (Member # 8849) on :
 
quote:
Here's my simple advice. Don't invest in a stock that you don't know anything about.
I didn't invest in anything. I was just... given it. Because I'm 17 I didn't even participate in the voting that precluded the merger.

I've been given 237 stocks with a total value of over $3000. A small decrease in the value of individual stocks means a much larger decrease in their total value. More than anything, my question was regarding whether or not I should just sell them now, or just keep them, since there doesn't seem to be much else to owning stocks.

quote:
That means either learn about stock investing and more importantly, about the particular stock, or take the money and invest in something you DO know about. Either invest in a company which you've done some research on and feel confident about, or invest in something else which you're more familiar with, even if it's just a CD or Treasury Bond.
I don't want to do any investing. This wasn't an investment made by me, it was given to me. I'm simply asking what to do with it. If I sell these stocks I certainly won't be using the money for reinvestment.
 
Posted by El JT de Spang (Member # 7742) on :
 
I'd say just keep them. They didn't cost you anything, and you know the companies growing (because companies that aren't in a growth phase don't buy out smaller companies). If you want to do some research, check out the company.

How long has it been in business? How much has it grown? What moves, if any, has it made recently or does it have on tap?
 
Posted by Stephan (Member # 7549) on :
 
quote:
Originally posted by cheiros do ender:

How so? Shall I take that as a personal guarantee from you that this Credit Society will only get more and more valuable?

What I meant was, since the money was sort of just given to you, you really don't have much risk. Maybe even just cash out half, and keep the rest in. That way you won't kick yourself if it goes up, and you still got something out of it if it goes down.
 
Posted by ricree101 (Member # 7749) on :
 
Personally, I'd sell at least part of them to invest elsewhere. Diversity is generally a good idea.
 
Posted by Stephan (Member # 7549) on :
 
http://www.asx.com.au/asx/research/CompanyInfoSearchResults.jsp?searchBy=asxCode&allinfo=on&asxCode=HME#dividends

Looks like they even pay the occasional dividend. Looks like just this pass June they mailed every stock holder a check for 24c per share they owned.

Here:

http://www.asx.com.au/asx/research/CompanyInfoSearchResults.jsp?searchBy=asxCode&allinfo=on&asxCode=HME#chart

You can see a chart (your company in red) of its history. Looks like it routinely takes a dip, before going up even higher. Obviously this is never guaranteed, and a highly risky way to make investment decisions, but if it were me I would take it as a positive sign.
 
Posted by fugu13 (Member # 2859) on :
 
If you're going to either cash out or keep, keep. Cash loses value with inflation, at least the value of the stock will automatically adjust for inflation (it could still go down, but its not going to go down just because there's inflation).

Between being guaranteed to lose value and having a pretty darn good chance of making more, I'd take the pretty darn good chance of making more.
 
Posted by Primal Curve (Member # 3587) on :
 
Did you hold stock in the old credit union? Did they just give you $3000?
 
Posted by MightyCow (Member # 9253) on :
 
quote:
Originally posted by fugu13:
Nope, its generally true of stocks for companies that don't go out of business...

Of course, a lot of companies go out of business.

That's my point. Any given stock is not necessarily a good investment.

quote:
Originally posted by fugu13:

However, your advice to switch it to a company one has done research on is probably bad.

I don't get this advice at all. Considering you believe that any stock is bound to be a good investment, it seems completely illogical to say that investing in a stock that you've researched is a bad idea. How could understanding your investment and looking for a strong company possibly be a worse investment than just sticking with what you stumbled upon? Knowing about where your money is invested is better than not knowing.


Either I'm really misunderstanding you, or it seems that you have an odd view of stock market investing. Stocks are considered a fairly high-risk investment because they frequently go down.

I agree that on paper, stocks as a whole tend to increase in value over any given long period of time, but to take that general trend and apply it to any given stock and assert that any stock is a good investment makes no sense to me.

I've invested in lots of stocks that are worth much more now than when I started, but I've also invested in a handful that lost me a great deal of money. It is absolute fact that many stocks will decrease in value over any given period of time.
 
Posted by El JT de Spang (Member # 7742) on :
 
Why don't you reread the sentence of fugu's you quoted. Then compare it to this sentence of yours:
quote:
I agree that on paper, stocks as a whole tend to increase in value over any given long period of time
Edit: He didn't say any given stock was a good investment. He said stocks generally increase in value, which is a statement you seem to agree with.
 
Posted by fugu13 (Member # 2859) on :
 
Stocks are, in the long term in aggregate, considered a very safe investment, not a risky investment. More risky than some, sure, but far less risky than, say, an individual stock. I do have an odd view of stock market investing, though, I have an economist's view [Wink] .

You're misunderstanding me, though, I don't consider any stock to be a good investment. I consider any single stock as good an investment as any other single stock, in the long term, given there are no indicators the company might fail.

As for why looking for a good investment won't necessarily make you any more, its because everybody else is looking for a good investment too. Once enough people buy a good investment, it stops being a good investment (in the sense of being better than the other investments). Now, obviously some stocks outperform others and some underperform others, and there is a certain lag time for the stock market to adjust to new information about a company. However, there's good research showing that for most basic changes in information that lag time is on the order of seconds. In other words, yes, every so-far decently performing stock without major warning indicators is just as good as any other, in the sense of expected long run returns.
 
Posted by Kasie H (Member # 2120) on :
 
Since you're totally new to it, I'd sell it and buy a mutual fund targeted to your projected retirement year.
 
Posted by GaalDornick (Member # 8880) on :
 
I have no idea about anything in stocks so here's a dumb question:

By owning stocks in the company (which means he's owns a small part of the company right?) shouldn't he also get a percentage of the profits the company makes? Or is the only way he could make money is by selling them when the stocks get high?
 
Posted by Kwea (Member # 2199) on :
 
Those are called dividends, and they don't usually add up to much unless you have thousands of shares or more.
 
Posted by GaalDornick (Member # 8880) on :
 
But you will still make a profit (even if it's a penny) just by owning shares in a company? If the company starts losing money, would you have to pay out of your pocket a percentage of it (corresponding to how many shares you have)?
 
Posted by Kasie H (Member # 2120) on :
 
No. Though you can do that by what's called "shorting", where you essentially bet money that a company's value will fall.

The worst you can possibly do with a stock is lose all the money you put in. You can't lose money you don't have, like you can gambling.

And a company doesn't have to pay dividends. They risk pissing off their shareholders, but a lot of them justify it by saying they are reinvesting the profits to grow the company. Start-ups in heavy growth phases very rarely pay out dividends.

Microsoft didn't until some time in the last two years, I think, despite having one of the largest cash stockpiles in history.
 
Posted by Dan_raven (Member # 3383) on :
 
Just give it all to me.
 
Posted by Primal Curve (Member # 3587) on :
 
quote:
Originally posted by GaalDornick:
But you will still make a profit (even if it's a penny) just by owning shares in a company? If the company starts losing money, would you have to pay out of your pocket a percentage of it (corresponding to how many shares you have)?

Your perception of how stocks gain and lose in value is a common one. It is also, however, incorrect. The value of the stock is based upon (and this is a really, really simple way of explaining this) people's desire to purchase that stock vs. the willingness of the current shareholders to part with that stock. The more of the former and less of the latter, the more people will pay to get their hands on it and the more it is worth- thus increasing the value of the current share holder's stock.

There's no tangible assetts moving back and forth. The increase in value is not due to someone sticking more money in your brokerage account. It's just worth more so you have more "money," though the money is tied up in the ownership of that stock.

This is a really complicated subject, I suggest you look over this article at invesopedia:
http://www.investopedia.com/university/stocks/
 
Posted by GaalDornick (Member # 8880) on :
 
Someone once explained that to me, but it doesn't make any sense to me. Why would people randomnly want to start buying a specific stock if it has nothing to do with how that store is doing? A stock has absolutely nothing to do with the real store/comapny, just how much people want the piece of paper that has the companies name on it? That doesn't make any sense to me.

I'll go look at that link, thanks Primal.
 
Posted by Primal Curve (Member # 3587) on :
 
Well, your questioning is heading in the right direction. Why would someone want to buy stock in a company?

Think about it this way. Would you like to own a chunk of Procter and Gamble? Wouldn't you love to get in on that bandwagon? P&G is an excellent example of a large-cap stock. They have a lot of capital (the own a TON of businesses and have a really huge product line) and they have a lot of stock on the market. Stocks like this are also known as "Blue Chips."

P&G is a really steady company. They have been in business for a long time and have a time-tested hold on the market. Their stock is valuable because of its stability (in a relative sense) and it's potential for long-term gain. You can be pretty sure that an investment in P&G will lead to further gains down the road.

That interests investors. They want some of their money to be in investments that perform well. That means that they would be more interested in paying a higher price for some P&G stock vs a company like, say, GM- which is more volatile these days.

That's just one example of why investors may pay more money for that stock.

Another example would be in a no-name company that suddenly makes a big announcement about an aquisition or in an innovative product its developing that is certain to be profitable. That kind of thing really gets hard core investors going. There's a lot of potential for big returns as that company's stock was probably dirt cheap at the time they purchased it. If the company goes big, they could see some serious returns. Of course, as with any investment, there's risk here too. If the company doesn't deliver on its promises or the product is a total piece of crap, then people will be less interested in purchasing that stock and may try to liquidate it. Then the stock becomes absolutely worthless as people are willing to sell it at any price just to get rid of it.

Does that make any sense?
 
Posted by Morbo (Member # 5309) on :
 
quote:
Originally posted by ricree101:
Personally, I'd sell at least part of them to invest elsewhere. Diversity is generally a good idea.

I agree with this. Do research on the original credit union stock and see if it's worth keeping. Then I would sell 25-50% of the stock, and probably get into a low-load stock indexing fund, like Vanguard. If it looked like a bad investment, I would sell more than 50%, maybe even all of it. But I would sell at least some of it and reinvest it. Or spend it.

"Low-load" means low commisions paid to the fund managers--the higher the commisions cut off the top of your investment, the less investment value you keep.

A "stock indexing fund" tracks various groups of stocks, for example technology sector stocks or the S&P 500 stocks, or the Dow Jones Industrials (the top 30 industrial stocks.) If you buy shares in a S&P 500 stock indexing fund, for example, it is the equivalent of buying tiny amounts of shares in each of those companies. Your shares would rise and fall along with the S&P 500 companies. So it's an easy way to diversify.
 
Posted by MightyCow (Member # 9253) on :
 
quote:
Originally posted by fugu13:
I do have an odd view of stock market investing, though, I have an economist's view [Wink]

I'm glad I was on the right track.

I do agree with you on the whole. But I think your investing advice stinks. [Razz]

In the world of economics, statistically there may be no inherent value to one particular stock over another. In the real world, there are many stocks with significant value now which will be worth little or nothing in 10 years, or one year, or a month.

According to how I understand your logic, you would suggest that a good investment strategy would be to throw a dart at the New York Times stock pages and invest in whichever stock your dart found. I think Warren Buffet's $44 Billion would provide a strong argument against.

Is the OPs stock going to increase in value over the long term? Statistically it should.

Is it a wise investment? If it had been $3,000 worth of shares in YAHOO in 2000, it would be worth about $750 today. If it had been in Honda Motors, the $3000 would be worth around $4500. I picked those two off the top of my head because I had a good estimate of their recent performance, but for any given period of time, you can find some stocks that do well, others that lose value or fail completely.

So sure, "stocks" tend to go up in value over time, but I think it's faulty investing advice to simply assume that any stock you happen to own is a sound investment.
 
Posted by cheiros do ender (Member # 8849) on :
 
Is it a good idea to sell stocks when they're going down in value, and then buy even more when they're further down and cheaper.

Of course, there are tax repurcussions to doing things like that, aren't there?

Stupid taxes. [Grumble]
 
Posted by fugu13 (Member # 2859) on :
 
No, that would be a crappy investment strategy. But, if you did that after weeding out a certain class of poor performers, that would be just as good an investment strategy as researching a bunch of stocks and buying a lot of one stock.

Also, I never stated those stocks would have the same outcomes, I said that their potential gains and losses and the risk weighting involved had all been already included in the stock price. Only if you had some way to divine in 2000 when buying shares what the future stock prices would be would your comment be a successful criticism of mine.

Warren Buffet can make money like that because he's able to influence the course of stocks with his actions. Note I made that an exception from the very beginning.

cheiros: no, that's not a good idea. Or rather, it would be if you could predict when that was going to happen. You can't, so its not.
 
Posted by Morbo (Member # 5309) on :
 
quote:
I said that their potential gains and losses and the risk weighting involved had all been already included in the stock price.
How does this view reconcile with many of the dot-com companies in the 90s that had incoherent business or profit plans, yet still achieved staggering market capitalizations before going out of business a short time later? The stock prices made no rational sense.
 
Posted by Primal Curve (Member # 3587) on :
 
Speculation and inexperienced investment.
 
Posted by Morbo (Member # 5309) on :
 
Yes, of course, but there was precious little risk-weighting in those hyperinflated prices. The market is often blind as well as having invisible hands.
 
Posted by fugu13 (Member # 2859) on :
 
First, note the constant qualifications about leaving out stocks of companies likely to go out of business. Any business absent a business plan or hemorrhaging money without a recovery strategy falls into this category [Smile] .

Second, for a long time people thought these companies operated under different rules, driving their stock market prices higher. Note that in 1998 it was eminently rational to invest in many of these stocks for a decent bit of time into the future. How was one to know that these were likely to crash in a few years? Just before the crash, how was one supposed to know a crash was coming, given that for several years before that the same conditions had been in place but there was no crash? Also importantly, note that the crash lowered a lot of stocks, including non-technology ones. Even if you knew the crash was coming, how were you to predict which companies would be affected and how much?

Also, don't forget the words 'the long run'. The long run can be very long, its probably at least ten years (economists spend a lot of time working out where the long run and the short run are for various questions). If your given stock survived the stock market crash, it could certainly recover that value and then quite a bit by 2010.

There are some other points to be made, too, but there's food for thought [Smile] .
 
Posted by Morbo (Member # 5309) on :
 
Yes, good points Russel. I was just pointing out that your sentence I quoted is much more idealistic than practical, and that a stock's market price often diverges widely from it's "true" (undefined) value.
quote:
How was one to know that these were likely to crash in a few years? Just before the crash, how was one supposed to know a crash was coming, given that for several years before that the same conditions had been in place but there was no crash?
But your thesis is that "the risk weighting involved had all been already included in the stock price", and that is not true in this and many other cases.
 
Posted by fugu13 (Member # 2859) on :
 
Yep, it is, at least insofar as a person of modest means can discover. Prove its not and make a killing in the stock market. If its true, then it should be eminently possible for you to pick a certain set of stocks far more likely to go down overall (that is, weighted for risk) than others on the market, which you can then short, and a certain set of stocks far more likely than the others to go up overall, which you can then buy. That there is nobody who can consistently do this strongly suggests to me that yes, in almost all cases what I say is true [Smile] .

Lets imagine two stocks, A and B, both currently at $10. A has a 50% chance of reaching $2 at some short term horizon, and a 50% chance of falling to $9. That's an expected gain of $.50 (.5 * 2 + .5 * -1). B has a 99% chance of falling to $1 and a 1% chance of rising to $1000, which is an expected gain of $.99 (.99*-9 + .01 * 990). Note that the expected gains of the second stock are about twice the expected gains of the first stock, despite it being far, far more likely to go out of business. Internet stocks that made it big made it really big, meaning people were willing to pay for the high risk stocks on the chance of finding one with a really high payoff.
 
Posted by GaalDornick (Member # 8880) on :
 
(Late post, I had forgotten about this thread after I posted.)

PC, this:

quote:
The value of the stock is based upon (and this is a really, really simple way of explaining this) people's desire to purchase that stock vs. the willingness of the current shareholders to part with that stock.
seems to contradict what you explain in your next post. Here's how I'm understanding it. The value of a stock is based entirely on a supply-and-demand basis. If more people want a certain stock, then the price goes up. The price of the stock doesn't have to do with how much the store is profiting (or whether it looks like the store will start profiting more soon). But that does affect whether people want to buy that stock. Why would people want to buy a stock of a store if the store is starting to do better if those profits don't even affect the stock price? Is my question making any sense?
 
Posted by Nighthawk (Member # 4176) on :
 
$3000 to burn at the age of seventeen? If I had that when I was seventeen, I'd be in jail or dead by the end of the day.

As stated: don't invest if you don't know anything. I know of several companies that their stock dropped to nothing, and it's not as simple as "going out of business." Companies can very well get sucked in to the tenth level of Hell by the people that are running them, and your stock will go along for the ride.

If you really want to do something with it more long term, I'd suggest doing simple things like buying a CD, opening a savings account, etc... something that isn't as hazardous.
 
Posted by TomDavidson (Member # 124) on :
 
quote:
Why would people want to buy a stock of a store if the store is starting to do better if those profits don't even affect the stock price?
Because eventually they will. Remember, stock represents a percentage ownership in the company. If the company has become more valuable without selling more stock, each individual share of stock has also become more valuable; if that company were to liquidate (in theory, although almost never in practice), its increased assets would be reflected in the increased amount of money turned over to investors in exchange for that stock. Dividends actually reflect this by handing profits back to the investor; stocks which don't pay dividends have a less obvious connection to assets, but are still roughly tied.

In reality, though, stock prices are still more strongly connected to investor desire than actual value.
 
Posted by fugu13 (Member # 2859) on :
 
If he wants to do something with it long term, a CD or savings account is a very bad way to go. Invest in an index fund, in that case. An index fund is extremely low risk, and has a significantly higher rate of return than either a CD or savings account will.
 
Posted by King of Men (Member # 6684) on :
 
It's worth pointing out that most investors in the stock market are not private persons (at least not middle-class ones) but companies. And given enough money, you can do things a bit differently. For example, in principle you can buy up 100% of a company, and declare that it is going to pay out its entire capital in dividends. That would be a good deal if the stock values were less than its capital, though the workers might be a little annoyed. Such deals are rare, though. If you were a truly clever sort, though, you could buy a large share of a company doing badly, correct whatever they were doing badly, watch the stock price rise, and cash out. You'd even be doing people a favour. (If you were a competitor, you could instead correct whatever they were doing well, and watch your market share increase... but let's not go there.)

Basically, though, it's a complex system, and it has a lot of stuff built on top of the original purpose. If you went back to, say, 1850 or so, (I could be wrong on the year - fugu might correct me) you would find that people bought stocks because they expected to get dividends. Then they sold them off if a company was doing badly, because such a company wouldn't be paying out; they especially did this if they knew the company was doing badly before anyone else did, because then the other suckers would still be expecting dividends, and you could get a good price. (Hence the rules against insider trading.)

Then, as it became easier to buy and sell, people would try for the famous 'buy cheap, sell dear'. That moved away from the dividends. Before, you had to predict where the good dividends would be, and try to buy those stocks. Now, you had to predict what other people would predict about where the good dividends would be, get those stocks, and then sell them when the other people made their prediction and tried to buy the stocks. (It gets worse!) Then, of course, it became advantageous to predict what others would predict about predictions about dividends... There's a reason the stock market is considered chaotic. But the foundation of all this is the dividends, in somewhat the same way that the foundation of a computer's functioning is electrons moving about. You're better off trying to understand the software.
 


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