how's this for a strategy (IRA, brokers, cash, fees)
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say i buy GM, through one of them online discount broker, i think it's $7 or 10 a trade, and place a limit order to sell(5% up), does that beat putting money into a CD earning only 3.5% a year?
say i buy GM, through one of them online discount broker, i think it's $7 or 10 a trade, and place a limit order to sell(5% up), does that beat putting money into a CD earning only 3.5% a year?
Of course it does...IF your limit order gets hit. Problem is, the stock might go the other direction, in which case the CD would have been better.
say i buy GM, through one of them online discount broker, i think it's $7 or 10 a trade, and place a limit order to sell(5% up), does that beat putting money into a CD earning only 3.5% a year?
You have the right idea as far as CD earning a very low return. However, if I may, your approach to profiting from stock is not optimal.
well, what are the chances GM's price would fluctuate above 5% IN A YEAR, i say it's pretty good, and you are right, it certainly isn't the optimal way, but the main thrust of my post is to ask the question, by choosing a relatively safe stock, even absent any major events, just by shear market movement you are likely to get a better return than a typical CD
Interesting point, but I think you might need to make more than a 5% price improvement to cover the fees associated with the trades and the short term capital gain tax.
Why not look at fat dividend companies..I recently jumped on CQP.
well, what are the chances GM's price would fluctuate above 5% IN A YEAR, i say it's pretty good, and you are right, it certainly isn't the optimal way, but the main thrust of my post is to ask the question, by choosing a relatively safe stock, even absent any major events, just by shear market movement you are likely to get a better return than a typical CD
If you had bought GM the first week in March 2008 expecting the above, here's what happened.
well, what are the chances GM's price would fluctuate above 5% IN A YEAR, i say it's pretty good, and you are right, it certainly isn't the optimal way, but the main thrust of my post is to ask the question, by choosing a relatively safe stock, even absent any major events, just by shear market movement you are likely to get a better return than a typical CD
I wouldn't call GM 'a relatively safe stock' right now, the thing has dropped from mid-30s last year to sub-10 now and may go belly-up before long. I thought I had a 'safe bank stock' when I bought HBAN about this time last year, only to see it fall over 50% and even after rebounding is still down about 50% from where I bought it. I think it's oversold and will at some point come back, but there really is no such thing as a 'safe stock.' All investing involves some risk, that said, I would invest in stock any day over a certificate of depression, I missed on HBAN, but I've also had a couple winners that would take a couple lifetimes worth of CD interest to come even close to what I've made in a couple of years. Learn to understand financial statements, balance sheets, cash flows, EPS & future EPS and you can do well investing. Sounds basic, but if you look at GM's, there financials have been spiraling out of control downward for 3 or 4 years now.
It's really an orange/apple thing. CD might offer a low return, but the money is safe and the return is guaranteed. There are people who don't want the stress and uncertainty of investing in stocks. CD will give them a good place to park their money and a peace of mind. Stocks are riskier and the truth is it's hard to make money in the market. In the movie "Wall Street" Gordon Gecko told Buddy Fox that the stock market is a zero sum game , meaning when one person makes a dollar someone else loses a dollar. It's actually worse. It's a minus sum game because both winner and loser pay the brokers. the Loser loses more and the winner wins less while the brokers are laughing all the way to bank. However, with experience, knowledge and a sound plan, it's possible to beat the return on CD.
good point about GM being down from only a few months back, but i'm talking in the context of $10 GM, hence i refered it as a "relatively safe" stock, i think there's a pretty good chance it'll drift above even $11, also about commission, all it takes in my hypothetical case is $20, so as long as we are looking at a base investment amount north of $5000, it souldn't be an issue
I think you're in for some economic pain with that investing strategy. You might get lucky with GM but that would be the worst thing that could happen to you because it would embolden you and in the long run this is a failed investment strategy in a bear market. It can "work" in a bull market although it will still underperform.
It's tempting and natural to look at a stock that was $30 and is now $10 and to say "it can't go any lower" or "it's so cheap, there's so much upside". There's a phrase "catch a falling knife" that applies to these stocks. Pullbacks from runups are normal but more than 10% or 15% (where most advise placing stops) signal extended declines. Yes, GM can go below $10. It can go to $5 which is 50% of current value (using $10 for simplicity, current price is actually $10.70) which is equivalent of dropping from $30 to $15.
GM is losing money by the boat load and is struggling to preserve cash. They have cut off dividends. Their market share and revenues continue to decline. Do you see a way out? Do you still a clear path to profitability? Don't say "they're too big to go under, the govt. won't let them fail". A bailout won't cover common stock, check out the bailout of Fannie Mae and Freddie Mac just announced (common shares are to be wiped out).
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