Ultra Life Batteries.
They make batteries. They've been selling more and more of them and improving their earnings over the last 5 years. They just got a big contract two days ago... Everything seems to be well with this company...
And yet, I've lost over 15% of my allotted capital over about a week. Ouch. While the market as a whole was going up... Double Ouch.
Why is this happening? I don't know.
Perhaps it's nothing. Perhaps there's something nasty behind the scenes and smart people are running away.
Regardless of the reason, I've already lost a sizeable amount of cash and I'm not going to wait for it to bounce back. So, I'm selling ULBI and keeping it on my radar to see how much lower it goes or how fast it rebounds.
The most important rule in investing is: DON'T LOSE MONEY!
Why? Because a 15% loss hurts more than a 15% gain.
If I lose 15% of 100$, I have 85$ left.
But if the stock rebounds 15%, I won't be back up to 100$, I'll have 97.75$. Bummer.
If I take a 50% loss on a stock, I then need a 100% gain to get back to break-even! These losses accelerate rapidly and I'm trading with cash only. If I was doing this on margin*, a 20% loss could send me to the bankrupcy courts!
I avoid margin like the plague.
*Margin is when you borrow money to invest. It works great as a multiplier when you're winning but it destroys your even faster when you've made a mistake. I think it's not worth it.
Wednesday, October 21, 2009
Wednesday, October 14, 2009
First Buys
The first problem with stocks is figuring out what to buy.
Some people buy what they know. They go out in the real world, see what's selling and buy shares of those companies.
Some people buy household names like Microsoft, GE, Panasonic and so forth.
Some people buy the stock tips they get from TV, the internet or their broker.
Some people use a stock screener to spit out a list of companies that they might like.
I tend to favor that last approach. The screener doesn't have an agenda. It doesn't care what companies pop up on the list and it's not trying to sell you anything.
Here again, there are two basic ways to screen for stocks. You can screen on technicals or fundamentals.
Technicals are basically price movements or volume that fit into a particular pattern which seems to repeat itself with some consistency.
Fundamentals are financial ratios like the PE, dividend payout ratio etc.
For this exercise, my first buys were: TNP, STP, TSP, NTE, PDS, UNT, SPIR, ULBI and TNH
TNP, NTE, UNT, PDS and TNH are all strong companies that make money and pay out a hefty dividend from their earnings.
STP, TSP,SPIR and ULBI are a bit wilder. They're not currently making money but I am hoping that they eventually start to earn cash. When they do, the price should explode upward. If they don't deliver, the price might very crash all the way to zero in short order.
That price movement (volatility) is risk. If a stock moves up 50% in two days and then dives back down 80% over the following week, it is EXTREMELY volatile and therefore VERY risky. Not many investors will have gotten out at the top and large numbers of them will be nursing their losses for a long time to come.
You can cut down on volatility by having a stop-loss. IOW: you get out of your stock at a pre-determined price level. If you buy a stock at 5$, set a limit for your losses. Let's say, 4.20$ and if the stock does hit that number, SELL it before things get worse.
Some people buy what they know. They go out in the real world, see what's selling and buy shares of those companies.
Some people buy household names like Microsoft, GE, Panasonic and so forth.
Some people buy the stock tips they get from TV, the internet or their broker.
Some people use a stock screener to spit out a list of companies that they might like.
I tend to favor that last approach. The screener doesn't have an agenda. It doesn't care what companies pop up on the list and it's not trying to sell you anything.
Here again, there are two basic ways to screen for stocks. You can screen on technicals or fundamentals.
Technicals are basically price movements or volume that fit into a particular pattern which seems to repeat itself with some consistency.
Fundamentals are financial ratios like the PE, dividend payout ratio etc.
For this exercise, my first buys were: TNP, STP, TSP, NTE, PDS, UNT, SPIR, ULBI and TNH
TNP, NTE, UNT, PDS and TNH are all strong companies that make money and pay out a hefty dividend from their earnings.
STP, TSP,SPIR and ULBI are a bit wilder. They're not currently making money but I am hoping that they eventually start to earn cash. When they do, the price should explode upward. If they don't deliver, the price might very crash all the way to zero in short order.
That price movement (volatility) is risk. If a stock moves up 50% in two days and then dives back down 80% over the following week, it is EXTREMELY volatile and therefore VERY risky. Not many investors will have gotten out at the top and large numbers of them will be nursing their losses for a long time to come.
You can cut down on volatility by having a stop-loss. IOW: you get out of your stock at a pre-determined price level. If you buy a stock at 5$, set a limit for your losses. Let's say, 4.20$ and if the stock does hit that number, SELL it before things get worse.
Tuesday, October 13, 2009
Let the Games Begin!
I've started a stock-picking game at:
http://vse.marketwatch.com/Game/StartViewGame.aspx?id=AssetPicking
Here's why:
I think that the education given out in every country in the world has the same rather glaring fault: It doesn't teach people about getting rich. It doesn't help to make us better savers/investors nor does it teach us how to avoid crippling levels of debt.
Please correct me if I'm wrong with this premise!
The unfortunate result is that we learn a marketable skill (plumbing, nursing etc.) and then use that skill all our life to earn money which is then spent on liabilities rather than assets.
Most people I talk with don't know how to buy assets. Many can't even tell the difference between an asset and a liability!
So, I'd like to invite you to a free stock-picking game. I'd like to use this game to help hone your financial skills and hopefully make you richer in the long-run. This will be a two-year experiment. If you join up, you will be welcome to comment on your stock choices or your investing process in a new blog I am starting now. Questions about picking strategies or anything else asset-related are welcome! I will try to answer any question to the best of my ability or at least to direct you to further useful resources. I also expect that some members will be experts in the field and will also answer questions.
The game is here:
Game ID: AssetPicking
1. Open this link and read the competition summary:
http://vse.marketwatch.com/Game/StartViewGame.aspx?id=AssetPicking
2. Click on the 'Join Game' link.
3. If you are an existing Virtual Stock Exchange member, enter your Email address and Password in the login panel and get set to trade. If you are a new user, follow the link to register - it's easy!
4. Follow the instructions and start trading!
Best of luck!
http://vse.marketwatch.com/Game/StartViewGame.aspx?id=AssetPicking
Here's why:
I think that the education given out in every country in the world has the same rather glaring fault: It doesn't teach people about getting rich. It doesn't help to make us better savers/investors nor does it teach us how to avoid crippling levels of debt.
Please correct me if I'm wrong with this premise!
The unfortunate result is that we learn a marketable skill (plumbing, nursing etc.) and then use that skill all our life to earn money which is then spent on liabilities rather than assets.
Most people I talk with don't know how to buy assets. Many can't even tell the difference between an asset and a liability!
So, I'd like to invite you to a free stock-picking game. I'd like to use this game to help hone your financial skills and hopefully make you richer in the long-run. This will be a two-year experiment. If you join up, you will be welcome to comment on your stock choices or your investing process in a new blog I am starting now. Questions about picking strategies or anything else asset-related are welcome! I will try to answer any question to the best of my ability or at least to direct you to further useful resources. I also expect that some members will be experts in the field and will also answer questions.
The game is here:
Game ID: AssetPicking
1. Open this link and read the competition summary:
http://vse.marketwatch.com/Game/StartViewGame.aspx?id=AssetPicking
2. Click on the 'Join Game' link.
3. If you are an existing Virtual Stock Exchange member, enter your Email address and Password in the login panel and get set to trade. If you are a new user, follow the link to register - it's easy!
4. Follow the instructions and start trading!
Best of luck!
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