What to Do When the Dow Hits 7,500

Talk about ironic ... I originally submitted this article to my editor on Aug. 29, after the Dow had fallen "all the way" to 11,500 -- but it never got published.

The plan was to take you back to 1996 -- when the Dow crossed the 6,000 mark for the first time ever -- to a Charlie Rose roundtable that included Jim Cramer and Motley Fool co-founders David and Tom Gardner.

Another crazy call by Cramer
Back then, Cramer argued that the Dow would soar all the way to 7,500 -- despite the fact that it had already more than doubled in just over five years, and that even shares of behemoths like McDonald's (NYSE: MCD  ) and General Electric (NYSE: GE  ) had risen more than 100% from their 1991 lows.

Meanwhile, David and Tom took a much different approach, telling viewers, "We don't care where the market is headed." They explained that they were focused on finding the best eight or nine stocks to grow your wealth over the long haul.

Basically, they searched for stocks that:

  • Were underfollowed on Wall Street.
  • Had a net profit margin of at least 10%.
  • Had earnings and sales growth greater than 25%.
  • Had insider holdings of 15% or more.

I went on to show how, early on, this approach led them to America Online, eBay (Nasdaq: EBAY  ) , and (Nasdaq: AMZN  ) -- not to mention landing them on the covers of magazines from Fortune to Newsweek. But I also thought it fair to point out that it was hard not to get rich in that market.

After all, Cramer had been right on the money. The Dow soared well over 9,000 in 1998 and reached a whopping 11,500 less than two years after that -- which is exactly where it stood on Aug. 29, 2008, when I submitted my article.

Could my timing be any worse?
Sure, we were in the middle of a fierce bear market -- but I pointed out that of the 24 stocks David and Tom recommended to their Stock Advisor subscribers during the last bear market:

  • Twenty-three were (or were sold) in positive territory.
  • Eleven had more than doubled.
  • Five were up more than 400%.

I even added, "I bring this up merely to illustrate that despite what all the talking heads on TV are telling you, you absolutely should be buying great companies right now -- while they are still selling at massive discounts."

I'd almost jokingly insinuated that the Dow could drop to 7,500 ... and then, within six weeks, we were a mere 200 points from seeing it do just that.

And here we are now
In the process, I watched my near triple-digit gains in stocks like Freeport-McMoRan (NYSE: FCX  ) and Transocean (NYSE: RIG  ) dissolve into gut-wrenching double-digit losses as hedge funds began unraveling, commodities began selling off, and the panic officially set in.

Now I am left with the same questions that you probably have:

After being so thoroughly humbled by this market, I won't go so far as to suggest that you follow Buffett's lead -- he recently bought major stakes in GE and Goldman Sachs (NYSE: GS  ) -- and be greedy when others are fearful. And I won't even preach what my fellow Fools and I are practicing.

Instead, I'll simply share the advice that Tom Gardner gave us at our companywide "huddle" this morning ...

How you can turn losses into a huge win
Tom pointed out that when things are going well, most of us spend all of our time high-fiving and celebrating, whereas when things go sour, we turn to sulking, worrying, and even panicking.

Meanwhile, when the going gets tough for the toughest, smartest, and most successful people out there, they do something drastically different ... they learn from it. And that's what sets them apart.

Take Benjamin Graham, for example ...
He went bankrupt three separate times as an investor. But each time, he documented and studied his failures, and he was eventually able to impart this investment wisdom to countless others -- including Warren Buffett, who in turn learned from his own mistakes and failures.

Early in Buffett's career, he mistakenly believed he could save a failing textile mill. After being forced to liquidate its textile operations, Buffett learned to pay up for quality and turned that company into a $170 billion legend.

Another great example is Pixar's John Lasseter. After graduating from college, Disney hired him to captain its Jungle Cruise ride at Disneyland. Later, the company gave him a shot at being an animator, and he quickly recognized the ability of new computer technologies to revolutionize animation.

But Disney was so unimpressed with his first feature that they fired him on the spot. So Lasseter literally went back to the drawing board. After fine-tuning his process, he went on to found Pixar, win two Academy Awards, and churn out a string of blockbuster hits that included Toy Story, A Bug's Life, and Cars.

Oh, and let's not forget, he and Steve Jobs later sold Pixar to Disney for a cool $7.4 billion.

Now it's your turn
Six weeks ago, I never would have imagined we would see the Dow hit 7,500. But now I know that anything is possible. And if the unthinkable does happen, the best thing we can do is learn from our mistakes so we can make better investments going forward.

I've already learned that companies like Clearwire -- who bleed cash quarter after quarter and are years away from profitability -- probably aren't the best places for my money, no matter how intriguing their stories are.

I've also learned that I should avoid investing in companies whose business models are a bit too complex for me to fully understand. That's why I recently sold my shares of NYSE Euronext, and why I won't be buying shares of WellPoint or JPMorgan, no matter how cheap they get.

Now, I challenge you to use the comment function below to tell all of us what you've learned, and how you will use that information to make yourself a better investor.

And in case you're interested in what longtime investors like Tom and David Gardner have learned, you can always take a free 30-day trial of their Motley Fool Stock Advisor service -- where you'll get in-depth analysis of every stock they've recommended, including their two top stocks for new money now.

Click here for more information. There is no obligation to subscribe.

Austin Edwards still owns shares of Clearwire, Goldman Sachs, Freeport-McMoRan, and Transocean. Amazon, eBay, and Disney are Motley Fool Stock Advisor recommendations. JPMorgan Chase is an Income Investor pick. NYSE Euronext is a Motley Fool Rule Breakers selection. WellPoint is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.

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Comments from our Foolish Readers

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  • Report this Comment On October 27, 2008, at 5:19 PM, scwman1 wrote:

    Here's what I learned: First, with this crisis the reality has always been worse than what was claimed. Names like Wachovia, Lehman, and GE come to mind. Second, most financial advisors, money managers, etc. did not see the forest from the trees. Be skeptical of the financial industry and do your own research. You have to live with yourself after all. Third, do not let emotions block the news from entering your decision making processs. The bad omens were written about in 2006. Fourth, selling after a 20% drop can still put you way ahead!

  • Report this Comment On October 27, 2008, at 6:02 PM, NoOracleHere wrote:

    What I have learned is Watch the balance sheets. The companies which really tanked or even went bankrupt had no problem with their cash flow, but they had really lousy balance sheets. Cash flow problems affect you eventually, but the balance sheet can blow up overnight.

  • Report this Comment On October 27, 2008, at 6:21 PM, umakethecall wrote:

    if this isn't 1932, then it must be some other time in history.

    During the internet bubble, great industrials were brought to their knees for no good reason.

    I believe this industrial/banking/housing bubble we are in has brought great technology stocks to their knees.

    The last bubble vs this bubble.

    Great buying opportunities in opposite industries existed before and are happening right now.

  • Report this Comment On October 27, 2008, at 6:36 PM, docmjr1 wrote:

    What have I learned besides the fact that I'm worth s lot less today than I was a mere 12 months ago? First, I'm not as smart as I think. Second, apparently that's also true for a lot of people that invest for a living. Third, be ABSOLUTELY comfortable with your investments: know them and clearly understand the risk/reward ratio of owning them. Fourth, lean heavily toward owning companies that have a long history of paying ever increasing dividends for the privilege of taking your investment dollars.

    And if you don't need the money to live on, reinvest every last dividend dime in these same companies so that you assure yourself of a pay raise regardless of what the market does. Let those dividends beget dividends and right now they're begetting better than at any time in recent memory.

    Lastly, remember that according to Jeremy Seigel these are the times when we sow the seeds for outsize gains later on. You don't do that by selling. You do that by buying. I'm sowing with dividends.

  • Report this Comment On October 27, 2008, at 6:46 PM, jerry1215 wrote:

    ATVI is going to hit. I've worked in the video game industry for 12 years and they get their "toys" out on the shelves by Turkey Day before the mad shopping begins. Also, you might want to watch ERTS. They seem EXTREMELY low for a company of that calibre. My 2p.

  • Report this Comment On October 27, 2008, at 7:07 PM, etbob1 wrote:

    Cramer says the market could fall 86% from the highs of 1 year ago.

    I don't think any stocks will work reliably long until at least October 2009.

    Which probably means the S&P 500 will be below 500, another 40% drop from here!

    I don't think the Dow really matters, because the Dow stocks are a bunch of doddering,rust belt, out of favor permanently obsolete companies!

  • Report this Comment On October 27, 2008, at 7:59 PM, thedog81 wrote:

    What I learned? Don't change your buying habits in a falling market. I went on a buying spree when it was down 25%. If I would have maintained my regular buying pattern I'd have been able to buy more as it fell lower.

  • Report this Comment On October 27, 2008, at 8:46 PM, DDHv wrote:

    Prioritize intelligently. 1) "reality" investments - our apple tree is returning over 100%/year and is inherently inflation proof. We've chopped house heat bill from over $1300/year to under $400 by modifications. Etc. 2) Cash equivalents - scattered around some, and unless inflation gets really bad we add enough to more than cover inflation (after interest). If it does get really bad, see 1. 3) Stocks - buy after the rest is done, but do enough research to eliminate the bums and find the bargains. Everything interesting goes into a spreadsheet, rows are companies, and columns those key statistics which are understood. Instead of buying immediately, when extra cash is available, the sort is used to find the 5% in each which best matches the strategy. One column is reserved for evaluation - for the 5% best it is incremented by an amount suited to the value of that statistic. At the end, the eval column is sorted - this cuts things down to a very few that are worth looking at in detail. Updating of statistics is done on a rotating basis, a few daily, all about monthly.

    At present, we are cutting back on the cash equivalents part, and adding to the stocks part. Of course, 1) has top priority when a good opportunity arrives.

  • Report this Comment On October 27, 2008, at 9:22 PM, nodisclosures wrote:

    I have learned that "buy and hold" is for patsies. And don't trust people who are trying to sell you stuff. And the house always wins. And don't go to your broker with more money than you'd take to Vegas.

  • Report this Comment On October 27, 2008, at 11:47 PM, GoNuke wrote:

    I've learned that stock market analysts don't concern themselves with the systemic financial risk that brought about this market crash. The global financial sector, in essence, went bankrupt through massive over-leverage. I only studied the stock market and company management. I didn't concern myself with CDO's and CDS's, because I had no interest in investing in them.

    I presumed that with all the investment savvy housed at the Fool, if the global financial system was in peril the Fool would know. I was wrong. I have now educated myself with respect to derivatives, especially the synthetic CDO's, and the so-called "insurance" issued in the form of credit default swaps that allowed the banks to hide their peril from ordinary investors.

    I've learned that it is not enough to be an ordinary investor and that investment analysts are lacking in understanding of economics. I regret not taking the time to educate myself with respect to the dubious practices of the modern financial system. I once knew how it worked and I keep abreast of BIS regulations.

    I have an MBA and 25 years experience in senior management. Having studied the mechanisms the banks recently used to circumvent BIS regulations put in place to prevent just such a global financial meltdown I would say predicting the 2008 stock market melt down would have been a no-brainer in 2007.

    I have learned that inadequate regulation has added great opacity to the current "free market" system which is a little less free as a consequence.

    I have come to agree with John McCain that Cox should be fired. I have learned that the people who work at the SEC do not understand the purpose of their organization or the value of regulation.

    Now I will relate something I learned in the '80's during the third world debt crisis: currency valuations matter. The US currency is now grossly overvalued because of the financial panic. I am going to take advantage of that fact and sell all my US equities and move all my US dollars into equities issued by countries whose currency is grossly undervalued.

    This would be a good time for the rest of you to learn about foreign exchange. Peak oil isn't going away and China is still growing. Canada isn't likely to enter a recession but the value of the Canadian dollar has fallen from $1.07 US to 75 cents and it is expected to keep falling. Currency futures sellers peg its value at 60 cents US in 6 months time.

    While Canada is known for its resources many US investors do not realize that Ontario produces more cars than Michigan and Canada is home to a disproportionate number of Japanese automobile manufacturers. When you downsize from a Ford F150 to a Honda Civic you will be buying a car made in Canada.

    US industrials are not going to meet earnings expectations because their export markets will disappear. After the dust settles and the US is deep in recession its currency value will fall and that is when big forex gains will be made. Probably.

  • Report this Comment On October 28, 2008, at 9:35 AM, YoungInvestor99 wrote:

    No one can know everything and no one can accurately predict anything 100% going forward. Therefore nobody should have trusted analysts, economists, or even the fool as being the end all source of investment truth.

    And that learning to stomach 40%+ losses will make you a better investor in the long run IF you don't sell. Most investors really do buy high and sell low, but the wisest investors buy low and hold forever, even if prices drop lower.

    The best investors also welcome bear markets and drops in stock prices because over time they will be a net buyer of stocks, not a net seller. Therefore they want the lowest price possible on the companies they buy into. And I hope this bear market continues until I actually have some money to invest.

    No one can ever be sure about the future. What you can do is be sure you are paying fair prices into companies that you know are worth more than what you are paying, and over time they will adjust to that value.

    And that there is a lot of incredible opportunity in this market for those with free cash to invest and time to wait for the value of stocks to return.

  • Report this Comment On October 28, 2008, at 10:45 AM, RaulChapin wrote:

    I have been reminded to not trust anyone with my money.

    When I was 10 my grand mother opened a savings account for me. It was actually in my name with her as the signing authority till I turned 18. She asked me to sign the contract, and then gave me a huge speech after i did because i had not read it. I said, i trust you, you are my grandmother. She said, trust NO ONE with your money (she was at the time a loan shark by the way :-) )

    How is this relevant? Well, many Americans trusted their money to corporations, based on things like how long they had been in business for, how well they had done in the past etc. However these very companies were now run in a much riskier (irresponsible) way. If only Americans had been a little less trusting, the leverage lords might not have had as much cash to play with, or if they did, it would have not been American cash they lost!

    Do not invest in the market again???? that would be as silly as not having accepted my GrandMa's savings account gift just because i got burnt for not reading the contract... the idea is, use the market, but keep a closer eye on your companies, and if there are things that appear in your companies that you do not understand, either find a way to understand them (OR get your money out of these companies before their wise schemes go bust on you)

    By the way, great comment GoNuke, I enjoyed taking some of your knowledge for free :-)

  • Report this Comment On October 28, 2008, at 1:09 PM, Sallijane wrote:

    A lot of wisdom here. One thing I learned is that I tend to not take profits and watch them turn into loss. Like Austin, I still have my Freeport McMoran (FCX) shares, bought in the $30s before reaching $100+; could have taken the crazy profit and waited for the price to come back down, as it has, to reinvest. The good news is that it was paying dividends the whole time, so the loss is not quite as bad as it looks on paper. I am selling my Barrick Gold (ABX), which is paying a lower dividend, and putting that money into more of FCX. Just stumbled across Southern Copper Corp.'s (PCU's) earnings report from yesterday; currently selling at about $10 with a 19% dividend; seems too good to be true, but worthy of investigation, as their long-term debt and cash equivalents are about the same. Before making a decision as to whether to put some of my ABX cash there, I'll run PCU through a variety of Web sites, check analysts' recommendations, balance sheet, ratios, and history, and then decide.

    I had somewhat more sense with Apple (AAPL): bought at $40, split 4-for-1, and sold half (too early in hindsight) on the way up. I missed the high of $202, sold half of my remaining 200 shares at about $165 on the way down, and still hold the original 100 shares.

    Trust no one? Right, especially brokers pushing investments on behalf of their employers. If you find one who has the integrity not to do that (it can happen; I had a broker at Merrill Lynch who retired rather than turn from advisor to salesperson), "trust but verify". Balance sheets do reveal valuable information. With brokerages keeping computer records, reinvestment is more practical than in the old days when it meant keeping your own records of the cost of every share for an eventual sale, which might not be for a decade or more. Now a low-cost broker keeps all that information as long as you have your account, as does a full-service broker. I don't know if the online brokers do; I have heard, but not experienced myself, that it is difficult to get your shares if you want to move your account (apparently at least one broker converts shares to cash when you close your account? doesn't make sense to me). As an "old-timer" of 53, using the internet for about 15 years, I don't put confidential information on-line, so I use an automated service at a low-cost broker over my landline telephone to place my trades. The commission rates are about half of the current rates of my full-service broker from the old days (where I've left those shares that I still hold), the low-cost broker (e.g., Fidellity, Schwab) is available to supplement my own research but not selling, and I consider the value worth it. I am definitely going to switch some of my cash dividends to reinvestment at these low share prices; I wouldn't recommend doing the same with a fund.

  • Report this Comment On October 28, 2008, at 4:20 PM, GoNuke wrote:

    In response to YoungInvestor99

    "No one can know everything and no one can accurately predict anything 100% going forward. Therefore nobody should have trusted analysts, economists, or even the fool as being the end all source of investment truth."

    This is a variation of the straw man argument -we used it a lot at the large audit/consulting firm I once worked for to cover our mistakes. It is one of the big 4.

    You didn't have to know everything to predict this crash, you only needed to know a little. I learned what I needed to know in less than a week. Clearly the financial industry has forgotten how much diligence is due. Look around. You see

    -"liar loans";

    -Alt-A mortgages;

    -bogus insurance in the form of unbacked credit default swaps issued by US firms (AIG);

    -hyper-leverage of big brokerage houses due to de-facto deregulation that was presented by the SEC as increased regulation;

    -transformation of junk debt into investment grade debt by banks using unregulated derivatives....

    55 countries have signed the Bank of International Settlements treaty which generates the regulations that banks in the signatory countries are supposed to live by. These regulations limit the risky behaviours that banks can engage in.

    Most of the first world banks, which are in signatory countries, developed derivatives specifically to contravene these regulation. Basel II capital adequacy ratios limit banks leverage based on the risk level of their loan portfolio. They are supposed to have at least 8% of the risk weighted value of their portfolios in equity -limiting leverage to 12 times. Through the use of derivatives they got their leverage up to 50 times.

    Read Paulson's recent testimony before the Senate Banking Committee:

    "The events leading us here began many years ago, starting with bad lending practices by banks and financial institutions, and by borrowers taking out mortgages they couldn’t afford."

    Read Bernanke's testimony: " light of the prevailing market conditions and the size and composition of AIG's obligations, a disorderly failure of AIG would have severely threatened global financial stability..."

    In other words Bernanke knew that AIG's credit default swaps were the only thing keeping the world's banks solvent and AIG couldn't meet the obligations of those swaps. Why couldn't they? Because they didn't use the proceeds of the sale of the swaps to build up an asset base that could be drawn upon to cover losses. AIG just relied on its AAA credit rating. If it needed to cover a loss it would borrow money. AIG got lots of free cash in the form of "insurance" premiums which must have been fun while it lasted. These premiums probably ended up being paid out as salaries and bonuses instead of being invested in solid assets like regulated insurers are obliged to do.

    Paulson and Bernanke clearly knew what was going on. Indeed by the time they presented their first bailout package in September they had been working on it for months. Probably since the Bear Stearns collapse in March 2008.

    The S&P 500 was at 11,500 at the end of March.

    If we had understood what Paulson and Bernanke understood in March 2008 we investors would have made much better investment decisions.

    The house of cards created by the financial community was obvious to insiders. The fact that banks wouldn't lend to each other is evidence of this. They all knew what each other had been up to. Each knew that the other was probably insolvent.

    Greenspan was wrong about financial institutions always acting to preserve themselves. The fact is that the people running these institutions got paid a lot of money when the bubble was rising. They still have all that money. Other people who worked for them also made lots of money or just did what they were told. Fuld walked away from Lehman with half a billion dollars -the sum of his annual salary over 4 years.

    What really happened was individuals saw a way to make a lot of money in the short term so that the long term didn't matter.

    I still feel fully qualified to have called this crisis in 2007 if I had bothered to study recent developments in the financial system. I followed Basel II, what I didn't know was that the banks found a way around the regulations.

    Follow this link to an essay written in 2004. It is very slow to load but it shows not only how the banks got around the regulations but that they knew what they were doing.

    I have already made money selling my US securities and expect to make more.

    I have holding on to some US cash and some US securities with both pending buy and sell orders.

    I don't expect to make a 40% capital gain on foreign exchange although such gains may be possible. I am not a practiced Forex trader but the massive over-valuation of the US dollar is pretty hard to miss. I am moving money into other currencies in slices keeping a close eye on currency futures.

    Here is the catch 22. If the US economy recovers then so will the Indian and Chinese economies. This will raise demand for oil as well as other commodities. That will push up the value of Canadian, Australian, and Brazilian currencies. Peak oil hasn't gone away and the Chinese are still eating more.

    If the US economy doesn't recover quickly then the earnings of US companies will fall, stock prices will continue to fall and the value of the US currency will fall. US Investors' wealth will fall due to falling share prices and falling currency values. Once again you will have been better off invested in foreign currency denominated stock.

    Heads I win, tails you lose.

    As the Fool says China is where the big money is going to be made in the 21st century; however, investing in China is very risky -they have few regulations and they don't abide by them. The best China plays are commodities.

    My family has been dealing with China and Vietnam for a long time. My free advice is that you need connections there if you want to protect your investments; and don't be surprised if some of your connections end up in prison or dead.

    Having witnessed the carnage caused by inadequate regulation in the first world I find it odd that people are recommending investing in even less regulated environments.

  • Report this Comment On October 29, 2008, at 1:54 AM, teyink wrote:

    I've learned that you shouldn't invest a dollar without first understanding the current macroeconomic environment. After understanding the economic envirionment, if you come to the conclusion that equities are the best place to invest, then you can worry about doing stock valuations and picking companies to invest in.

    I've also learned that stocks don't always go up forever and ever. There is no reason for stock prices to go up unless the money supply is also going up. If the money supply decreases, stocks will be hammered. You can think of equities as an investment opportunity that leverages the rate of change in the money supply.

    I've also learned that the next 40 years will probably not look like the last 40 years.

  • Report this Comment On October 29, 2008, at 10:20 AM, catoismymotor wrote:

    What I have learned is the only Kramer I trust is the one that reversed the peephole on his apartment door.

  • Report this Comment On October 29, 2008, at 2:56 PM, abliviax wrote:

    Sell when everyone is driving cars costing $25k+ Buy when you can taste the fear.

  • Report this Comment On October 30, 2008, at 2:23 PM, Frogtree71 wrote:

    I tryed to follow the buy when everyone is fearful mentality, but now know that people can always become even more got greedy to soon.

  • Report this Comment On October 30, 2008, at 8:49 PM, melzer613 wrote:

    what i've learned is that the only way to make money is to develop a profession and/or preferably eventually become a partner or owner of a business. the best way to play stocks is to cost average into funds overtime. the most successful people i know are the ones who wake up with a smile every morning and can find enjoyment in what they're doing and in their lives!!!

  • Report this Comment On October 31, 2008, at 12:09 AM, pdegs wrote:

    Amen melzer613!!!

  • Report this Comment On October 31, 2008, at 7:01 AM, correazzo wrote:

    I've learned that I should be taking profit instead of holding for the long haul.Last year I paid capital gains on money I never pulled out and used. I've learned that financial managers like Schwab that manage my money want to keep me fully invested and will not sell under any circumstances. They are responsible for my stocks dropping 40% after being up 10%. I asked them why they didn't take profit swhen the market started acting like a yo yo - and then sell to cut my losses - and they said I should remian fully invested to take advantage of the inevitable bounce. I now see that it is possible the bounce may never come, or i'll have to wait years. I've earned that the stock marked is manipulated by large groups and that stocks are not based on value. I've learned that i would have more money if i had parked all my money in cd's instead of the market. I've learned that when a stock begins to go "south" it will remain south for quite a while. The best advice i've learned is from gorrilla trades: always set an automatic sell on every stock you buy to cut your losses.

  • Report this Comment On October 31, 2008, at 1:09 PM, daustin97222 wrote:

    Taking the challenge, here's what I've learned in 31 years of investing:

    I'm a lousy stockpicker. In fact, I'm worse than lousy - my picks are likely to go bankrupt in less than two years! I invested 70k into FMO, convinced that the courts would rule the ambiguous and arbitrary defendants in those cases would be tossed in court. Bad bet. Similar story with HAN (not as bad).

    Aside from being a lousy stockpicker, I'm also unlucky in the employment front. In the high-tech field, stock-option "wealth" isn't as common as some would think (to put it nicely), and in my case, there have been a string of bankruptcies there too (and these were BIG companies in their segment).

    So I started buying indexes. And I started buying real estate (houses and plexes). During the boom of the past 12 years, I paid off the real estate. In this town, right now there's a 3% vacancy rate, so landlords are very secure.

    Don't ask me what stock to buy. I think that Intel is cheap right now (p/e 13, earnings forever, and a 3.7% yield). Since I like it (and own it), that fact practically guarantees a massive selloff in the stock. Certainly the index funds I own have collapsed in this bear.

  • Report this Comment On October 31, 2008, at 1:23 PM, tylee100 wrote:

    I have learned that what's good for Goldman Sachs is not what's good for America.

    I have learned that bailout plans lead to more government control which will be the end of this country as we know it some day.

    I have learned that a man can be born in Kenya and be running for President.

    I have learned that when cab drivers discuss the sorry state of the market---then that is when to buy.

    I have learned you can buy companies that just tripled their earnings in the prior quarter at 4 times earnings.

  • Report this Comment On October 31, 2008, at 1:33 PM, Buffal0Bill wrote:

    I've learned about the interconnectedness of the markets. I didn't think irresponsibility by investment houses and banks would hurt other solid stocks that much. I got rid of all my banking stocks over a year ago and thought I'd be OK. I was wrong. I've also learned that stocks with strong cash flow and significant dividends survive a serious downturn a lot better than more leveraged stocks.

  • Report this Comment On October 31, 2008, at 1:42 PM, freddyv3 wrote:

    I've learned that "reversion to the mean" is not something to mess with; it is the closest thing in the financial world to a true law and to revert to the historic mean requires that the market drop from 10% to 50% more, depending on what the true mean is.

    History also tells us that the market will drop substantially below the mean in big bear markets like the one we are in now and will likely be in for years to come.

    But what I've learned that has been most helpful is to pay attention to such facts and stats rather than listen to the talking heads on TV.

  • Report this Comment On October 31, 2008, at 1:42 PM, johnnyMMKE wrote:

    I learned that you should stay clear of anything government issued such as bonds and T-bills. These will be the final nail in the monetary coffin. Also, get rid of any debts that you have and have enough money (cash) on hand for a bank holiday which may be coming faster than we think. Buying gold and silver would be a good idea. Our monetary system as we know it cannot and will not recover from this as it has too much momentum. We will have a new possibly world monetary system soon. It has been in the works for a long time and now it's coming at warp speed. We must listen to people like Ron Paul who know our monetary system and saw this coming. People like him should be guiding us along. Getting rid of the Fed Reserve is a step in the right direction. Look at history and let's learn from it. The stock market crash in the 20's was a direct result of the Fed Reserve.

    ok, let's get smarter and stop watching CNBC and FOX news and getting real information that is available.

  • Report this Comment On October 31, 2008, at 1:45 PM, BuckeyeBuffett wrote:

    Lesson #1: It takes a 67% gain to recoup a 40% loss. Of course, I've always known that. It's simple math. I guess it's a little more shocking when it's your reality than than just theory.

    Lesson #2: In a bear market, all stocks, even good stocks, take a beating.

    Lesson #3: Market sentiment trumps company fundamentals every time -- at least in the short term.

  • Report this Comment On October 31, 2008, at 2:14 PM, kdub123 wrote:

    Go Nuke - thanks for all the insight!

    Who are you voting for?

  • Report this Comment On October 31, 2008, at 2:23 PM, missbaysdaddy wrote:

    I have 98 percent of my savings in CD's and 1 percent in Stocks and 1 percent in Bonds and until I feel sure the market has found a bottom and starts to climb again and hold for a few months I have no plans to put anymore money back into the market. I never had 30 thousand to loose to begin with and I am not happy with my lack of return since 1998. When I turned 60 I pulled 98 percent out of the market and went into CD's. I bought 12 different stocks and 8 different mutual funds thinking that was a pretty safe bet for the remaining 2 percent of my savings and as of today I have lost almost half of that. My wife told me that the stock market was just like going to Vegas only you loose your money a little slower if you do like I did and invest for the long run. Well for me 10 years was the long run alright. Someone other than Kenneth Lay should be in jail over this whole mess and now they want to be bailed out with our tax dollars, what a crock. I have been toying with the idea of buying some stocks that pay a monthly dividend thinking that at least I will know within 30 days if they are going south with my money and stop or lower the dividends but I have never owned stocks that pay monthly before so I am not so sure about this either. What to do to try and make my money work for me, I am getting on in years and don't want to keep working until I drop dead. The way things are now if I bought an RV I could not afford to put gasoline in it to go anywhere. This whole thing is starting to suck pretty bad and I don't see an end in site yet.

  • Report this Comment On October 31, 2008, at 2:31 PM, TRyder wrote:

    I've learned that it takes a 100% gain to recover a 50% loss. I've learned that cash, not credit, should always have been king. I've learned that bubbles, even twenty year ones, eventually fizzle out - especially bubbles built on a "house of cards" foundation of "cheap money" and leverage. I've learned "fast money" is synonymous with luck and smart investors (Buffet, Graham, et al.) got rich slowly. I've learned that low risk and high yield trump bubble growth (and collapse) over the long run - that they always have and they always will.

  • Report this Comment On October 31, 2008, at 2:42 PM, vferrera wrote:

    I was up about 50% in July, but had very little cash. Should have sold a few shares, but I couldn't stomach giving money to the govt.

    I bought on the way down, but ran out of cash about half-way to the bottom. This actually had the effect of increasing my avg cost per share and increasing losses. Next time, I'll wait for the smoke to clear.

    Lesson: Should have moved a bit into cash when I was up, and waited longer to buy on the downside. C'est la vie.

    Right now, I'm buying a bit here and there, exercising a small amount of leverage (<10%). This helps me get the cost per share down but doesn't pose an immediate risk of margin calls.

    One thing that bugs me is the behavior of the big funds. They turn out to be a great way to spread the pain. When they can't cover redemptions by selling bad stocks, then they have to sell good stocks. That sucks. Maybe there should be stricter rules about how much or what proportion of their holdings mutual fund investors can redeem per year.

  • Report this Comment On October 31, 2008, at 3:16 PM, fromthegut wrote:

    After I bought several houses in San Diego 2002 to 2003. (I had a gut feeling about San Diego from living in orange County and watching the prices skyrocket). I was proud of my gut feeling and many were envious. After about 2005 I asked my gut, "what in heck is going on". The prices of housing were rising at an astronomical rate! Then I asked my Gut a year later what in HE......LL is going on. If somebody put in an offer on a house there would be a line of people wanting it. So I told mySelf I need to sell at least 30 % of my RealEstate holdings. (My Gut Feeling)

    I had the forsale sign up and got an offer for nearly triple what I paid. Greed had overcome my gut feeling and I waited for one more offer which I never recieved and never sold the house.

    I should Have followed "MY GUT FEELING"

    A while back (dow 13,000) I had a gut feeling about the banks and WallSteet when they were first reporting writedowns. I wonderd why some days were positive point gains and that this was related to my astronomical price gains in RealEstate. It was only the things I seen happening. No balance sheet, no stock advisor, no guru! I had a gut feeling to move my 401K and put my daytrade activities on hold. But greed overtook my Gut feeling again. Hence Im now very long term but wished I would have followed "MY GUT FEELING"

  • Report this Comment On October 31, 2008, at 3:52 PM, zerosleep73 wrote:

    What I learned is that being optimistic will make you broke. Even the Motley fool is biased toward overvaluation. You see this most noticeably in the financial media. Anyone who has a dissenting voice or has an minority opinion is promptly crucified and ridiculed amongst the permanent bulls. People like Peter Schiff, Nouriel Roubini, and Marc Faber were warning about the dangers of over speculation. And people were laughing at them. I sold all my stocks on Dec 11, 2007 and shorted the index based on their reasoning. The guy who gets pissed on all over by bullish knuckleheads on Fox Business, CNBC, or Bloomberg is the guy you should listen to. And there are people who are saying its a "great time to buy" which I find very suspect. How would they know? The lesson learned is that its much safer being pessimistic and optimistic.

  • Report this Comment On October 31, 2008, at 3:55 PM, bearinvestigator wrote:

    Along with many of the same things cited by others above, I have learned that my instincts were right, as opposed to the investment advisors who would have had me buy index funds in April 2007 & April 2008 and called me a fool. Sadly, my original IRA opened @ 2001 remains in mutual funds, but instead of dollar cost averaging all the way down the last 18 months, all new retirement investment for fiscal 2006 & 2007 sits quietly making 4.2% in CD's...

    But once we see 5000 or 6000 on the Dow and a couple of less volatile months of flat or upward movement, that's when I plan to move into the market.

    Some very good comments here above, thank you to all who contributed and I will look forward to future sharing.

  • Report this Comment On October 31, 2008, at 4:00 PM, Trailingstops wrote:

    I have been doing this for 25 years, and I have leaned way too many things to mention a tenth of them here, but I'll give you a few.

    In this market, I am flat every day, except for what I call my "small bets" that I explain below. I only trade when I feel quite sure that I can make money on the trade and I don't hold anything overnight (serious money) and you have to decide what serious money means to you. If you can't sleep, you are in too deep.

    It's simply too risky in my mind to stay long or short overnight in this market, because the rules keep changing and you are playing red and black right now. Don't fool yourself if you think you can invest in this market. Trade the momentum.

    One has to learn to trade correctly - meaning if you are in a bear - short - if you are in a bull - buy. You have to be on the winning side and you have to be willing to change your mind on a dime.

    Last year I shorted the casino stocks heavily and I did hold many of those shorts, because they were obvious shorts given the economy and the price of the stocks and their ridiculous PEs.

    Five to six months ago, I shorted things like CAT and FLR and I held those shorts for a few weeks, but I covered after they all were hit hard. I also bought some way out of the money puts on CAT and FLR when I started shorting them, that I made great returns on. I looked at those things as the "small bets" I mentioned earlier, as if I was playing 21 in Vegas. And I didn't bet more than I was willing to loose.

    Example, I bet $6500 on $30 puts on CAT when CAT was $58 that cost me $.56 cents a put. I sold them for $8.00 a put. You add it up.

    I have also learned to never get married to anything but your wife. If you do, you are going to do stupid things like average down on your "little darling", when you should be shorting it. You are in trouble if you become emotionally attached to any stock or any company.

    Never add to a loosing position, and always have trailing stops on your trades, even if they are only in your mind.

    There is also a time to break your rules no matter what they are, but you better be sure you know why you are going to break it - with trailing stops.

  • Report this Comment On October 31, 2008, at 4:03 PM, essnerific wrote:

    i've gone from 1500th place in fool caps to 59000 th place!!!

    if you want the high fliers you better be ready for the swings.

    thank god caps is not my real portfolio, but it was very valuable in teaching me that lesson without losing all my real money.

    also i've noticed that in the downturn, dividends show their true value.

    only facing these market conditions, can you appreciate how important they really are to your portfolio.

  • Report this Comment On October 31, 2008, at 4:09 PM, ContrarianProfit wrote:

    Hold on tight, because we've been saying that it will go down to 5,000...

  • Report this Comment On October 31, 2008, at 4:14 PM, jskdy wrote:

    I learned to follow my "feelings" even though everybody is always trying to tell me it is WRONG! I am 75 now, and it is still working for me. That is why, when they said, "Whatever you do don't sell your stocks and buy gold and silver!" I had a FEELING I should, so I did. When the smoke blows away, I'm gonna be in clover. It beats deep doo-doo. :D

  • Report this Comment On October 31, 2008, at 4:26 PM, PatrickDickey wrote:

    What have I learned? Like a lot of others, I've learned that maybe high-risk isn't for me. Even though I have a long time before I need the money, maybe safer is better.

    I've also learned that if I don't have enough cash to just jump in and buy, buy, buy, then I need to sit back and watch. Although I've watched and thought "If I would have bought that when I had it set up, I'd be making a profit."

    And I'm learning from what everyone else is saying here. Things that I've never considered that I should look at, I'm checking into now.

    Have a great weekend:)


  • Report this Comment On October 31, 2008, at 4:37 PM, Tristan2her wrote:

    What will I do when the Dow hits 7,500?

    I will sell the rest of my Rydex 2X Inverse that I have been in since fall of last year. And then I will continue to ignore really bad advice from really short sighted pundits who keep saying things like "now is the time to buy", "value investing" and "buy and hold".

    Then I will take those profits and put them into tangibles in preparation for the massive return of inflation probably about next summer.


  • Report this Comment On October 31, 2008, at 4:44 PM, NixinKome wrote:

    These are volatile times. It's WW3 financially. You have to act defensively w.r.t. your future if you may be considering or are in retirement. There may be a blip upwards, as has happened before Thanksgiving Day and there is, of course, the effects of the election and its outcome.

    Brokers earn their money from commissions that you pay. Certainly, their jobs require them to get you to trade frequently but no-one knows what the market is going to do.

    Defensive is the watchword of being these volatile markets.

  • Report this Comment On October 31, 2008, at 5:02 PM, Awebb30 wrote:

    It's interesting how many people think of loss/gain in terms of percentage. Example: If a $10 stock drops to $8, you've lost 20%, but you need to gain 25% to break even, or so the rationale goes. I think that's a rather pessemistic view considering the irrationality of the market in general. I prefer to view stock investments in pure dollar values; if a stock drops $2/share it simply has to gain $2/share to break even. Statistics can be used to tell any story you'd like to tell. In this case, the notion that a stock has to climb higher than the hole into which it fell sounds more like a fairy tale in my opinion.

  • Report this Comment On October 31, 2008, at 5:13 PM, NixinKome wrote:

    To Awebb30;

    Are you aware of the costs of refloating a sunken tanker?

  • Report this Comment On October 31, 2008, at 5:34 PM, RJATrader wrote:

    Oh yes, I have learned what should have been obvious in the first place - never invest in publicly traded companies. Always find a way to invest only in "privately" held companies such as Publix, and do so only after extreme due diligence. Fortunately, I am a "trader" and will be able to recover the losses I've taken in the half of my & my wife's savings I foolishly invested (bought & held over the past 18 mos., until Oct. 14th) in "foreign" infrastructure stocks and mining company stocks (per Peter Schiff's "Crash Proof" book).

  • Report this Comment On October 31, 2008, at 6:18 PM, JJRF wrote:

    I have learned that you need to stay in the market and watch out when things get too good to be true... That's when the bottom drops out.

    Set your own limits, Adjust and take your profits. Never look back and regret the profit you could have made, it only causes frustration. Hindsite is 20/20

  • Report this Comment On October 31, 2008, at 6:29 PM, Enigma110 wrote:

    Interesting comments - I am a bit like Frogttree71 - spending a bit to much on the way down - so mostly down somewhere around 30-40% - mind you, if it all goes pear-shaped - I always stuck to investing money that would not change my life - my passion is fundamentaly not the money - more activities in my life - an easy comment when you don't have loans to pay off, I agree - but true when you don't have loans, and live a place where you are judged more on what you do than what you earn - and basically can weather it out sticking to your passion (which obviously is not shoppin). My passion, well, it's not religion or anything extreme, more sporty, believe me!!! :-), but choose yours, and don't invest more than you can afford to loose. I will still keep on gaming and reading the post's and selecting the advice of my fellow fools. Since a while the articles are showing a very optimistic approach, which basically have gotten me on my guards triple checking every advice on other sites and my own banks approaval rates. It seems that nobody has a clue!!!

    Ciao baby

  • Report this Comment On October 31, 2008, at 6:32 PM, ALG08 wrote:

    Since I don't invest yet, I actually have learned the biggest lesson: be ready to maximize the oppotunity. I don't own a single stock outside of my 401K, but I know that now (or sometime soon, who knows when, 7500?) is a great time to invest. But guess what? I'm one of those idiots who doesn't have my money in the right places, so I don't have enough cash to do it. I'm hoping the recession lasts long enough so I can buy something. I don't want to be telling my kids 30 years from now of all the people who became wealthy from this once in a lifetime crash (possibly twice, because I was alive in the 80's).

  • Report this Comment On October 31, 2008, at 7:25 PM, shattuckdl wrote:

    Looking forward...the only thing we can control is our own actions and reactions. This market has been a great reminder of my Irish roots and the reality there of: Nothing comes easy, it all takes heart and guts and tears...and a little whiskey once in awhile. I love the market, love the research, and have had it cemented in my thick head that to participate in legalized gambling one still needs to do their homework, set buy and sell rules and no matter what anyone says pull the trigger, take the profit, pay the taxes. I thank IBD and Mr. Oneil for that. I cannot guess my way through what has been created by greedy mad men, but have been successful with listening to the crazy guys at Motley Fool. Thank you for your diligence and your honesty.

  • Report this Comment On October 31, 2008, at 7:27 PM, ernieson48 wrote:

    Wall Street is the biggest casino in the world.

  • Report this Comment On October 31, 2008, at 7:28 PM, GoNuke wrote:

    To kdub123

    I am voting with my dollars.

    I am a Canadian. In Canadian political circles I am considered a Red Tory -a member of the left or moderate wing of the centre-right party.

    I repudiate right wing neocon dogma. It was never wise. If you study the history of US government debt growth you will find that Rrepublicans have contributed far more to the US national debt than Democrats have. Republicans appear to be more tolerant of debt and leverage. This is certainly apparent in their attitude towards regulation of the financial sector.

    I believe that regulated free market capitalism is the best means of generating wealth. I believe that regulation is necessary to maintain the freedom of the markets. Regulation makes the system fair by preventing insiders from cheating.

    Canada has avoided the US meltdown largely because it is one of the few countries in the world that properly regulated bank lending. Banks are profitable, capital is freely available -it is a lot easier to borrow money here to finance a small business than it is in the US, and mortgage money abounds.

    Inadequate US rules governing mortgage lending helped precipitate the current crisis in the very same way that inadequate Japanese regulation led to the great Tokyo real estate bubble. In both cases potential buyers were allowed to borrow 100% of the purchase price of the real estate.

    You can equate any market, including the real estate market with an auction. Real estate investors in the US and Tokyo were like bidders at an auction with unlimited capital -the banks supplied 100% the capital. That translates into infinite leverage. The bidders had nothing to lose so they bid up the price of real estate to well beyond its intrinsic value. The rational was that since house prices continue to rise the buyer accrued a profit which became equity in the investment. It didn't matter that the bidder couldn't service the debt. The investment could be flipped at a profit -as long as the bubble kept rising. The bubble kept rising because there were no constraints on the bidders. At some point the bubble always bursts and in both cases the lenders ended up bearing all the losses.

    If buyers are forced to make a down payment equal to 5% or 10% of the price of a house then they have to stop bidding once the asking price is 10 or 20 times their down payment. If such regulations had been in place in the US in 2005 or Tokyo in the 1980's the value of real estate would not have ended up so over-valued. The banks would have had a real equity cushion and the assets would be less likely to fall in value. I remember thinking in 1990 that Japan's regulatory system must be very immature to allow such foolish practices. Such practices have been illegal in Canada for years. I presumed that the US system would be at least as mature as the Canadian one so I was really surprised to discover -too late, that the US was repeating the Tokyo experience.

    Leverage is a ratio of debt to equity. When there is no equity then the ratio of debt to equity is 1 divided by 0. If you remember your high school math you know that 1/0 = infinity.

    Infinite leverage is just stupid. The Bank of International Settlements (BIS) is a transnational institution created by a treaty signed by 55 countries including the US. The BIS stipulates capital adequacy ratios precisely to prevent banks from becoming over-leveraged. They are supposed to have equity equal to 8% of the risk weighted average of their loan portfolio. This is supposed to limit bank leverage to 12.5 times equity. Even US stock brokers are limited to leverage levels of 12 times equity -unless they were arms of the big investment banks that have all now ceased to exist (the SEC exempted the brokerage arms of the big investment banks from any limits with respect to leverage in 2005 when Paulson was the CEO of one of said investment banks).

    Banks can comply with these regulation while lending 95% of the value of a new home purchase because new loans are added to a portfolio of mortgages where most of them have been paid down to some extent. Adding a mortgage worth 95% of a homes value to a portfolio where the average mortgage has been paid down 50% is safe and complies with the regulations. Before the bubble burst house values were so high that most people owed the bank a lot less than the market value of their house. When the bubble burst many prudent borrowers lost a lot of the equity in their homes which drastically increased the ratio of outstanding mortgage debt to market value.

    "Mortgage deductibility" -the right to deduct interest payments on mortgages against a primary residence encourages people to keep borrowing against their homes. This greatly increased the riskiness of bank mortgage loan portfolios. Neither Canada nor any other OECD nation I know of allows home owners to deduct mortgage interest payments from income for tax purposes. There is no incentive here to keep increasing debt secured by ones home. As a consequence Canadians owe less money to the banks than Americans do. The irony of that is that our house prices haven't fallen so we ended up richer for having paid more tax.

    As a Red Tory I believe that once the wealth is generated society is free to choose how to "spend" it. Government's have been portrayed as agents of evil yet what is a government? It is, for the most part, a collective that buys services in bulk, like schools and roads etc. It should save people money by providing services people want but can't afford individually.

    Government's should be seen as vehicles that invest citizen's money in the country with the aim of improving the well-being of those citizens. In my opinion public investments in education and health have a huge return on investment.

    Do the math. It is no longer a wise investment decision to send your child to university. If you put the $100,000 it is going to cost you into an investment vehicle that generates an 8% average return (net of taxes) then your child will have $800,000 by the time s/he is 45. In the meantime s/he can live at home and become a skilled trades person generating an annual income of $40-50,000 -with no need to save. If s/he marries someone following the same strategy they could end up with $1.6 million and a household income of 80-100,000 dollars per year at age 45.

    Of course some people will do much better than this but most won't. This model assumes that parents can fund their child's university education. What happens if the child must go into debt to attend university. Any benefit with respect to current income accruing to them for being better educated will be more than offset by the cost of repaying the student loans. It could be decades before they start saving forfeiting the value of compounding investment returns.

    Government's could achieve a substantial return on investment by making University tuition more affordable. For one thing if governments are paying tuition then they have a lot of control over costs. Power shifts from the provider to the customer. The same is true with respect to health care. Nationalized health insurance puts power in the hands of the consumer. We have nationalized health insurance in Canada. Our health care is universal, we are healthier than Americans by almost any measure, and the portion of our GDP devoted to health care is half that of the US.

    Neocon dogma prevents the US government a.k.a. the citizens of the USA from making investments that generate a very high return.

  • Report this Comment On October 31, 2008, at 7:42 PM, Motley14000 wrote:

    I have learned that when I get older (I still have approximately 16 years until retirement), I need to ensure my portfolio is well grounded in bonds; .My bonds only dropped about 4% during the entire ride from October 2007-October 2008. Also I learned to be patient when you get back in the market. I got out @ 14,000 and simply bought back in too early... I made some good buys , however, it will take time for them to pan out... Now I am following Warren Buffet's advice......Buy Low.... and eventually sell high//

  • Report this Comment On October 31, 2008, at 8:03 PM, gkirkmf wrote:

    I have learned to read far and wide to gain perspective: I love this description… Some of you may have already read it… if not, visit Jim Kunstler's site ….

    I quote from his site the following:

    " To switch metaphors, let's say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts canceled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand. Then comes the second stage, the tidal wave itself -- which in this case will be horrific monetary inflation -- roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.

    So, that's what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There's no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks time will wash back through the global economy leaving a swath of destruction."

    End quote:

    Just one vision of the future, but at least food for thought!!!


  • Report this Comment On October 31, 2008, at 8:09 PM, forsuccessinvest wrote:

    I've learned that the market always overreacts. I've learned that being "fully invested" is a fools game. Unless you're holding enough capital to protect your position, (some say dollar cost averaging) you will lose money. I've also learned a great deal about how these "trading bots" work. I've learned to keep in mind that those who are highly leveraged MUST sell even their best picks when their worst picks go south. I agree wholeheartedly with GoNuke's asessment of the USD. You can't dilute the money supply in a massive fashion without reducing the value of the dollar. As inflation sets in, USD denominated commodities will rise at a very rapid rate. I expect oil and gold to make a screaming comeback. When demand exceeds supply, prices rise. I'm currently about 50% in commodity related equities that won't suffer from the USD dropping in value and have made some healthy returns this month. I've also learned that I'm a far better trader than a long term investor.

  • Report this Comment On October 31, 2008, at 9:23 PM, GoNuke wrote:


    Even with all the debt the US has incurred to tame this crisis US debt to GDP is still manageable. Lots of countries have experienced higher debt loads without fueling inflation. The simple truth is that Americans don't pay enough tax.

    The total debt is not terribly relevant. It is the debt/GDP that matters. It is about 70% in the US. It is a little less in Canada but Japan's debt/GDP is 194%

    These numbers are a bit dated but they should give you an idea of relative debt/GDP in different countries.

  • Report this Comment On October 31, 2008, at 9:40 PM, foolisgolddragon wrote:

    What I learned is

    1: To always have some cash on the side to buy on the dips.

    When you see companies net earnings climb 15% or higher

    and then drop significantly for a quarter is a good buying


    2: Stay away from commodity stocks when there is no new type

    of innovation. Look at the net earnings for a lot of volatility.

    Those up and down swings make for uncertain at were the

    price of the stock is going. If Democrates get in the white

    house look for a stronger dollar. The national debt will be paid

    down and commodities will drop.

    3: Try to listen to top economist like Warren to see certain

    economical treads in monopoly and/or commodity

    companies. Actually Warren predicted the housing blowup

    5 or more years ago at least from his security analysis.

    4: Read some more good books.

  • Report this Comment On October 31, 2008, at 10:29 PM, darvasdarvas wrote:

    who cares which way the market is going?

    I buy a stock when it breaks out of a pattern and sell it in 3 days or 5% loss, which ever occurs first. I short it when it falls below a

    pattern and cover the same way. I look for stocks in a specific pattern found by computer search in which I control the search .parameters. Otherwise,


    i sleep well.


  • Report this Comment On October 31, 2008, at 10:30 PM, Polrop wrote:


    I'm relatively new to the investing scene and this is my very first post, so please be gentle.

    What I've loocked at is the S&P500.

    It has had two big runs up till 1500 points, to come down to the point it was 10 years ago.

    When wondering how low it can go, doesn't that raise the question; How high can it go?

    Markets and bussiness are driven by consuming, so when the peoples maximum spending abbility is reached, is then the peak of the benchmark not also reached?

    No, one can borrow.

    Yes, but how much stuff can one own.

    There must be a limit to the human spending curve, no?

    Ah,, that's why we breed.

    But that surely has a maximum load also, no? (Earth I mean).

  • Report this Comment On October 31, 2008, at 10:30 PM, Packermaniac12 wrote:

    What I can't believe is that I have paid 2 years worth of dues to get reports that are worthless and have an advertisement to buy something else from the Motley Crew at the end of every report. You guys made your dough in the 90's and now make your dough ripping people off with your service. Good for you - I do not begrudge you for making some dough in the 90's but you have no clue how to position anybody in this current market. It is unprecedented no matter what anybody says. I will cancel my subscription when it comes due. Nothing against you guys but you are nothing more than Jim Cramer without the steroids. Your time has passed. Go enjoy the fruits of your labor and stop acting like you know what's going on because nobody does.

    Right now you are nothing more than a marketing machine that has hit on something good with no substance behind it.

    At the end of the day I could have taken my $600 bucks or so over the last two years and invested in your ideas and still ended up with zip.

    Your a marketing organization that got lucky early on. Thanks for nothing.

  • Report this Comment On October 31, 2008, at 10:41 PM, Mike2262 wrote:

    I have learned to not trade with emotion, and to look for strong fundamentals of a company and their leadership. I have always loved Google, well before their IPO. I rode their stock all the way to the 700's and let it fall to 390 before cashing out and locking in my losses. Ouch...

    I have learned to be able to untie myself from a stock on a free-fall, knowing that it's going to fall some more. This has helped me to gain confidence in the stocks in my portfolio, knowing that its a stable stock.

    I have also learned to be patient, even as a day trader, I realize that with volatility, the stock will go up and will go down very fast. A panic will be costly, I guarantee this to you. Trading on dips and paying attention to the trends and news (and making your own predictions of cause and effect) will reward you.

    I also learned that it can take a few days or more for news to make a difference. I am a buy now on good news type of person, because I am an optomist. Just have a little condidence in yourself when making these calls and wait it out for the headlines to register to traders, or for it to finally be made as a headline.

  • Report this Comment On October 31, 2008, at 11:25 PM, vaabc wrote:

    I learned that following both Motley Fool co-founders recommendations may cost as much as having funds in Lehman, Merrill, JPMorgan, and Washington Mutual.

  • Report this Comment On November 01, 2008, at 12:03 AM, haulnass wrote:

    If nothing else is learned from the wisdom of the many fool crews

    you're a clone of BILL GATES,keep adding new features/upgrades

    sell more and more knowledge of investing,this just hedges the bet too look good!!!Just like the executives of the failing corporations.I joined thinking i would get info that could help me

    grow my portfolio and i continue too get offers buy into more

    & more fool( Educate,amuse,enrich) The enrichment is on you're behalf. I paid 2 educate myself while amusing the fools.OH i just came up with new &improved sliced bread get in early on this you'll need it for bean sandwiches!!!

  • Report this Comment On November 01, 2008, at 1:24 AM, OneBillionBucks wrote:

    I think we are in for some real ,interesting rides. I believe that 7900 is the botton not 7500 maybe you didn't adjust for inflation as I did.. Trading range at 8400 to 9400, I think we go down to . 8600 before the election. Wed after election when Obama wins I expect the market to go up toward 10700 (I'll be selling from 10,400 ) . November 21 option exp. everyone will wake up on how bad things are and Bush is still running things. GM and Ford fall anounce poor outlook. By the end of November oil prices rise and earth quake measures over 6.2 . On the brighter side, the dollar gets stronger.

  • Report this Comment On November 01, 2008, at 1:59 AM, Bodarc wrote:

    I have learned this over the years.

    1. If a broker knew how to trade, he'd be trading instead of milking you out of commissions by rolling your investments over and over.

    2. Use your own mind. Research, Research, Research.

    3. Learn financial statement analysis and how to read them ...then read them!

    4. If you have 100,000 dollars and you invest only 12,500 of it at a time in 25 dollar stock. In one year, you only have to make 15 trades that gain about 2 dollars per share to earn 15 percent on the entire 100,000. This isn't even counting the interest you'll earn on the other 85,000 dollars.

    5. Research until you KNOW that a certain stock is going up (or down) and then invest in it (long or short). Take your profit and get out. Now you have a solid month to find another one.

    6. Find 6 or 7 likely stocks and follow them EVERY day, learn their moods, what time of day they usually hit their highs and lows, where their resistance levels are, etc. Know them like the back of your hand. You don't need to follow 100 stocks.

    7. Set your stop loss and if you are wrong.....GET OUT NOW! If you expected a stock to start rising and it falls, you made the wrong call. GET OUT! Cut your loss and find another trade.

    8. Averaging down is for people who don't want to admit they are wrong.

    9. If you want to ride a stock for the long haul, draw out enough to cover your investment and a little profit and let it ride (Along with a good stop loss)

    10. Nothing goes up forever. Everything in the world travels in waves. Arrange your finances so that when the wave crests, you aren't trapped on the downhill slide.

    11. Know that your politicians are going to make the wrong decision every time. Save and protect yourself.

    12. Do not worry about the 4,000 dollars you could have made instead of the 2,000 you made. Hindsight is worthless.

  • Report this Comment On November 01, 2008, at 2:29 AM, WiseChoice4u2 wrote:

    I have been learning a lot through the present market. The education has cost me a bit. But so did my university studies. This market is a once in a lifetime learning experience. I have invested before over the years through brokers and have never been satisfied that they were really interested in making money for me. Now I am investing on my own and getting joy from it. I win and loose but I do it on the basis of what I am learning. I study books on past markets. I learn to analyze companies using different research vehicles. I am learning to sell when things are up, buy when they are down, but still need to learn to sell when they are dropping. I have learned the importance of value investing rather than shooting for growth alone. I appreciate all of you who have taken the time to teach others about what you have learned. Thanks.

    I have lived in many poor countries and live in one now. I understand how much we have to be thankful for even when the market is down. Have a happy thanksgiving.

  • Report this Comment On November 01, 2008, at 4:54 AM, bibliovest wrote:

    One thing I've learned, not only from the market, is that two different people can have identical experiences, but learn different things; and the lesson that one of the two masters will serve him well, while the lesson the other masters will lead to a practice that is repeatedly harmful or disasterous in the future. So you have to be careful about what you "learn." We often draw the wrong conclusions. And I have learned that lessons that teach us to fear without consideration of circumstances are not useful to us. Making decisions through our emotions is exactly right in some situations, but in others, for example investing, it does not get us what we want. I have also learned it is difficult to separate the emotions from the rational thought even when we know we need to do it. I'm still working on that.

    I have learned that in times of high market volatility, as in the past few weeks or during the huge drop during the .com bust, it is a very bad idea for me to try to form a "gut reaction" for where the market is going, or to look at technical analysis as a guide, and then to start making short-term trades on those gut reactions or analyses. It works for some people, but not me. I need to either stay out or pick a direction I feel confident of for the intermediate term or long term and go with it throughout the period.

    I have learned that, even though most stocks move with the market, it's vital not to simply assume that a particular stock will in the future, even if it has been doing so recently.

    I have learned that in a market rout, a stock with a P/E of 5 on real past 12 mos. earnings may still go a lot lower. But I also learned that it's extremely unlikely to hit a P/E of less than 2.5. Somewhere in the range 2.5 - 5.5, probably closer to 5.5 than 2.5, there is a floor, and when short-sellers start to cover it will come well off that floor for a couple of days but maybe come close to it again and hang out there for a bit while the rest of the market continues to decline, not breaking through the floor. But an apparent "floor" at a higher P/E like 8 or 10 is probably not going to hold through future bouts of selling. So, when the market is going south in a big way, I have learned not to go long on stocks with P/Es higher than 6 unless I'm sure the market selling is done, even if the stock seems way oversold.

    I have learned that the 50% down, 100% up numerical disparity is not meaningful because logarithmically it's the same down as up; but depending on market sentiment, it's still a lot easier for the stock to go one way than the other, and once the change has occurred market sentiment has to reverse before it's going to go the other way again. And if it goes way down there is a reason, and there has to be a reason for it to go from way down to way back up again. If the reason is pure panic selling or hedge fund redemption, then a partial recovery is likely to be quick. If part of the reason is economic, the recovery will not be full until the reversal of the economic situation is in sight.

    I learned that risk is commensurate with reward, but I simply cannot risk everything on one or two stocks because who knows what they will do. Always spread risk due to specific behavior of a stock by purchasing a number of them. I read that statistically 20 stocks is an optimum number, but 10 is pretty good and danger increases more and more as you go below that. But even 4 is hugely better than one or two.

    I learned that picking the exact bottom (within 5 percent) involves a lot of luck, and even trading tools will have you missing it fairly often. So, don't bet the barn on hitting the bottom.

    I have learned that any pundit can be full of it in predicting where the bottom or peak is, so don't bet the barn based on what anybody says, no matter who they are. But I have also learned that what I don't know could fill volumes, but there are some people especially worth hearing based on them having 20-40 years' professional experience in the markets and having done brilliantly well. I have also learned that typical investors are nearly always wrong as a group, usually wrongest at the most important times, and so they are the last ones whose collective opinion should be taken as guidance. I have learned that they may still be right, but if you're going to go with the herd, it had betterbe for reasons that have nothing to do with what everybody else thinks.

    I learned that the best way for me to try to catch a bottom is to buy steadily on the way down, but starting when I think the bottom may have been reached. I learned I tend to be too early. I also learned that if I run out of money before the bottom is reached, I'm seriously SOL. So, I have to get some independent estimates on how long others think it will take for the bottom to be reached (probably easier said than done), take the longest reasonable estimate, and mechanically spread out the buying over that period.

    I have learned that watching the relative strength trend of an index is very helpful in avoiding major faux pas, and I shouldn't go against it.

    I have learned that the "efficient" market and the idea that the market is somewhat safe if you look ahead because everything gets priced in ahead of time is a myth. It probably does pretty well reflect what everybody thinks, but because nobody knows the future and things can always be much worse or much better than what most people expect, there are plenty of surprises, sometimes big ones, as the facts reveal themselves and the majority find they have mud on their face.

    I learned that the market always over-reacts, but no over-reaction continues forever. I also learned that just because it over-reacts doesn't mean I should simply buy or sell at the price I think is reasonable - that can lead to big temporary losses or lost profit opportunities. I also learned it's hard to act at just the right time, but it's not that hard to avoid acting at absolutely the wrong time, with a little experience.

    I learned that reacting to news is almost always acting at absolutely the wrong time, so just don't do it. And I learned absolutely never buy or sell ahead of the market open with an order to be executed at open, based on something I heard in the news. If I really want to act on something I heard in the news because it has big long-term consequences, wait for a rebound in the opposite direction after the market opens, then place the order, because the price will already be way up or way down before the market even opens, it will go further in that direction, and then more likely than not will greatly relax back towards the previous closing price which is where I'd want to act. I learned that the "selling the news" phenomenon is very real and one had best plan on it in volatile markets.

    I learned that the market as a whole or for an individual stock really doesn't care what's going to happen a year from now. They care about the next two quarters or so. I have concluded that the best opportunities, and probably the only ones I want to risk money on, arise when the market has over-reacted in a major way to current events, even when basic understanding of realities indicates that beyond the 6-month horizon the situation will be completely reversed - such as coal and oil stocks now being at lows not seen for many moons despite peak oil and the long-term demand being way way higher.

    I have learned that I want to buy a stock which I expect based on its business prospects will appreciate very dramatically over the next year or two (beyond the six-month market horizon), but that I also want to buy it at an opportune time, either when it has recently been severely beaten down (preferably) or when it has been sitting for a long time doing nothing, but has just started to move up. And I don't want that expected dramatic appreciation to be "pure speculation", but something that all logic demands will almost surely happen if the company does what they say they are going to do. Not that I would know the future, but the advantages the company should have must be fairly clear and easy to understand. And if I am going to "take a flier" with an iffy bet, the stock should be darned cheap with huge appreciation potential, otherwise it's not worth the risk, and they'd still better have a lot going for them, like having experienced and highly capable management and definite plans being executed sensibly.

    I learned that what I don't know about a company can really hurt me, so I'd darned well better have read all their news releases for the past year or so. And if I don't understand the company's business or the stock very well, I shouldn't take any action based on what I think of the company's prospects. So, no financial stocks are in my future unless through a mutual fund or index.

    I learned from the .com bust that buying stocks that have no earnings and don't have a good sense for when and how earnings will turn positive is really nothing more than speculation, and the value of such stocks is based completely on market perception rather than any fundamental value. Developmental pharmaceutical companies without approved drugs to sell seem to fall in the same category, even though there is clear potential profit in the work. I have learned not to go there, unless the risk is spread across enough similar companies that the profits from success of only one or two will be enough to surpass the loss of failure of the rest. And there does have to be real concrete value in the work before I would invest.

    I learned that I can buy the best stock in a sector, and one which I am certain has great prospects, but if the sector goes down, that stock will go down with the rest of them. So I must consider what is likely to be happening to the sector - a difficult task in many cases and I'm still not sure how to go about doing that.

    I learned to decide whether I think a stock will appreciate or lose value, and never to bet against that direction even in the short-term. If I think the market will go down, either stay out or sell a stock short. If I am not sure about the direction of the market and I want to buy a stock, then average down over sufficient time being careful to know how far down the market might potentially go, but absolutely do not buy it if I believe the market will go down further, or sell it short under any circumstances. If it looks like the market will go down further, find a company I think will do poorly and short it, or stay out of the market.

    I learned that, if it looks like the market is likely to go down significantly further, I'm better off selling and buying back at a lower price, even if I'm selling at a loss. But I have also learned that my judgement on what is likely to happen is not very good that way and it makes me lose money more often than not. So I need to A) watch relative strength and sell if the market is headed down, and B) wait to buy until I think the market is not going further, but be completely prepared to average down because I could be significantly mistaken on where the bottom is. I'm bound to be out money by the time the market hits bottom, so it is critical that I be buying stocks that were cheap at the initial price and only getting cheaper as the price declines, and stocks I am positive will be making lots of money in a year or two no matter what's going on in the short-term. And I need to be planning on holding them for a year or two regardless, so that I don't wind up feeling "stuck" just trying to get back even. That takes away my enthusiasm for the process.

    Hope the lessons I've learned from my experiences are not the wrong ones for future success!

  • Report this Comment On November 01, 2008, at 8:22 AM, gkirkmf wrote:


    My post was not directed at our debt (30,000 per person or so according to my senators latest news letter) as I can surely handle that.. My post was aimed at getting folks to think at the macro level about what is happening in our economy. Underlying this whole credit default swap/mortgage swindle mess is the steady ever increasing problem of OIL (lack there of). The recent run up and crash of oil prices is a temporary phenomena. The continued failure of oil producers to discover new large oil fields will lead to oil shortages over the next 5 to 10 years. I am continuing to look for investment strategies which insulate me from both these problems. Do you have any?

  • Report this Comment On November 01, 2008, at 9:10 AM, Prudence103 wrote:

    Packermaniac12 voiced my opinion. The Motley Fool is busy writing cute copy to entice other fools like me to subscribe. Having subscribed for the past two years and having lost about $600 dollars,I shall now be doing my own research. I read The Financial Times and listen to Dennis Gartman.

  • Report this Comment On November 01, 2008, at 9:10 AM, contango100 wrote:

    The greatest take-away from this market is "don't fight the trend".

    I have investments in large banks that began to decline and I averaged down only to find that they fell so far and so long that it will probably take years to get back to breakeven. AIB is a classic example.

  • Report this Comment On November 01, 2008, at 9:14 AM, RengawJ wrote:

    The market can go to 5000 DOW. Who cares-If you had bought protective puts or protected you portfolio with puts which you can do, you would be miles ahead. Do you drive arround a $50,000 car, without insurance? Would anyone give a broker $100000 or more without insurance? But everyone does? When you go to your broker does he ask you what is the maximum you want to lose? Anyone that doesn't buy protective put's is asking for trouble. It's always invest for long term. Goofy.

  • Report this Comment On November 01, 2008, at 11:11 AM, eightzeroes wrote:

    These FOOL articles used to drive me nuts until I realized that the better knowledge comes from reading the comments!

    DDHv, gonuke, bodarc, RengawJ, darvasdarvas...and others have some great insights.

  • Report this Comment On November 01, 2008, at 11:53 AM, asitka wrote:

    First lesson - Cut your losses and just don't hold on in the hope of recovering them

    Second lesson - you always just don't have to act. At times, taking your time to act is better than jumping into decisions at the risk of losing an opportunity.

  • Report this Comment On November 01, 2008, at 12:04 PM, eightzeroes wrote:

    These FOOL articles used to drive me nuts until I realized that the better knowledge comes from reading the comments!

    DDHv, gonuke, bodarc, RengawJ, darvasdarvas...and others have some great insights.

  • Report this Comment On November 01, 2008, at 2:24 PM, NixinKome wrote:

    Well, I joined this forum yesterday for the first time. What a bunch of losers! Even the good posts make me wonder why they bother to submit them if they're doing so well. I thought I may learn from this blog/forum - whoops!. I'm off. Good Luck especially if you're approaching retirement.

  • Report this Comment On November 01, 2008, at 2:35 PM, kyddfool wrote:

    I have learned to listen to what i believe and who ( the foolish brothers) i respect saying those things i believe.

    Two/three years ago there were smart economists out there telling us what was about to happen. I remember thinking "i ought to sell my house now if want incredibly unrealistic returns, because a housing crisis is coming; watch out. I did not act on that knowledge. But i believed it.

    And i did pay attention to the MF downplaying Exxon for instance and sold those shares to acquire better recommendations, paying better dividends.

    and thank goodness several years ago, now, i could listen, see and believe the banking industry was not the place to make money. i dumped thousands of shares of a small bank that i had inherited and put that money in safer waters.

    If only we would listen and act on the side of foresight instead of hindsight.

  • Report this Comment On November 01, 2008, at 2:42 PM, kyddfool wrote:

    I'd also like to comment one last thing I hope we all learned.

    Never listen to a Cramer type showman, ever!

  • Report this Comment On November 01, 2008, at 3:53 PM, NixinKome wrote:

    I've just returned from the pool [swimming pool] and had left my 'puter on this page. I refreshed: Question; How many of the posts to this thread come from genuine individuals? There does not seem to be connection from one to another.

    Now I am away for definite.

  • Report this Comment On November 01, 2008, at 3:58 PM, AuBetBig wrote:

    Here is the bigger question – what is your survival strategy as the $INDU falls to 5,000? And by the way, the Dow Industrial Average may be old and out of date, but try superimposing the High/low/close charts of the $INDU, $COMP, and the $SPX for the last two years (their amplitudes may be different, but the curves look all too similar). Look for investors (the 401k sheep) to be led out on a limb, only to have the hedge fund boys cut them (and the Bear Market Rally) off at the ankles, the knees aren’t low enough.

    I haven’t decided whether the current rally will carry through to Inauguration Day or it will die a horrible death right after Nov. 10. By the way, I believe this regardless which Presidential hopeful makes the final cut.

    So, in conclusion, buy – sell soon and let the carnage continue!

  • Report this Comment On November 01, 2008, at 4:38 PM, GoNuke wrote:


    The energy crisis is much less threatening I think. I agree that oil prices are going up again because we are still running out of cheap oil. I am buying some oil stocks.

    Demand for petroleum is inelastic because of our installed base of petroleum consumption -low mileage cars and furnaces. Heating buildings can be achieved with electricity. Electricity can be generated by coal and nuclear. I chose Gonuke as a handle because it is obvious to me that the world faces both a major energy crisis and global warming. Nuclear power will solve both. There were 31 new nuclear power plant application made this year verses none for the last 30 years.

    Northrop-Grumman is teamed with a French firm to build a factory at Newport News that will build reactor components. Ground has been broken on other sites that will produce components for nuclear reactors.

    The US gets 20% of its electricity today from nuclear. France gets 80%. Ontario (Canada) gets 50%.

    I don't know when the public will finally embrace nuclear power but they will. Wind and solar are too expensive and can't generate the massive volume of energy we consume.

    I have bought shares in uranium mining firms like Cameco (CCJ), and industries that will benefit from construction of nuclear reactors like GE.

    GE makes nuclear reactors. My GE investment is being clubbed by its finance arm but GE has teamed with Westinghouse (now owned by Hitachi) to build reactors in the US. I'm not convinced GE is a good nuclear play though because the firm is too diversified. Buying GE stock gets you a TV network and a dodgy bank. GE finance is a very large part of GE.

    People will eventually shift to more fuel efficient vehicles. There will be plug in cars -as long as there is enough increase in electricity generation. Buildings will be heated with electricity

    Expect lots of innovation with respect to automobile engines. Volkswagen has a fleet of gasoline powered Rabbits running around Berlin getting 98 miles per gallon or 2.5 litres of gasoline per 100 km. My Toyota Yaris consumes 5 litres of gasoline per 100 km and it is not a hybrid. It has the same engine as the Prius which consumes 4 litres/100km. Compare that to a 2008 Ford F150 which consumes 13 litres/100 km.

    People will buy more fuel efficient cars. It will take 10 years for everyone to replace their current gas guzzlers but they will so gasoline consumption will drop in half.

    Coal can be converted to fuel (diesel) profitably at around $40/bbl according to Headwaters (HW). They are licensing the technology to a Chinese customer. It takes about $5 billion to construct the facility and it generates a lot of carbon dioxide so there will be resistance to making fuel from coal. HW has a process that is cheaper than the one employed by SASOL in South Africa.

    Canadian tar sands oil (syncrude) is profitable at less than $40/bbl and the costs keep declining. A nuclear reactor near Fort McMurray could supply cheap electricity to power the separation of the heavy oil from the sand reducing the amount of natural gas used in the current recovery process.

    Here is a link to the economics of tar sands oil and US shale oil

    It is easy to convert a car to run on compressed natural gas.

    One note on the fear of inflation:

  • Report this Comment On November 01, 2008, at 5:24 PM, frankhinde wrote:

    What I learned..

    1) I wish I hadn't invested ANY of my money in the last two years..Yup I cashed out my company stock cus I was over exposed an had been buying it for years...Company stock kept rising, recommendations didn't..Invested over 200k now is around 150.

    2) Really Really glad I paid off my house!..To me the house is not an investment its a roof over my head for when my company throws my sorry rear end out on the street.

    3) I have rental income that I helped pay the house off with. Now with the wife's teacher's salary and decent medical I could sit on my butt unemployed when unemployment runs out and still put food on the table with the rental income..Assuming my renters still have jobs to pay rent.

    4) things will get better, but I won't be homeless in the meantime.

  • Report this Comment On November 01, 2008, at 5:31 PM, Phanntom wrote:

    I learned 3 things.

    First, FASB has to end "Off-Balance Sheet" items. The financial industry effectively hid their bad investments off the balance sheet by saying they were difficult to value. When they tried to sell them and couldn't find buyers, they effectively had little or no value. Would we purchase a house, car or even a shirt we couldn't place a value on? The second thing I learned was to pay heed to what Warren Buffett has to say, not about what he's buying, but when he points out a future problem. When he first made his comment in I believe it was 2003 or 04 about derivatives. Having never heard of them before, I began to learn everything I could about them and found no reason to disagree with his observation, I sold all my financials thank heaven. And last but not least, keep plenty of cash on hand to take advantage of these buying opportunites.

  • Report this Comment On November 01, 2008, at 6:33 PM, QuiteFrankly wrote:

    I learned that the financial system is controlled by pirates and predators - financial advisors are either part of the scam or naive sheep - and that the scumballs who sucked off billions in the latest scam ought to be prosecuted under the Rico racketeering laws - which hopefully Obama's AG will do.

  • Report this Comment On November 01, 2008, at 7:20 PM, jwaymoo wrote:

    I have reviewed with interest all the comments about lessons learned, and especially enjoyed the contributions of GoNuke. This has motivated me to tell my story, which I have never shared with anyone.

    Most contributors are likely more sophisticated investors/traders than me. You might consider me the Forrest Gump of stock market investing. I will be 68 next week and depend on my investments for most of my retirement income – the rest is from social security and military retirement.

    I am not a trader; I am an investor. As such, I am most concerned with return on investment, i.e. yield. My investment capital came from selling my small privately held company to a public company in 1999, half in cash and half in the stock of the microcap public company, which made me one of the top three shareholders and classified as an insider. I had been self-employed for 27 years at the time of the acquisition and I remained employed at the public company for eight more years before retirement, even though my employment agreement only required four years. Taxes took nearly 1/3 of the cash and my remaining net worth was almost entirely in the stock of my new employer, a software company. The SEC has very strict rules about insider trading, so diversifying my portfolio was a challenge.

    I initially placed my cash in the hands if a professional portfolio manager, but took over management myself within a year (late 2000), just before the dotcom bubble burst. During the next two years I learned the lessons expressed by many who have posted comments here: the analysts and brokers should be ignored. During this period the price of my employer’s stock (70% of my net worth) ranged from a $14 high to a $3 low. My stock was restricted and had to be held for a minimum period according to SEC rules, in addition to the insider rules. The stock was thinly traded and controlled by market makers. My challenge was how to diversify my investment portfolio for retirement. Anytime I sold my employer’s stock (after all SEC restrictions were met) it would be reported as negative insider trading, which would drive down the market price of the thinly traded security. My solution was to remove myself from any management/leadership positions in the company, assuming a technical software consultant role with no insider connections. Over the next several years I sold most of my position in the company stock at prices between $5 and $9, purchasing other stock, municipal bonds and CDs. Hindsight has been mentioned several times. Here is mine: If I had held all my company stock, I could have received $12 a share for it when the company was acquired last year by a larger company. However, I have no regrets – the company could have just as easily gone bust. I met my own objective of establishing a diversified portfolio that would support a comfortable, financially independent lifestyle. I have no debt, having paid off mortgages in 1999 (in addition to acquiring a little more real estate for cash), and paying off all credit card balances every month, as Forrest Gump would likely do.

    During the years of 2003-2007 I paid little attention to my portfolio and the market, except to divest myself of my employer’s stock and place the proceeds in other relatively safe positions. All of my company stock sales resulted in taxes of at least 25%, being subject to AMT and having a near-zero cost basis. After retiring and completing my PhD in business, I had more time to give thought to investing and my overall investment strategy. I concluded the following for my personal situation (already retired):

    1. Buying and selling stocks with the hope of profiting from their price changes is a form of gambling.

    2. If you have enough investment capital to provide a comfortable income, there is no need to gamble.

    3. What is the fundamental reason for investing in a company, public or private? Answer: Income (ROI)

    4. A stock’s price is determined by the supply and demand for it, which in turn is based on expectations, perceptions, and emotion. Trying to consistently predict short term price changes is not possible. For an explanation of big events like this year, read Nassim Nicholas Taleb, “The Black Swan: The Impact of the Highly Improbable”.

    5. What is the best measure of the value of a stock? Income distributed to the stockholder-owners, i.e. return on investment, in the form of reliable, growing dividends.

    6. The best strategy for me is to base investments on dividend yield, taking into account soundness of the company by study of its financial statements, its products, and its industry.

    7. Evaluate positions in my portfolio by comparing dividend yield, always looking to sell lower-yielding positions (based on position cost, not current market), other things being equal, i.e. risk, soundness.

    8. As a secondary income consideration, evaluate selling positions that have appreciated substantially in price if they can be replaced with stocks of other companies with no less soundness and cost yield.

    Last weekend, before this article was published, I decided to evaluate how well my personal investment strategy had done in the past year, since October 2007, when compared to the “market” as measured by the DJIA, and by the professional investment managers to whom I had entrusted 30% of my portfolio. I evaluated both market asset value performance and asset income performance. In addition, I separated the assets into two groups: 1) those managed by me and 2) those managed by professionals. I classify all mutual funds as assets managed by professionals. Here are my findings:

    The Dow Jones Industrial Average had declined -39.3% from October 31, 2007 to October 31, 2008.

    Asset allocation of positions managed by me on October 31, 2007:

    Cash & CDs: 46% (CDs were yielding over 5% at that time)

    Equity stocks: 25%

    Muni Bonds: 29%

    Portion of total portfolio managed by me: 70%

    Overall income yield: 5.0% (Half of my stocks had large unrealized capital gains and no dividends)

    Asset allocation of positions managed by me on October 24, 2007:

    Cash & CDs: 11% (CDs are yielding under 4% now)

    Equity stocks: 54%

    Muni Bonds: 35%

    Portion of total portfolio managed by me: 75%

    Overall income yield: 8.6% - Note: I have discovered Master Limited Partnerships (MLPs)

    Changes from October 31, 2007 to October 24, 2008: Asset value -16.1%; Income Yield +43.9%

    Note: In March & April I sold all non-dividend paying stocks, incurring substantial realized capital gains, which have been used to offset short term trading losses since then, but 2008 will still have a net taxable gain. All losses are reflected in the -16.1% change in asset market value. I started focusing on dividend paying stocks in April, which have lost value since then. Example: BP bought in April at $65, bought again in September at $50, April shares sold in October at $48 (avoiding a wash sale). I view these short term losses as just cleaning up my portfolio for the future and providing funds for purchase of other high yield bargains. For my strategy, the stock price is not important – it’s the total income yield that counts!

    Asset allocation of positions managed by professionals on October 31, 2007:

    Annuity contract: 29%

    Corp bond funds: 36%

    IRAs & 401(k)s: 35%

    Portion of total portfolio managed by professionals: 30%

    Overall income yield: 2.9%

    Asset allocation of positions managed by professionals on October 24, 2008:

    Annuity contract: 29% (recently liquidated for cash to buy income yield bargains in November)

    Corp bond funds: 39%

    IRAs & 401(k)s: 32%

    Portion of total portfolio managed by professionals: 25%

    Overall income yield: 4.7%

    Changes from October 31, 2007 to October 24, 2008: Asset value -32.5%; Income Yield +10.4%

    Total portfolio change in 12 months (me + professionals): Asset value -21.0%; Income Yield +37.3%

    Conclusion: Based upon the experience of the past 12 months, my income yield strategy is working and I am doing much better than the professional managers with their mutual funds. The professionally managed portion is dragging down the total performance, but I have still managed to produce a retirement income increase of about 37% since March and mitigated the impact of 2008 taxes.

    I joined the Fools Income Investor service in July and view it as just another information source. I have bought several of the income investor picks. I use it as an overview of companies that are possible candidates and as a first step in the due diligence process. However, I find annoying all the advertising connected with it for other Motley Fool services. I recently subscribed to Dividend Detective.

    I do all my trading online at $8.95 a trade, using a real time trading tool.

  • Report this Comment On November 02, 2008, at 2:33 AM, afamiii wrote:

    My lesson is that the old time greats are 100% spot on.

    i) The advice to be cautious when everyone is euphoric and bold when everyone is fearful is good advice. It does not mean throw all your money in at the point of maximum fear (like a market bottom this can only be known with hindsight,) it means increase your investment activity when people are fearful (for sure they can get more fearful, but they won’t remain fearful forever) and build up a bigger portfolio over a 6 to 12 month period. And the opposite for euporia – we were 50% in near cash (short bonds) by the end of 2006 and 75% by Q1 2008.

    ii) Buy when stocks are cheap (it is far easier to identify cheap stocks than it is to track the global macro economy or to turn that analysis into reliable buy signal) Stocks (in my opinion) are fairly priced when they are selling close to book value (10% to 20% premium is fair) OR free cash flow yields 5% to 6% higher than similar quality corporate bond yields. I would be very comfortable buying a small private company at these prices.

    iii) Have a truly balanced portfolio – Real Estate, Fixed Income, and Equities. Or if you really must put all your eggs in one basket, then make use of hedging strategies. E.g. have short positions or have trailing stops (if your portfolio is small enough.) Funnily enough it is the people who want to get rich in stocks who loose the most.

    iv) Don’t be greedy. The only people who get rich (in a meaningful amount of time) by investing in stocks are those that use significant leverage (show me the customers yachts!) Wall Street, Warren Buffet, etc. make money through fees, salaries and bonuses from managing other peoples money and/or they operate with leverage (in Buffet’s case insurance premiums.) If you want to get rich learn how to run a business successfully and then buy a business (the odds are very long in starting your own.) Or set up a business managing other people’s money (one of the few areas where start up ‘entrepreneurs’ make money even when the business blows up) or selling them investment advice.

    v) Do invest in international markets (anyone who does not believe globalisation should affect their portfolio should retire) but don’t do so as a diversification strategy (all the markets are linked.) The advice about being an insider in Asia is true (not just in Asia but also in Canada, USA, Africa and Europe,) but should not stop you from investing. If you are not comfortable with doing a bottom up analysis of overseas companies (or any companies for that matter,) buy an index fund, the beauty of indexes is that they are updated regularly to weed out the dross and they do generally reflect the overall performance of businesses in that country and the cost is cheap.

    vi) Diversify your sources of opinion and pay good money for good advisors. Agora Financial (sorry to mention a competitor to Fool) and many others were advising readers to short mortgage companies that were heavy into sub-prime back in 2006 (a bit too early for some who had losses as the share prices went on to their 2007 peaks – but massive profits for those who could handle it – unfortunately I was part of the group that bailed. Similar newsletters are currently advising that the inflation is coming (you can’t pump so much money in without it going somewhere) – no doubt they will get the timing wrong but with negative interest rates all over again and banks being told by their new owners (government) to lend, lend, lend (pump it up) stick close to your banker to find out who he is lending to (the sub-prime group are already maxed out.)

    vii) Never trust the seller. You need to buy from Sales People, but you don't need to trust them. Sales people are paid to sell their paper, if they don’t sell they get fired (or at least they don’t get to eat,) some are very ethical, most are as ethical as you or I (when push comes to shove, in a pressure situation, they close their eyes and don’t question the boss) and some are not ethical at all (I met a sales manager a few months ago who ran a sales office that sold more than 100,000 sub-prime mortgages over the past five years – he goes: I knew they wouldn’t be able to pay, the whole thing was a house of cards, but the company had the money, the banks (investment banks) were buying the paper and the people wanted to buy, I can’t see what was wrong, other companies were selling the same types of products. I was just part of the system, its not my job to see how the whole thing fits together. PS: Damn good sales manager, knows how to build an effective sales organisation and doesn’t ask to many difficult questions he is now vice president of sales in one of our companies.

    viii) Read the classic investment books (everything worth writing about money was written before the 70s (if anyone tells you they’ve found a new way to make money on stocks, be very sceptical.)) One of my favourites is the Money Game (written in the 60s, but it might as well have been written yesterday) it is a great little book and reveals most of what you need to know about Wall Street (brokers, dealers, investment banks, hedge funds, etc. but more importantly the people who operate them) and some great real life examples of how they operate in ‘your interest.’

  • Report this Comment On November 02, 2008, at 3:12 AM, WowCarol1 wrote:

    I have learned that if a real-life experience sends up a red flag in your investing brain, DO SOMETHING! In late 2007 I walked into my bank branch (WaMu) in Los Angeles, to make a small deposit to my checking account. At the conclusion of the transaction the teller asked in a robotic manner, "Can I help you with any mortgage products today?" Now, I am an apartment-dwelling artist with about $1000 to my name at any given time. Washington Mutual was offering me a mortgage with the same concern that The GAP shows in trying to up-sell me a pair of socks to go with my new jeans. I was freaked out by this experience, but didn't know what action to take in response to the incredible inappropriateness of the teller's question (shorting housing and banks would have been a good start).

    Since there are so many here much brighter than I, let me now share this experience from last week: I walked into this SAME bank branch (which is now of course a Chase branch) and was approached by an employee who asked if I would like a WaMu credit card... again not knowing anything about me. PLEASE figure out what this means, what is about to happen and how to profit immensely. I know L.A. is strange but this is ominous.

    Best wishes and luck to all.

  • Report this Comment On November 02, 2008, at 10:59 AM, QuiteFrankly wrote:

    Have a truly balanced portfolio - because when the next Big Scam hits you will get ripped off in just one part of your portfolio instead of the whole thing. But then again, if we have to bail out the Bunko Artists who rip us off, then it doesn't matter where your money is.

  • Report this Comment On November 02, 2008, at 4:09 PM, jdlech wrote:

    As a new investor this year, I learned a number of things. First, the analysts, while they hold a lot of power, are not trust worthy. Second, the best fundamentals in the world are meaningless in the face of panic selling. Third; never ride a stock down. I would rather generate $700 in brokerage fees than to lose $7000 riding a stock down.

    I also learned that the last trade has nothing to do with the next trade. Whatever emotional baggage the last trade generated should not be carry into the next trade.

    I learned how to hedge my bets, so even when my stocks lose, my portfolio remains relatively stable. I bought SIJ on margin until my longs recover. Just enough that my portfolio remains relatively stable. When I'm confident that we've reached bottom, I'll sell it off and ride the rest up. Let's just hope we don't have another 10 years of flat markets.

  • Report this Comment On November 02, 2008, at 11:47 PM, kider54 wrote:

    So, eventually there was some sense made on here. A few actually sounded intelligent. I think its halarious that people are just now realizing how bad Cramer is. If only they waited another hour to watch fast money, we'd all be in a better place. 4 or 5 people giving mutiple opinions that are intelligent.

    This has been a beautiful year for me. My real estate shorts were completely obvious. Put it all in SRS at 60 sold at 200. DO NOT invest in ultra ETF's unless you know how they work.

    NEVER invest without a hedge. Shorts, puts, selling calls, whatever you have to do. Someone earlier said it takes 100% profit to get back a 50% loss. It works both ways, though. Now that many stocks are down, its a lot easier to double up. I had 3 stocks gain over 100% last week. GKK, LVS, and DTG. Many others up 40% plus.

    Be ready for short squeezes NOW. The economy is fuct, but that doesn't mean stocks will go lower. The shorts are the only people that "have" to buy when stocks are on the way up, and it is exponential. Look for high short ratio/days to cover, mixed with high volume, on beaten down stocks. Risk vs reward is amazing right now. Watch FEED, CROX, NTRI, NILE. Don't count on the comex market for gold coming up. If you want to mak money on the deflated gold prices, BUY PHYSICAL, but thats a whole nother story. Have fun you guys, so much money to be made in volatility.

  • Report this Comment On November 03, 2008, at 7:06 AM, joelfreedman100 wrote:

    I thought I'd share my foolish story. I was minting money a few years ago when I followed your advice and bought xmradio when it was $38.00. In just a short 3 years or so it has changed its name and was last seen trading under its "new" name Sirius for $.43 (or was it $.34?). So with that track record in my pocket I became a Fool member. What a guy!

  • Report this Comment On November 03, 2008, at 10:42 AM, fibreoptik wrote:

    I have learned that I would like to know the ages of all those that posted the comments above. Or at least know which % of them are in retirement or will be retiring within the next 5-10 years.

    Because we OBVIOUSLY have VERY DIFFERENT investment goals ;)

    I'm almost 32 btw...

  • Report this Comment On November 03, 2008, at 11:39 AM, becr8iv wrote:


    I am new to investing . . . so please excuse my ignorance! Can someone please explain what "put" "selling short", etc. means.

    To date, I have just invested in stocks that are more long term investments.

    I would like to diversify - but I need a little guidance in how to do that. ie: day trading, this "put" thing, MF, bonds, etc.

    It's all a little overwhelming to me.

    When I say new - I mean brand new - three weeks old to the investing world.

    My goal is to try to yield enough to pay for my daughter's college education and I only have 5 years to complete this task.

    Am I crazy??

    Thanks to anyone in advance who can help to answer these questions.

  • Report this Comment On November 03, 2008, at 11:44 AM, ematherne wrote:

    Trust my gut when I look at the data instead of being irrational and buying into hype. Every time I have gone against my gut feeling, I have made a mistake. I don't expect my gut feeling to always be right, but at least that's statistically better than going against it.

  • Report this Comment On November 03, 2008, at 12:19 PM, paulmar719 wrote:

    I have learned not to listen to anyone and do my own research. And no matter how good you are at picking the best stocks, the first step in investing should be admitting that you can't predict the market and you’ll never know whether you are at the top or the bottom. Therefore, disciplined weighted dollar cost averaging is your best friend. Here is the strategy to use now:

    Let's say you have $20K to invest. Put $16K (80%) into the stock market now because the indiscriminate selling frenzy is almost over. (Or maybe it is over, but who cares because with this approach, it won’t matter too much). If the DOW takes another dive to 8,000 or lower, throw another $400 (or 10% of your portfolio) into the market, and continue investing 50% more than the last investment every time the DOW sheds 10% until you run out of hard-earned money that you are willing to gamble with. If the DOW starts recovering, sell 10% or your least promising equity holdings when the DOW gains 10%. When the DOW gains 10% more, sell another 15% of your equities. Continue selling 50% more than the last time for every 10% gain until the DOW starts sinking again or until you run out of stocks to sell. Return to buying when the DOW corrects 10%.

    Note that this approach sells progressively more every time on the way up and buys progressively more every time on the way down, allowing you to lock in most of your gains and capitalize on the huge swings without jeopardizing all your earnings. Yes, I know, the DOW does not reflect the entire market or any individual stock. But even the best stocks take a hit when panic sets in, and 5-10 years from now, we will have another bear market caused by greed and speculation. So if you remain disciplined through the buying frenzy on the way up, this strategy gives you clear signals to weed out the crap as the market gets more overbought, over-leveraged, and speculative.

  • Report this Comment On November 03, 2008, at 4:38 PM, kider54 wrote:

    CHECK OUT MY CALL ON CROX. This goes out to Becr8iv. To short a stock is to borrow it, and say you'll give it back later, aka bascially betting that it will go down. Problem with this is you have to have a margin and you can loose more than you have. Buying put options is buying the right to sell a lot of stocks at a certain price. Its basically insurance against buying a stock, aka if it goes way down you don't loose your arse. Not refering to you personally, i like your wanting to learn, but it bothers me terribly that sooo many poeple "invest" these days with no idea what they are doing. If that is the case just invest in (non-ultra) ETF's, invest in sectors you believe in. Maybe short the ones you don't. The idea of a "perfectly diversified" portfolio is dead. The idea of holding blue chips for the extremely long term is dead(unless you just want div's). The rules have changed and all need to realize. If you look at the stocks I posted yesterday CROX up 25.9% today, I got out of feed when it was up 10% today, but it could go much higher, NTRI was only up 4%, and I just appologize for NILE, I don't own it, and was purely showing a possible short sqeeze, I have no faith in thier business plan. I did however buy HIG in the mid 8's on thursday and sold out at 16 today, will possibly go to 18-20. If anybody wants to pick my brain a little more I'd be happy to help. I'll check back on this page for questions over the next few days. Be careful, its a jungle out there.

  • Report this Comment On November 03, 2008, at 5:29 PM, QuiteFrankly wrote:

    I laugh when people talk about doing "research".

    Do you mean researching phony fraudulent data. Cooked data.

    You're only as good as the information THEY allow you to have. And THEY don't give out the real facts.

    All of you amaze me - still believing that you can figure out SOMETHING. ANYTHING! despite all the recent history of scam after scam after scam. Still believing there is a rational thread. incredible.

  • Report this Comment On November 03, 2008, at 9:45 PM, nyerinnc wrote:

    What I have learned I actually knew before but ignored all the signals. I have ingrained in my head the rules of IBD and forgot to follow them. One, when things look especially erratic I had proposed to myself to sell anything that went down by 10%. IBD proposes 8%. I didn't do it and I could kick myself ever since because I have lost all my profits and then some. What I have now learned to put in a stop loss on everything that I buy that goes down 10% because, you know what-I can always buy it again rather than watch it drop like a brick.

    Another rule I have made for myself is to sell when anything gets to 25-30% profit for the next year or so. I know that sometimes I can make more but I would rather have that much profit then to lose it all.

    And another thing I hope to curb is my tendency to buy more shares as the stock declines. Lately, that has not worked and made more losses for me.

    I am sure that I learned more but these 3 things are the most important things that I have learned. I am trying not to beat myself up because there are a lot of people, even Motley Fool, couldn't tell how bad this economy and stock market was going to fail.

  • Report this Comment On November 03, 2008, at 11:52 PM, bibliovest wrote:

    To becr8iv - trying to pay for your child's college education in five years - unfortunately, not very likely, if you're starting from not knowing anything much now. My opinion. But it depends on how much you are starting with, too, and how good you are at picking stocks/funds and timing purchases. And if you know how to get the advice you need to succeed. To put it in perspective - when you read a posting in this thread, "I learned that...", that means somebody lost a bunch of money and figured out what they should have done differently and would prevent the same mistake in the future. And as you read this over, you see there are lots of lessons to learn. After you learn enough lessons, you get to the point where you stand a pretty good chance of making money right off the bat when you put it into the market. There are risky ways to invest or speculate, and safer ways. The riskier, the more money you can make. And also, the more lessons there are to learn, basically, and the more painful they are and the greater a percentage of your money you can lose. In other words, the more money you can potentially make, the more likely you are to lose everything you have, every last penny, before you've learned the lessons. The best advice for your situation, in my opinion - the market is really low right now. It may or may not go lower. Try to guess when it might be close to the bottom. It may be now, or it might go lower over the next 3-6 months, who knows? (Guess is the word. One cannot know, even with experience.) But when you think it's low enough, buy stuff you can be pretty confident will appreciate a lot over the next few years, and scrape together what you can to make the investment. Energy stocks are my own best guess. Material stocks. Chinese stocks are quite volatile and so have higher profit potential and are also way down right now, but you absolutely have to buy several of them, because really bad things can and do happen to them sometimes for several reasons, which are much less likely with U.S./European stocks; you have to spread the risk to be able to benefit from the increased profit potential. And you have to buy the right stocks, as always - or buy a Chinese fund (ETN), maybe safer because diversification is built in. Other emerging market ETNs are way way down right now, too. In general, smaller companies have the most appreciation potential - AVNU is likely to have greater appreciation than XTO, which is likely to have greater appreciation than Exxon, but smaller companies are more risky and you've got to diversify and try to be sure you understand what could go wrong and weigh the risks. Hold what you buy for 2-3 years and when their main appreciation potential has been realized and they are way up from here, sell them. Then look at what's really low at that point and buy it, and hold that for two more years until it appreciates. That's 5 years. Also, save some every month and buy something you think should be going up a lot over the next two years; use funds or ETNs so you don't have to keep analyzing stocks all the time, unless you think you'd be good at that and have the time to spend. And sell the stuff when it is up as far as you think it is going to go up (set yourself a reasonable target when you buy - you have to get a sense of what's a reasonable expectation). Don't hang on to it forever because that will probably cost you your profit. With this strategy, you could hopefully do a x6 or x8 or x10 in five years if you do a really good job, because with the markets so totally sucky low right now, there are huge bargains and there are historical trends now that can be taken advantage of. That kind of appreciation might be realistic in 5 years if you do a fantastic job of picking, which unfortunately one just has to chalk up to luck when starting out. What's reasonable for you to expect, I don't know. Look around in investing forums on the Internet for what other people think will do great over the long run, that's a good way to get good ideas. Whether the profit pays for a college eduction or not depends on how much you start with. If you don't start with enough, then to pay for the education you'd have to try something riskier that has a higher potential return, but that probably would NOT work AT ALL because you don't have the experience to make good choices. I won't say forget about "trading," but for goodness' sake don't risk your money on it when your child's education is at stake. 99% chance you'll lose a lot of money before you finally figure things out, and by then, taking into account the lowered dollar starting point from losses, too much time will have passed to make the money you need by the time you need it. (You can cut out the losses by learning with paper trading, but still probably too much time would pass.) Take the safer alternative I mentioned, which is not trading. Make pretty good picks, and try not to buy before a 20% market drop because it delays the onset of your appreciation, plus it's lost profit opportunity. Obviously those are easier said than done, but one can always hope. If you make good stock picks, or choose the right fund(s), and absolutely don't sell them even if they go down 25% more from when you buy them before they go up again (selling without an idea of how far down the market might go often results in selling right when the market starts to go up, it's an amazing phenomenon, so you buy high, sell low and this is a huge cause of losses for beginning investors - I know, I've done it plenty and I can't tell you how frustrating it is) - if you do this, I'd think you'd have pretty decent success, because the market has just had a historic drop and there are lots of stocks that will go way up from here. Because the market may go down a fair amount yet, or may not, the best thing is buy stocks with at least 4x appreciation potential or more over 2 years (assumes pretty good economic recovery by then, which seems likely to me); then if it goes down even 25% from here, it doesn't matter, the appreciation potential is great enough to make it worth the wait. My opinion, again. And with luck, there will be no big drop from here. But man, you can get into a lot of trouble shorting stocks if you don't know the right stuff, and you can lose all your money buying/selling puts or calls (options). Shorting and options are good speculative vehicles, but only for people who really understand how and when to use them. It takes more than a week or two, generally more even than a year or two, to learn how to use them well unless you devote ALL your time to studying them for months. Then there will still be lessons you didn't learn yet so you'll still lose money for a while. (I recently learned about an online course in shorting stocks that sounded quite good, but one could count on it not being cheap. I immediately saw it was stuff I would not learn by trying it on my own, though.) It's fascinating stuff, but don't risk you child's education on it. Only put money into that stuff you can afford to lose, until you know enough to call yourself "darned experienced".

    Just my two cents. But sincerely, good luck!

  • Report this Comment On November 04, 2008, at 2:56 AM, bibliovest wrote:

    To becr8iv - I should add, the point a few people made about using puts/calls for hedging is absolutely correct. It's much better than going without. It's not "trading" or speculating, it's a very sensible use. But it's a whole nuther level of sophistication. You can learn what puts and calls are in a fairly short period of time, and if you find the right educational materials, I'd think a few days of study may tell you how to hedge. It's definitely worth doing, but aside from that use of options, I still maintain that, without experience, you're best off buying excellent stocks near (not at, just near enough) to the bottom (average down if necessary) and sit with them until they have appreciated 4x to 50x, whatever their potential is. I have read that average traders generally make 20% - 30% per year average on a large sum of money. The professionals trade conservatively, and are happy making 50% per year. There are up years and down years, and I'm sure some people do much better than 50%, often. But people who can make 80%/year are few and far between, have been doing it quite a while, and they can also be in the loss column for a year often enough. They can even go broke. It doesn't seem practical to try to make 50% per year with the associated risk and expensive learning curve for the critical purpose of funding a college education in 5 years starting with no experience, and you don't need to. All you need to do is make the right bets on stocks, and get in fairly near the bottom, which has either just passed or will come in the next few months, most likely. If you can learn how to cover potential losses with puts and calls, go for it, great idea. I started buying stocks mid-August without a put, was down 45% only a couple of weeks ago, and am back even today because I had the right stocks and averaged down well enough. I would say I "got lucky," but I bought the particular stocks for a reason. I'd have been better off with a put, but I wasn't smart enough to recognize how badly the market might tank - I hadn't been studying the economic situation carefully for the last year. I am very happy with the stocks I hold and the prices at which I bought them, and I really don't care if the market goes down another 20%. Well, OK, I would rather it not. But if I think it's heading down again, I WILL sell the more volatile stocks and wait till it bottoms out again, because I'm not well-enough versed with the put strategy. But it's not critical. If I don't do that, I would make X% in the end. If I do sell and buy back, or hedge with a put, I would probably make 1.3X% in the end. Whether I make the right call matters, but the far more important part is making stock picks with large appreciation potential and not too much risk of things going other than the way you envision, and getting in somewhere around the bottom at very low stock prices. You don't have to get fancy at all to make $80,000 for a college education in 5 years, when you are starting with the current market situation. You want to have like $20,000 to start with to be pretty safe, and buy good stocks at near the right time, and then don't lose the money by selling at the wrong time. Usually easier said than done, but like I said above, the market is down so far now it's easy to find cheap stocks that are highly appreciable, and just set targets and sell when the stocks get there. Even if you don't have $20,000, there's a good chance you can make $80,000 from only $8,000 in 5 years from today's situation, especially with dollar-cost averaging by buying some extra every month at whatever price the stocks are at that month, choosing the stocks that are strongest at that time, assuming you watch and sell them if they go down more than X% from a peak. (Use trailing stops.) Just find the right stocks, though, that's the key. If you don't have $8,000 or thereabouts, then you have to go to something more risky to get the returns you want, which thus requires significant expertise to be able to make $80,000 in five years. In my opinion. Gonuke mentioned a couple stocks that sound like great ones. I think I found a dozen by looking as carefully as I am able at about 200 randomly-chosen companies with decent daily volume and by considering the whole economic picture for the next few years. You can do the same. You said you have some stocks for the long-term already. If you don't think you can turn them into $80,000 in 5 years, maybe you didn't find the right stocks, because I think you should be able to find stocks you think are pretty likely to appreciate AT LEAST 6x in 2 years right now without too much difficulty, and if you can get 12x in 5 years you can easily pay for that college education without a pile of money up front. Well, maybe I'm too optimistic. Hope not. The more money you can start with, the better. But do some more looking at companies. Go through their Web sites, look their quarterly and annual reports over when available, forget about the companies you don't understand, make sure they look like they have a good business plan and it really should work out the way they want, and that it should make them a pile of money, way more than the market is giving them credit for at today's stock prices. And that the management sounds very competent in their field. That's about as well as you can do without developing a lot of knowledge about financial analysis, in my opinion. But it's probably enough. And hunt around for other ideas, from Motley Fool or wherever. Some ideas will just suck or be self-serving or highly speculative or not have the kind of appreciation potential you need to come up with $80,000, so only do what makes darn good sense to you. Anyway, again, good luck.

  • Report this Comment On November 04, 2008, at 10:47 AM, QuiteFrankly wrote:

    good stocks - market low - right time to buy

    what a joke! you've drunk the kool-aid. still applying rational analysis to a crooked 'gamed' system.

    when you get fleeced again - and again - and again - don't say you weren't warned.

  • Report this Comment On November 04, 2008, at 12:15 PM, kider54 wrote:

    Bibliovest NICE! Great knowledge.

    Can you pay for your childs eductaion, yes. Could you completely loose your ass, probably. I think its halarious that people sell their stocks when they are down and buy more when they are up. THE RULES HAVE CHANGED. Buying stocks between 10/10 and 10/23 were great times to buy stocks. Its all about timing, there is no reason to sit on stocks, dividends are priced in, you don't make anything.

    Just imagine you own a particular stock(you did you due diligence, found a low P/E, good volume, and technicals look good). Watch it and when you think this is making me sick, I must sell, then buy it. If it keeps going lower, buy more/avg. down. Take profits all the way back up.

    How my last week has been. CROX up 100%, DTG up 140%, HIG 100%, GKK 200%, LVS 200%, PLAB 125%, FITB 75%. Many other up more than 20%. So be it, my puts havn't hit, but I still made bank. Now I'm out my longs later today, will sit on the puts and see if the market tanks tommorow. This has been way too easy, could take the next year or 2 off.

    BTW:All you that say you can't invest because books are cooked. That just means you shouldn't invest long term. If a stock is beaten down it will come back up, if a stock is over-priced it will come back down. Who cares what the company does if someone will pay you more for it, than what you paid. We are here to get rich right? Right now you can buy penny stocks and you don't have to worry about delisting till January(will be extended). When stocks are priced that low, gains can be rediculus, just look for cash on the balance sheet, and a good book value, they will not be going bankrupt anytime soon. Don't put money in you can't loose, but dip in, take a ride, and get out. Peace.

  • Report this Comment On November 07, 2008, at 8:19 PM, journeywithme wrote:

    I am ever learning and seemingly never able to come to the full knowledge of investing! But what I do know is, first, stay calm! Don't allow all the noise that occurs in the stock market to cause you to panic and sell to low or buy to high. Second, always remember that, technically, its only a "paper" loss or gain until I actual make the buy or sell transaction. Third, just like I want to find bargains with clothes, food, etc., sometimes, there are bargains in the stock market and if you have the financial ability; you can buy into good companies very low. I learned that investing takes much time to master and discipline and it is good to have a defined strategy for entering and exiting the market. Be well.

  • Report this Comment On November 08, 2008, at 8:06 AM, THouse12 wrote:

    First of all, I want to make a quick comment on the current situation. We are truly in the first stage of a nasty recession, how long it will last, who knows?? I have been in the mortgage business for over 25 years and saw how the real estate bubble was propped up for those last two years, by unscrupulous lending practices of allowing liar loans which included low teaser rates and negative amortization. It created a house of cards as borrowers felt they could just refinance their way out of any problems because their home value " was always going up"! Definitely living beyond their means. Fortunately, our company would not do these type of loans. Many sound, ethical banks though did lend a lot of money through Home Equity lines and new Construction loans. These Home Equity lines became mispriced to the borrowers short term benefit due to competition among Banks and Mortgage Banks. The construction loans were mainly a timing problem versus bad lending practices. All of these lending avenues turned sour once the Real Estate bubble burst.

    The reaon for bringing this up is an example of why it is so important to look beyond current events and think in terms of forward earnings trends/forecasts and the assumptions being made about the economy to drive these forecasts. With that in mind, I am a big believer in focusing on certain sectors at various points in time, and investing some money in the best mutual funds for those respective sectors as well as individual stocks that seem best positioned within the sectors. The other general comment would be to look for companies with rock solid balance sheets with lots of cash versus debt. These will weather the storm much better, and have been this year albeit having lost ground too.

    Final comment is that we have taken a massive hit here over the past year, but I still don't think that there has been enough account taken of the effect on earnings from this nasty economy. My call is the bottom will be in place only when we get close or under a 10 PE for the Dow and S&P based on EARNINGS AT THAT TIME. Remember the Buffet's and some others are getting sweetheart deals on some of these stocks, because they have cash/capital to spend when there is not much to be found. Normal investors are not getting 10% dividend rates on convertible Prefferred shares as they are getting, so their risk if GE and Goldman prices trend down a bunch more is pretty low. As long as those companies are long term viable and solid, they are in great position and will just buy more common stock later at even lower prices.

  • Report this Comment On November 21, 2008, at 3:19 PM, jfenlon wrote:

    Do you have to get her into a four year university within five years? Unless your daughter is enrolling in the physical sciences some of the mandatory liberal arts courses are fillers to keep faculty employed who have trouble with math. Consider a good community college for the first two years with transfer to a four year school later. Consider some work experience mixed with formal education that would space out education payments.Many persons leaving the nest don't settle on their career choice until their '30s. I personally believe much of the four-year university experience is a racket. Do you think it's an accident that those expensive textbooks keep changing every two or three years and never seem to be published in cheaper paperback versions? Please remember that many successful professionals and business executives didn't attend the super expensive elite schools nor did they finish with 4.0 GPAs. What your daughter puts into her education will count for much more in the long run,where ever she matriculates, than the reputation of her professors.

  • Report this Comment On November 24, 2008, at 10:35 AM, 95cooks wrote:

    I learned something from David Gardner that is invaluable. In 1993 a strange woman hired me for Louis Rukeyser to be David's boss. David was one of the nicest guys you could meet, and he knew way more about this stuff than me. David quit after a month. The strange woman that hired me belittled him saying he had a trust fund and that he didn't need to work. But when David was leaving he showed me a hastily put together newsletter he and his brother created called the Motley Fool. It was funny. David really loved this investing stuff, and he told me he wanted to start a newsletter. Look at him now. David taught me to take risks and follow what you love to do.

    As for this market, I've learned something that will save all of you money and doesn't require a genius-level IQ. In 2000, I -- like everyone else -- watched my investments rise to unparalleled levels with the Internet bubble. But it was unrealistic, and I knew it. We all knew it. I mean when analysts started touting stocks they claimed would rise 200% based on shaky revenue streams, not even earnings? But I ignored what I knew, and when the bubble burst I lost 30% of my portfolio. After that experience I swore I would never again ignore the ominous signs of a bubble in the market. I work at an investment firm that was one of the creators of this current mess -- and the bubble this time was all about CDSs, CDOs, CLOs, CDO squareds, SIVs and any other stupid acronym designed to fool you into thinking you were buying something of value. So, I sold everything back in May, after I made positive returns for the year (I invested in REITs, which got a bounce after being destroyed in 2007). I saved myself so much money, and now I'm poised to get back in. Remember: THIS IS NOT MARKET-TIMING; THIS IS RECOGNIZING BUBBLES AND THEY ARE OBVIOUS. GET OUT WHEN YOU SEE THEM.

  • Report this Comment On November 28, 2008, at 6:44 AM, Glider777 wrote:

    I learned not to fall asleep; I learned it's OKAY TO SELL when the economy is going south. I should have seen this coming when:

    -The Fed raised the Fed funds rate from 1% to 5%.

    -Housing starts and sales peaked

    -Commodity prices peaked.

    I learned I'll have to rotate assets myself since fund managers apparently do not.

    I don't know anything about credit default swaps, mortgage backed securities and I don't have an MBA, but I didn't have to if I had been keeping an eye on leading indicators and remembered what I learned years ago about economic cycles and bubbles.

    Looking forward, my present plan is to buy gradually over the next six months, looking for a bottom in housing and a top in corporate bond yields as positive signs

  • Report this Comment On January 02, 2009, at 12:38 PM, emillls wrote:

    I learned several things from 08. First you can never rule out any possible outcome no matter how absurd it might seem at the time. Did anyone really think that so many major financial institutions would fail and others would have to be saved by the govt? I doubt it. Also, always have an exit stategy and stick to it, I knew this but because I didn't believe in armagedon I didn't stick to it like I should have. I am still solvent (although quite a bit poorer) and a lot wiser so I suppose it wasn't all for nothing.

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